Making it rain in Miami’s Design DistrictFrancisco Alvarado
Domestic capital’s flight into Miami fuels demand for luxury goods in the fashion-oriented neighborhood.
Bernard Arnault briefly dethroned Amazon’s Jeff Bezos as the richest man in the world last month. The ascent of LVMH Moët Hennessy Louis Vuitton’s chairman and CEO was propelled by mind-blowing company revenue of $34 billion for the first half of the year, allowing Arnault to climb atop the ranking of the wealthiest billionaires for the third time since 2019 before settling back into third place behind Bezos and Elon Musk.
LVMH’s strong performance — while the world is still in the throes of the pandemic — serves as affirmation that luxury retail shopping is on an upswing, especially for the company’s established brands such as Louis Vuitton, Christian Dior and Fendi — and particularly in Miami.
The Miami Design District is a hotbed of escalating consumer demand for high-end fashion goods. There, the LVMH-backed private equity firm L Catterton and its partners, real estate investment firms Dacra and Brookfield Property Partners, own a significant portfolio of properties that lease storefronts to LVMH brands and other luxury retailers.
When Florida lifted most of its restrictions to curb the spread of Covid last summer, the Design District quickly rebounded. That performance has accelerated Arnault’s and LVMH’s gamble that a neighborhood once known for furniture and interior design showrooms could morph into one of the globe’s top high-end retail streets, according to commercial brokers and the neighborhood’s chief developer, Miami-based Dacra President and CEO Craig Robins.
Robins said he couldn’t comment on specific tenants, but that the Design District’s luxury retailers in general have experienced exponential foot traffic and sales growth over the past 12 months. Some tenants are planning to enlarge their footprint in the district, Robins added.
“A very significant number of our large, successful luxury tenants, and several of our contemporary tenants, have reached out and committed to significant expansions or are negotiating them,” he said. “Even though they already have large global flagships here, they want the ability to have a larger display of their complete offerings.”
Influx of high rollers
The Design District benefited from the influx of wealthy people escaping lockdowns in such states as New York and California, as well as entrepreneurs, executives and workers from across the country who are taking advantage of remote employment, Robins said.
“People in Miami didn’t travel, so they focused their spending here. And then we had an incredible season of people permanently moving to Miami,” he said. “Having a beautiful, spectacular open-air environment lent itself to a perfect solution. By the end of 2020, our traffic and sales were up, and that’s continued through this summer.”
Tony Arellano, co-founder and principal of DWNTWN Realty Advisors, which represents other landlords and developers in the Design District, said the daily lines of customers outside Louis Vuitton, Christian Dior, Fendi and Celine are evidence that those LVMH stores had a meaningful impact on the French conglomerate’s strong performance during the first six months of the year.
“It’s not only in sales revenue,” Arellano said. “The real estate value of the Design District became minted. It is a multibillion-dollar neighborhood at this point. LVMH definitely made revenue from the stores, but its real estate shot to the moon.”
Arellano said asking rents reflect the strong performance of stores in the Design District. “Asking rents for prime locations range from $200 a square foot, triple net, to more than $400 a square foot,” Arellano said. “Those rates could easily double as the neighborhood continues to season and there is less inventory.”
L Catterton, Dacra and Brookfield’s holdings
The L Catterton, Dacra and Brookfield partnership owns close to half a million square feet , consisting of 15 buildings known as Oak Plaza, in the Design District. Debt service and reserve payments that were due in May, June and July on a 10-year, $500 million loan from Bank of America were deferred to allow the landlords to provide Covid-related concessions to Oak Plaza tenants, according to a March 10 report by DBRS Morningstar.
“Oak Plaza is well positioned to return to its strong pre-pandemic performance, given the high-quality, luxury nature of the retail tenancy and targeted clientele, coupled with experienced long-term institutional sponsorship,” the report states. “As of year-end 2019, the property generated over $231 million in total sales, representing over $1,000 per square foot for tenants that report sales.”
Still, Oak Plaza felt the sting of the pandemic, according to DBRS. Since March 2020, eight non-LVMH tenants moved out, increasing the overall vacancy rate to 11.5 percent. And the landlords provided $9.6 million in rent abatements and concessions, the report states. The deferments are scheduled to end later this year and must be repaid by the end of 2023.
“The property is likely to continue to experience stress in the short and medium term until the pandemic fully abates, the economy recovers and international travel resumes,” the report states. “While DBRS Morningstar does not view these issues as an imminent threat to the property’s survival given the luxury nature of its tenancy, the long-term headwinds in the retail sector are likely to persist even after the coronavirus pandemic abates.”
Spokespersons for L Catterton and LVMH did not respond to requests for comment.
Keeping shoppers in Miami
Greg Masin, a senior director in Cushman & Wakefield’s Miami office, said that the Design District has bounced back considerably since the DBRS report came out thanks to more high rollers and big-money spenders who have relocated to South Florida. “The LVMH core customer is present for a greater degree of time in Miami,” Masin said. “The person that came down two, three times a year is now down here for 180 days.”
Arnault and LVMH should be pleased with the Miami Design District’s performance, Masin added. “I would be very surprised if they weren’t happy with the performance of most of their brands,” he said. “In some cases, they are exceeding expectations.”
Dacra’s Robins said he is conservatively optimistic that the Design District’s momentum will continue, even if people who relocated to South Florida return to their home states when the pandemic completely subsides.
“With the amount of new leasing that is taking place and the new businesses that have opened, those are indicators that this growth is long term,” he said. “I’m focused on [enhancing] an appealing environment and [do] not assume that how well we’re doing the past six months will automatically continue.”ORIGINAL SOURCE