Miami Tower in Gloria Estefan Video Sells in Bet on a Revival
CP Group pays $163.5 million for iconic skyscraper, part of its strategy to spiff up aging office buildings and make them profitable again.
The Miami high-rise where Gloria Estefan danced on the roof for her “Turn the Beat Around” music video. Denver’s Granite Tower. The tallest building in Atlanta and the Georgia city’s CNN Center.
Those late-20th century urban office skyscrapers are now owned by CP Group, which has amassed a $4 billion portfolio on a contrarian bet that there’s money to be made buying tarnished trophy real estate even in an era of remote work, inflation, and a potential recession. Since early 2020, when the pandemic emptied offices, the firm has acquired about $2.25 billion of properties in Florida, Georgia, North Carolina, Texas, and Colorado.
“I believe that our team is the most active in the country,” said Brett Reese, who oversees acquisitions and investments at the Boca Raton, Florida-based landlord. “We’re seeing unbelievable deals out there. And we’re capitalizing on them.”
CP’s latest purchase is Miami Tower, a 47-floor I.M. Pei-designed landmark from the “Miami Vice” and MTV era that’s about 30% vacant. The price was $163.5 million, according to a person with knowledge of the deal. The building, where Estefan shot her video, last sold in 2016 for $220 million, Miami-Dade County property records show.
US office values were 6% below their pre-Covid-19 levels through May, a period when overall commercial real estate prices increased 13.2%, according to Green Street. In another sign of market weakness, office transactions nationwide fell to $5.1 billion in May, down 34% from a year earlier and 56% below the five-year pre-pandemic average for the month, MSCI Real Assets reported.
Over the long-term, office values may tumble as much as 28% — a $500 billion decline — on shrinking demand and the need for capital improvements to meet tenant expectations, according to a recent report by researchers at Columbia and New York universities. Hardest hit will be aging cubicle-farm buildings.
Other investors and developers are also shopping for opportunities to buy low and renovate or repurpose aging offices. Houston-based Hines announced this month its first-ever office-to-residential conversion with the acquisition of the South Temple Tower in Salt Lake City. The firm is also leading a $2.5 billion redevelopment of the former Pacific Gas & Electric Co. headquarters in San Francisco, adding new workspace and apartments to the historic building.
Buyers of buildings more than 20 years old need to spend lavishly on outdoor space, entertainment, eateries and other amenities to attract employees back to their desks, according to Ryan Clutter, a senior managing director at commercial real estate brokerage Jones Lang LaSalle Inc.
“To make something competitive in today’s environment is going to take a lot of capital,” he said. “Many owners aren’t able to do that.”
Refresh and Resell
CP’s strategy is to find well-located properties, refresh them — with updated lobbies, restaurants and outdoor spaces — and resell them at a profit within five years. Since the first quarter of 2020, the firm has sold or recapitalized eight properties for about $875 million.
One example is the sale last year of a majority stake in the Boca Raton Innovation Campus at a $320 million valuation, up from the $170 million CP paid in 2018. CP transformed the property, where International Business Machines Corp. developed its first personal computer, into a tech and life-sciences hub, boosting occupancy to 90% from 66% over three years.
“We take this stale trophy, restore its luster and you get an attractive and exciting place for people to go to work,” Reese said. “Ultimately, that is what is going to drive success here.”
The company is fielding more requests from potential sellers because few other buyers have the wherewithal or stomach to complete a transaction as the cost of financing jumps. CP currently owns more than 17 million square feet (1.6 million square meters) of offices, including the Miami Tower. It’s in contract talks for an additional 1 million square feet of offices.
“We’re one of the very few that is able to close on close on deals today,” Reese said.
The firm has paired with deep-pocketed partners on recent deals, including Rialto Capital Management, Farallon Capital Partners, Related Cos. and DRA Advisors, according to property records. Investors like those expect double-digit annualized returns, according to Reese.
CP focuses on buying in central business districts of growing metro areas. It paid $203.4 million in September for Denver’s Granite Tower, a 31-story downtown property built in 1983 that was 77% occupied at the time of the transaction. In February, the firm bought Atlanta’s tallest building — the 55-story Bank of America Plaza, constructed in 1992 — for $380 million. Last year, it paid $144.8 million for Atlanta’s One CNN Center.
The company is now the biggest office landlord in Miami, Reese said, a market that’s been buoyed by an influx of finance industry tenants, earning the nickname “Wall Street South.”
Miami Tower has stood as an illuminated nighttime landmark since 1987. It has a Metromover station, making it attractive for tenants whose workers use public transit. CP’s strategy with the downtown building is to offer a lower-priced alternative to the nearby Brickell Avenue area, where financial firms are driving up rents.
“They’re doing a deal over there at $120 a square foot,” Reese said. “In downtown today, we’re closer to $50.”
If a recession hits and the office market slows further, now is a good time to renovate buildings with the goal of bringing them back online when a recovery is underway, according to Reese.
“It sets up a massive opportunity,” he said.