Miami-Dade mayor pushes to pay $133 million over market value for old office buildings

Mayor Daniella Levine Cava wants Miami-Dade County to spend $205 million on a 1970s office complex that two appraisals said is currently worth about half of that.

The deal for a new West Dade Government Center is set for a final vote Tuesday without committee review or the detailed look at long-term costs the administration had planned to give county commissioners this week. The county would borrow money to purchase a former Florida Power & Light operations center at 9250 West Flagler Street, which was built in 1974 and currently has only about a quarter of its office space rented.

That low vacancy rate has some real estate watchers questioning why Miami-Dade would pay so much above market value in an office sector battered by work-from-home trends. Two appraisers hired by the county said the current market value for the former FP&L Center is between $104 million and $116 million, for an average of $110 million.

“It’s not exactly a home run for taxpayers,” said Hugo Cardona, a commercial real estate agent in the Miami area. “The market is in their favor, and they’re over-paying.”

Also Tuesday, commissioners are set for a final vote on another similar deal. Miami-Dade would spend $160 million to purchase the American Bankers Life Assurance Co. complex at 11222 Quail Roost Drive. Two appraisal firms hired by Miami-Dade pegged the value of the buildings at between $121 million and $125 million, for an average market value of $122.3 million.

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Known as the Assurant Center, the mostly 1980s-era office complex on the 79-acre site would allow Miami-Dade to shift most of its operations from the existing South Dade Government Center that went up in 1970 two miles away on Southwest 211th Street. The proposed price is about 31% above the market value estimates.

Two-thirds commission vote required for approval

Because both prices are above market values determined by the required appraisals, state rules mandate a two-thirds vote of the 13-member commission to approve the deals. With the combined purchase prices totaling $365 million, the properties would sell for about $133 million above the estimated market values.

The legislation authorizing the sales didn’t go to through the standard committee review, making Tuesday’s meeting the first time the board and public can discuss the proposals.

Miami-Dade would borrow the money for the $365 million outlay for the properties, but the legislation approving the contracts does not include the expected interest expense. The Levine Cava memos outlining the deals stated that information would be presented at the same as the contracts, but now the administration expects the financing approvals to come in January.

The 2024 budget, approved in September, appears to account for only a portion of the planned acquisitions. The capital budget contains $85 million over multiple years for a new county permitting center, which is the anchor of the planned West Dade complex.

While the final details aren’t available, Dawn Soper, head of real estate development for Miami-Dade, said staff expects the combined debt service payments to be $24 million to $31 million a year. The final figure will depend on interest rates and whether the county spends the full $91 million budgeted for upgrades to the two complexes.

The county would transform the former FPL complex into a hub of government services in western Miami-Dade, including a new consolidated home for agencies that process permits needed for new construction.

“It would be a one-stop shop,” said Alex Muñoz, director of Internal Services, the county department that manages real estate for Miami-Dade. “It brings permitting together for the first time.”

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The mayor makes her case for the purchases

In a memo to commissioners, Levine Cava said the $205 million price for the FPL building was justified by savings from being able to cancel existing leases for some agencies in private-sector buildings. She also said Miami-Dade would have to spend more than $320 million constructing a complex of similar size, including the costs of the land. She said the West Dade property, like the one in South Dade, has revenue potential that can be unlocked through real estate deals for residential apartments and other projects on undeveloped areas of the parcels.

The administration also claims the appraised market value of the FPL office complex is not the best comparison for the sales price. Instead, the county asked the appraisers to calculate a “hypothetical market value” for the building if it was occupied by a single tenant like Miami-Dade instead of its current high-vacancy status.

Using that premise, the two appraisers came up with an average value of $191 million, just 7% below the administration’s negotiated price for the FPL center.

That calculation of a higher value came with caveats from the appraisers that the numbers did not reflect the current market value of the six-story, 625,000-square-foot building as it exists today — and that the hypothetical value was an add-on created for Miami-Dade.

“The purpose of the appraisal is to develop an opinion of the market value as is,” read a June 21 letter from James Andres and Paul Turner of Integra Realty Resources, a Miami appraiser. “As requested,the hypothetical market value as is of the leased fee interest assuming the property is 100% occupied by a single credit tenant or owner user is also estimated.”

Joseph Hatzell, a partner at the Joseph J. Blake and Associates appraisal firm, wrote in an Oct. 30 letter to the county that the hypothetical value rested on creating a financial model based on the FPL site being “stabilized” — the industry term for a commercial property that’s fully leased or close to fully leased.

Hatzell emphasized that’s not reality for the property Miami-Dade wants to buy. “This appraisal includes a valuation ‘as if stabilized,’ ” he wrote. “The subject is not stabilized.”

FPL built the office complex in the 1970s and owned the complex until selling it in 2011. In 2014, the current owner, Hoffman Flagler LLC, paid $58 million for the complex.

Hoffman Flagler is controlled by Bushburg Properties, a real estate investor out of New York. The company has been trying to reposition what its own website calls an “outdated vestige of the office park era.” Now dubbed “The Current,” Bushburg touts the rooftop helipad and resilient power systems left by FPL as making the building unique.

The resiliency against hurricanes comes with a bunker appearance that has helped make it a tough sell for office tenants who want a more modern workspace close to restaurants, said Stephen Rutchik, an office broker with Colliers in Miami.

“What we’re finding today is tenants are seeking an office environment that attracts the workers back to the office,” Rutchik said. “The building is functionally obsolete for what tenants are looking for — which is ample natural light and walkability.”

Soper, the real estate manager for Miami-Dade, says the deal makes sense given the rarity of finding an entire building available for purchase and because it will allow the county to save on future rent payments while consolidating services in a way that will be more convenient to residents.

“We’ve been trying to lease property for our services for years, and hitting a wall,” Soper said. “It’s a rare opportunity.”

Natalia Jaramillo, deputy communications director in the mayor’s office, said the administration considered a Doral office complex off Northwest 91st Avenue before settling on the FPL center for the West Dade operations. The Doral site, at 3511 NW 91st Ave., is a former headquarters for the Miami Herald. Jaramillo said the location was deemed too remote for not being on a major thoroughfare and, with fewer than 160,000 square feet, too small to hold all the agencies planned for the West Dade center.

Purchased in 2014 for $58 million

Shifting the privately owned real estate to government ownership will also mean less tax revenue for local governments. Both properties sit outside city limits and pay county taxes for municipal services, as well the school system’s property taxes. Combined, the tax bills are about $1.5 million a year.

The proposed purchases follow county plans to turn over to developers the South Dade center and government buildings around the Stephen P. Clark Government Center. Miami-Dade would lease the campuses to developers for the creation of housing, entertainment and commercial centers paying rent to the county, with some government agencies renting space there, too.

Administrators also predict the West Dade center will end up being less costly once Miami-Dade moves other government offices out of leased space and into county-owned quarters.

The biggest change will be giving up rented space in a Tamiami shopping center that houses the county’s permitting center — the main destination for builders and residents needing to get county clearance for construction and repairs.

The administration said it will be moving other offices that also have a role in the process — such as some Water and Sewer staff and the county’s Property Appraiser office — of getting construction approved.

The new center also will move some downtown offices away from Miami’s traffic and high parking costs. “We’ve always gotten complaints that we don’t have an office in West Dade,” said Lazaro Solis, deputy property appraiser. “For us, it makes sense.”