The Sunshine Economy: Jorge Pérez On Housing, Sea Level Rise and Pres. Trump
Jorge Pérez has built hundreds of condominiums in South Florida since the last housing market collapse. In fact, he has built thousands of condos in his career. They have fueled a multi-billion dollar fortune for him and reshaped the region’s skyline.
His company, The Related Group, is not putting shovels in the ground right now though. He thinks real estate in South Florida is coming in for a soft landing, but not because the American economy is softening.
"I think, from a condominium point of view, we are at a soft landing," he said. WLRN's Sunshine Economy spoke with Pérez at one of his newest condominium developments, Paraiso Bay. It is part of a four-building complex on Biscayne Bay in Miami's Edgewater neighborhood.
WLRN: What is contributing, in your estimation, to the sustainability of that soft landing?
Pérez: Leverage. At this time there is almost no leverage. I would say that 80 percent of the condominium buyers that we've had have closed on their units in all cash. When you do that there's not that need to sell because you're are under pressure.
Are you putting new shovels in the ground of property that you've already secured?
No. In [Miami] Dade County we're not putting any new shovels in the ground for condominiums. We are putting new shovels in the ground for apartment rentals.
What do you think is contributing to the softer landing that you say we are experiencing?
The decrease of production is because the demand has lowered -- not because the U.S. economy suffering. The U.S. economy is doing very well, but particularly in Miami, the international market has stopped or decreased buying. That's because of the strength of the U.S.dollar.
Shifting Away from Condos
The Related Group is shifting away from developing condominium buildings and toward affordable housing complexes. Data from the company shows it expects to start construction in the next 6 to 12 months on more than 1,400 affordable housing units. In that same time period, it expects to begin building just 130 condos in South Florida. That shift represents a big move away from the 5,400 condo units The Related Group has completed since 2010.
Pay vs. Home Prices
The cost of housing is expensive in South Florida. Maybe it looks inexpensive compared to other major U.S. cities like New York, Boston and Washington D.C., but South Florida is one of the most expensive housing markets in the country relative to what workers get paid.
For years, housing costs have risen while incomes have been stagnant. Foreign buyers have helped push up the price of housing. So has the scarcity of land. Squeezed between the Everglades and the Atlantic Ocean, the demand for land is big. And then consider the population of South Florida has grown by 10 percent since 2010.
Median pay is up 10 percent from 2010 according to data from the state of Florida, while the average price of a home across the three counties is up almost 50 percent.
Pay has not kept pace with home prices.
"The problem is not so much on the cost of housing, but the wages of Miami," says Pérez.
"Our professionals don't get paid what they get paid in other cities. I think housing affordability is a huge problem, but we need to go to the roots of the problem -- which is not only let's make housing cheaper, but how do we attract the high paying jobs and companies that have the high paying jobs to South Florida," he said. "Today they are going to Atlanta and to Boston and to New York and to L.A. and to other places. They're not coming to South Florida."
But it's not only the lack of high-paying jobs, Pérez says that contributes to the affordability challenge. It's also the quality of workers. Miami, he says, is "still seen by many companies as a more frivolous place. It's very hard to hire good people that have the work ethic in Miami."
WLRN: Is there more that the development community should be doing in regards to affordable housing here in South Florida?
Pérez: Housing affordability is very complex. You have to remember that a developer has a profit motive, but the profits are a small percentage of the total cost. So a contractor can make a five percent profit. The developer makes 10 percent profit. The issues are much greater than that.
Building on the Beachfront
The museum that bears Jorge Pérez's name, The Pérez Art Museum Miami, sits on the edge of Biscayne Bay. The building was built 10 feet above the required elevation for storm surge, and designed to resist and adapt to the threat of higher seas.
Perez acknowledges sea level rise and climate change. He says he’s worried about it, but it hasn’t affected his appetite to development waterfront properties. A half dozen of The Related Group's most recent projects are on or very near the coastline, from Coconut Grove to Miami’s Edgewater neighborhood to Ft. Lauderdale Beach. Together, the projects represent more than 1,300 residences near the water in South Florida.
"Over the long run and in the short run sea level rise is a big problem," he says. "Global warming is a big problem."
WLRN: Are those global concerns beginning to percolate into development choices that you make?
Pérez: Hard question. I have beachfront property. You respect the coastal control guidelines, which have been pushed back correctly. But within those coastal control guidelines we will build what we think is the appropriate way. Buildings there will even be higher. We have levels of parking which we put in in order to even further protect against the sea rise.
WLRN: Does the issue of sea level rise or climate change make you rethink somewhat that calculation at all?
Pérez: Of course it makes me think about it. But if I have great beachfront locations I will definitely still build on the beachfront because our greatest asset in South Florida is the water.
Pérez and Donald Trump have know each other for many years. The two have been partners in developments and proposed developments in the past. Still, Pérez says he never thought his friend would become president.
But he did. And Pérez says the president asked him twice to service in his administration. First, as the second in command at the Housing and Urban Development Authority. Second, in a top State Department job. Pérez turned down both offers.
"I just don't believe in his policies. I don't believe in isolationism. I think that country should concentrate on those areas that it has the greatest advantage," he says.
Pérez says he hasn't had any contact with the president since he turned down Trump's request to help build a wall on the U.S.-Mexico border.
"We've gone so far to the left and to the right on both sides that there's no dialogue."
WLRN: Is there a business impact that that political divisiveness?
Pérez: Yeah, I think in the long run there is. I think what is happening is that there's a growing inequality. The difference between the rich and the poor keeps on getting worse. At some point that affects the country. And whatever affects the country, affects business.
WLRN: With all due respect, guys like you keep getting richer and those folks at the median income level are struggling to continue to afford to live in places like this.
Pérez: I'm fortunate that is true. And that's why I think that those of us who are getting richer have an obligation to give back.