It's a challenge picking a project — or even three — to best illustrate the impact Miami-based developer David Martin has had on the local market, as his firm, Terra, has kept its pipeline extremely active with standout buildings in a wide range of asset classes, market strata and just about every hot neighborhood — and even some not-so-trendy ones.
Since Martin and his father, attorney Pedro Martin, founded Terra in 2001, the firm reports it has completed $10 billion worth of developments in South Florida, where it has maintained its focus. Despite economic headwinds that have slowed down real estate and the broader economy since last year, the company shows few signs of slowing down.
Martin started out with a focus on that common South Florida type, the condo tower, but his prominence has increased, and his projects have become known for emphasizing innovation, design and community impact.
Notably, a deal fell through earlier this year in which Martin was set to pay Malaysian gaming giant Genting $1.2 billion for 15.5 acres of waterfront property in downtown Miami, but he has not ruled out remaining in the bidding and is also reported to be pursuing a $500 million buyout of the oceanfront Castle Beach condominium in Miami Beach, Florida.
Martin has also stood out for being proactive in addressing climate change and environmental issues, writing articles on the subject, serving on the county mayor's task force on the health of Biscayne Bay, and donating $100,000 this year through his family's foundation to the Miami Herald and el Nuevo Herald to help support the newspapers' coverage of climate change and resiliency.
In a wide-ranging interview with Law360 Real Estate Authority, Martin discussed his development strategy, his outlook on the current market, and the importance and benefits of considering community impact, among other topics.
This interview has been edited for length and clarity.
Terra's projects span different neighborhoods across the Miami area, different real estate sectors, different target audiences. Could you talk about what you have in your pipeline and what you see as your strategy — how you go about deciding which projects pursue?
There's a lot of pride in the city. Strategically, we try to develop theses, and one big decision for our firm was we were going to stay in South Florida and kind of invest in every asset class.
And it's turned out well because what I've found was that we really learned a lot about the people in the community that are driving the economic activity and social activity. And so we were able to really understand the trends, the underinvestment in infrastructure into neighborhoods, the voids and gaps that exist in certain markets, and the ability to access new opportunities.
I believe that there is a community resilient strategy at the neighborhood scale or at a district scale. Whether we're developing projects that are trying to attract a wealthy customer that we believe is important for helping a specific market have GDP growth, or trying to spur economic activity in a neighborhood like [Miami's historically Black] Overtown in a responsible, respectful manner, we really develop strategies and theses in every neighborhood.
And then we try to invest in these neighborhoods as much as we can to be able to have some footprint where you're able to benefit from those strategies and continue investing.
So for us, there are many projects, there are many neighborhoods that I could be talking about, but I'll just select a few examples of what I view as community resilience.
One of the projects we're completing next year, Five Park, is close to a $1 billion project from a value perspective. So the incremental tax revenue from that project to the city of Miami Beach and the county and the school board is significant on an annualized basis for the life of that asset.
And on top of that, we're building two important public infrastructure elements. We're connecting the neighboring Baywalk with a bridge that was designed by Daniel Buren, an amazing artist who collaborated with us and our design team and engineers to come up with an amazing pedestrian bridge that is going to provide access for bikes and pedestrians.
And then we built a park that served two purposes: One is basically cleaning the water for the entire South Beach basin prior to it being pumped into Biscayne Bay, and we also created a beautiful park on around three acres that used to be a surface parking lot that really wasn't contributing to the neighborhood.
We've done a lot of work on the park side. I remember in Coconut Grove, all our impact fees for our Park Grove condominium project went to pay for [the city of Miami's] Regatta Park.
Coconut Grove was a big neighborhood for us, where we had a huge amount of projects. Our Grove Central project, which is going to be completed hopefully in the next month or so, is a transit-oriented development.
It has a piece of creating tax revenue for the Strategic Miami Area Rapid Transit Program corridor so that the contracted revenue and participation rent, as well as the incremental real estate tax revenue from that project, is now going to be, hopefully, providing part of the funding for the county's transportation infrastructure.
When we look at community resilience, we're really looking at an asset management strategy. We have various assets in different neighborhoods, and then we develop an asset strategy around that that a lot of times is trying to promote improvements to traffic infrastructure or kind of social organizations.
For instance, we are doing a project called Upland Park next to Dolphin Mall. There's a Dolphin ride and share station, and we're building one of these villages within a suburban context, but it has an amazing infrastructure. It has around 50 acres, and it's got amazing connections with the Florida Turnpike and State Road 836. There's an opportunity for there to be an east-west connection for rail. There will be a bus rapid transit lane on 836.
But the bottom line, for me, is we want to create environments that are going to improve the community. And we want to bring in amazing experts and engineers and thinkers to come and help our cities and counties plan.
A lot of the products that we create are things that I think — whether it's good design and good architecture or good neighborhood infrastructure — we're always trying to see what is going to be unique, to try to be a community builder and also an innovator at the same time.
Because at the end of the day, the better we make our neighborhoods and our community in our cities that we're developing, the more people want to live here, the more businesses want to come here, the more benefits we're going to have.
So for me, it's really an honor to be doing what I'm doing, and it's extremely exciting.
What are your thoughts on the real estate market right now? What do you see as the biggest challenges, and how have you been able to keep moving forward?
In the investment space, people were always looking at a certain spread on capitalization rate, and there were a lot of people buying existing properties and repositioning and expecting a certain cap rate on the other side. I think those types of investments today are more difficult.
On the development side, I think we've always been selective. Our developments typically require a higher margin, and because of that margin, two things have occurred. One is the rents have grown. We have multifamily rentals that were renting monthly at $1,900 a unit that now are at $2,500, $2,600 a unit. So you have a growth and revenue that is helping to withstand the interest rate shock.
A lot of our portfolio had fixed-rate debt that was financed prior to the increase over the last year, but still our developments are always based on a variable rate. So we definitely have had to put up more equity in our deals to deal with higher interest rates in our developments. But those projects have a great margin, right?
If you were to tell me, 'David, find me another site in Coconut Grove to build a new residential building,' I would run to try to do that, right? Or in Miami Beach or a garden community where we're doing Dolphin.
I think today, within our thesis, we believe workforce and lower market rate-type, multifamily, garden-style housing is an asset class that we have a lot of. It's something that we believe in just because land is so scarce in South Florida, but we've been thinking of a lot of creative ways — whether it's office parks or public-private partnerships or some other ways — of how to grow that inventory and have the pipeline we have.
I think the requirements and characteristics of what will get financed and what will get built, the supply of new developments, is going to reduce. It's just we believe in our strategy, if you will.
And we've got to continue to say the migration to Florida has not stopped. So on a long-term basis, as we see the aging population and Florida's positioning within the U.S. as it relates to how welcoming and how loved it is as the place to move, I think we're well positioned from a short-term basis to be resilient. But then in a long-term basis, I think there's really no better market to be in and to be focused on.
A number of your projects stand out from either an innovation standpoint — such as the focus on health at The Well in Bay Harbor Islands or the transit-oriented Grove Central and Upland Park — or they feature elevated design from world-renowned architects. Would you say those elements of innovation and design are helping to set your projects apart and stay above current economic challenges?
I think that's a factor. You know, there are a lot of factors that go into why something can perform better than something else and why one organization can perform better than others.
But I definitely think that the decisions you make in the beginning with any of these assets — even from the time when you're deciding on investing and where you're building, and why — those decisions are forming the basis and impacting the probabilities and data of whether you're going to do well or not.
And the fact that what we learn in retail, we can apply in residential. The fact that I can apply things we're doing on the customer service side on my high-end stuff, and I can apply that to my workforce stuff, it really helps our teams make smarter decisions.
You have to buy the opportunities right, and you have to design the product people want. We don't look at the developments as commodities, and I think a lot of times in real estate, the commoditization of it sometimes can get people into a trap scenario. Those are types of things that we try to avoid.
Let me ask you about the Genting Omni City site in Downtown Miami. In June, you pulled out of an agreement to purchase this land for $1.2 billion. What can you tell us about the significance of that property, and what interested you? Does the deal not going through say anything about any difficulties facing the South Florida market?
Nah, I don't think so. I think the property is an amazing property. It's really something very special. We had some very amazing plans set up for it. We asked for additional time, and the seller didn't grant it, so we terminated the deal. That was basically it.
We had a game plan on the development side and on the financing side that was executable, and the seller didn't want to give the additional time. It is a public company that has a lot of regulations around it, and so it's not as flexible as maybe you and me buying or selling something.
But I think it's an amazing opportunity. I don't think it has anything to do with the market. You know, the moment I terminated that deal, I closed on a $40 million piece next to the Design District.
There's still economic activity. I think it has more to do with the complexity and the size of the deal, less so than anything that's indicative of the deal. If they would sell me half of it or a quarter of it right now, I'd close tomorrow with my eyes closed. But we did have a plan to do it, and we hope that we may be one of the people that are able to develop it in the future.
You've had a big focus on climate change, resiliency and sustainability. That is really an existential concern for Miami and this area. What role do you see developers playing in addressing these issues?
Every neighborhood is different. Every neighborhood has a different geology. Every neighborhood has a different built environment. For instance, what percentage of tree canopies is in this neighborhood versus that? How can Coconut Grove be at 30% and Overtown be at 5%? Well, that needs to change.
So, within our developments, we have the opportunity when we create new revenues to be able to see how can we trap those new revenues to be earmarked to improve that infrastructure, at least a portion of it.
It's kind of a sensitive subject sometimes. The counties and cities kind of have a different understanding of the priorities of resource allocation. From my perspective, we could develop planning and ideas and implementation of new infrastructure enhancements and tee them up for the public sector to say, 'Hey, we need to do this in this neighborhood. This is amazing.'
So one of the ways I think our industry can contribute is to invest in bringing in great experts to come up with design solutions that work. And then the second thing is the new creation of revenues, and that spur of economic activity and that spur of job creation. I think that helps from a community resilience perspective.
And third, I think our industry needs to build in a way that reduces carbon footprints. And there are two ways about that. One is transit-oriented development. And number two is, what are the materials and design solutions that we're creating in our buildings in order to reduce energy consumption and reduce environmental air quality issues?
There have been reports that you're looking at some buyouts of older condo buildings for redevelopment, a trend that has picked up in the wake of changes in the state condo law following the Surfside building collapse in 2021. Can you talk about what you see in that segment and what you're involved in?
Overall, just about every asset has a life, every building has a life. And sometimes there's an economic case for those buildings that are going to stay there forever, and some economic cases mean there's an economic and financial reason why those owners would want to sell.
I think it's kind of just a natural economic progression, and I think more and more unit owners are focusing on and analyzing those decisions. And I think a lot of real estate advisers are also advising a lot of these boards of directors of these condominium associations on what the smart decisions are in order to do the right research, in order to be able to make the right decision whether to sell or keep.
Typically, when these older buildings are bought out and redeveloped, especially in prime locations, what is built is a much higher-end product, so you have some displacement of residents and loss of properties that have become somewhat more affordable for some people. What are your thoughts on the changing landscape in terms of the community?
I think most of the condo terminations you see are typically more investor-owned buildings that are buying to rent — they're not the buildings where you have primary owners. So I think that kind of changes the logic there.
And I think that overall, the increase in taxable value — like when I bought the Grand Bay Hotel, I think the assessed value was $25 million; now, the Grove at Grand Bay residential buildings are worth $300 million or $400 million — so the community and the neighborhood get all these new resources from tax revenues on an annual basis. That's significant cash flow, and that helps for quality of life, increasing policing and everything else to make the neighborhood better.
To close, Terra has been in business for about 20 years. You talked about developing theses. What do you feel are some of the most important lessons you've learned during the evolution of your company and the time you've been doing this work?
Two things. I think the research is probably one of the biggest things for us. We research what the consumer wants — not what we think they want — and we do real research on what the community's perceptions are.
Not just listening to two or three of your neighbors say, 'Hey, great job.' No, really go out and go to the toughest critics in the community to understand what their perspectives are in order to be able to harness a business strategy that's going to be a win-win for both.
So one is from a product definition side, doing research on my consumer, and then from a community engagement side, really doing a lot more research with the neighborhood and embracing the activism. I think that's something that's pretty cool.