Deal Overview
In the heart of Brickell, our team took on a challenging assignment that would ultimately transform from a simple leasing opportunity into a major real estate sale. We were initially hired by a landlord who controlled the remaining 24 years on a ground lease for a retail location that had been sitting vacant for over a year. Shortly after engaging us, the landlord expanded our scope to include releasing the adjacent office building as well. What began as a straightforward leasing assignment would evolve into something much more beneficial for our client.
Initial Challenge
The retail property presented numerous obstacles from the start. The most glaring issue was the complete absence of parking for the building, making it immediately less attractive to potential tenants. Adding to this difficulty, the property was positioned just slightly outside Brickell’s main shopping district, reducing natural foot traffic. Perhaps most challenging of all, high-rise development was underway on the adjacent property, which would create significant disruptions for any business tenant for the next 2-3 years, exacerbating the already problematic traffic and parking situation.
The complexity deepened because of the property’s unique structure. Since this was a ground lease, the actual land had been recently sold to the development group working next door, who naturally wanted to control the buildings as well. However, our landlord client had previously experienced litigation issues with this development group and was initially only interested in leasing the buildings, not selling his interest in them but if he did we were exempted from earning a commission since they already knew each other.
Strategy & Solutions
We implemented a multifaceted approach to overcome these challenges. Our strategy centered on active outreach to potential tenants combined with comprehensive online marketing. We also installed a prominent sign on the property, which generated numerous inquiries, though many were not serious prospects. Such as the alligator farmer, that wanted to open a Miami nightclub. Throughout this process, Tony Arellano and I worked diligently to find suitable tenants despite the property’s limitations and the complications from neighboring construction.
Results & Impact
After a full year of showings and numerous letters of intent, we finally secured a national tenant willing to take the retail space at a discounted rate. This tenant was prepared to occupy the building during the construction period next door, with the understanding that the landlord could later release at true market rates once construction finished and the lease expired. For the office building, we identified an excellent family office as a potential tenant, though negotiations on terms were progressing slowly towards the finish line.
The situation took a dramatic turn just before both leases were to be signed. We discovered that our landlord had approached again by the developer with a very good offer but couldn’t reach an agreement on price and timing. Upon learning this, Tony intervened strategically, making it clear to the developer that we had legitimate tenants ready to occupy the properties for 5+ years. This would effectively take the property off the market for the foreseeable future unless the developer was willing to pay our client’s asking price and close extremely quickly.
This leverage changed everything. The developer agreed to dissolve the ground lease for a sum greater than what the potential leases would have generated, Additionally, our client was granted an extra piece of property that promised tremendous upside potential in 23 years when its ground lease expired. What had started as a difficult leasing assignment transformed into a highly profitable sale that exceeded our client’s expectations.
Lessons Learned & Next Steps
This experience reinforced the importance of understanding a property’s full potential beyond its initial positioning. While we were hired for leasing, recognizing the developer’s interest in consolidating control of the area created an unexpected opportunity. Building a strong case through legitimate tenant interest provided the leverage needed to secure optimal terms for our client.
For future similar situations, we’ll be sure to explore all potential exit strategies from the beginning, including sales options even when leasing appears to be the primary goal. This approach ensures we’re considering all avenues that might maximize client returns.
Summary
- Deal Type: Ground lease converted to outright sale
- Date: Fall 2024
- Location: Brickell, Miami
- Main Challenges: No parking, construction disruption next door, complicated ground lease situation
- Solution: Created tenant interest that provided leverage for a highly favorable sale to the adjacent developer
