The developers of 396 Alhambra — a 282,000-square-foot mixed-use office and retail development in Miami’s Coral Gables business district — have transformed and expanded a mid-20th century landmark into modern, LEED-certified office space.
One of Coral Gables, Florida’s last remaining midcentury modern buildings is enjoying a second life as part of the city’s largest mixed-use project to take shape in years. In the latest sign of the shift toward adaptive reuse in South Florida, the former Exxon Mobil Corporation headquarters now stands as the South Tower of 396 Alhambra, a $140 million office and retail complex in Coral Gables’ Central Business District.
In a recent example of the expanding role international investors are playing in South Florida’s real estate landscape, the project was backed by Mexico-based Agave Holdings LLC, a privately owned commercial real estate development firm with headquarters in both South Florida and Mexico. Upon acquiring the property in 2008, Agave evaluated the asset’s potential for redevelopment and decided to infuse capital into the site at a time when financing was hard to come by.
Agave chose Coral Gables for its central location, international appeal among large companies, pedestrian-friendly cityscape, and proximity to both Miami International Airport and executive housing. Most important to Agave’s investment decision, the city is home to more than 175 multinational, Latin American, and domestic regional headquarters representing more than 6,000 employees.
When it came time to plan the redevelopment, Agave’s development team worked with the city to preserve the building’s rich history and take advantage of its strong bones. Instead of demolishing the circa 1960s property and starting from scratch, Agave decided to redevelop 396 Alhambra in two phases. In the first phase of construction, labeled the South Tower, Agave performed a complete renovation and sustainable retrofitting of the existing seven-story, 85,000-square-foot building. The project’s second phase involved the ground-up construction of an adjacent 15-story, 163,000-square-foot North Tower.
The new 396 Alhambra comprises the redeveloped midcentury modern style South Tower (background) and the new Spanish-influenced North Tower.
Although the team had considered gutting and tearing down the original property early in the planning process, given the character of the building and the improved speed of a renovation, Agave opted for redevelopment. Its architects thus were tasked with figuring out how to design a new building that was both compatible with the midcentury building that already existed and that would integrate seamlessly with it.
Agave decided early on that both buildings would include sustainable features. While Coral Gables is renowned for its Mediterranean-style architecture, the city’s new developments have not made environmentally conscious standards a priority. Agave saw the market’s lack of green office properties as an opportunity to build a development that would set a new standard for the Coral Gables market. Both buildings were pre-certified LEED.
Renovations at 396 Alhambra’s South Tower began in early 2009. The redevelopment and modernization project — which retained only the floor slabs and the curtain wall — included replacing the building’s windows with hurricane-resistant impact glass; replacing its plumbing and HVAC systems, elevator cabs, and electrical components; and adding premium finishes of wood, granite, and marble throughout all common areas. Additional improvements included replacing the building’s existing three-story garage with a new eight-story parking facility designed to provide access to both the North and South Towers. This enabled the delivery of new street-level retail space and created a seamless experience for the building’s tenants and visitors.
An attractively landscaped fourth-floor terrace on the North Tower offers tenants a domed gazebo and dramatic views of downtown Coral Gables.
In 2012, 396 Alhambra’s new North Tower became the first newly constructed office building in Coral Gables to achieve LEED Gold Core and Shell certification. As a result of Agave’s extensive upgrades, the more than 50-year-old South Tower is scheduled to achieve LEED Silver certification later this year.
The project’s LEED certification has raised the bar for commercial development in Coral Gables and demonstrated that smart development could indeed balance Mediterranean style and modern sustainability. The buildings feature a range of efficient strategies and technologies that enhance health and productivity while reducing waste and promoting sustainability.
The new North Tower features Spanish-style details and marble from the quarry that provided the marble for the original Alhambra Palace in Spain.
The Market Responds
The focus on sustainability at 396 Alhambra takes on added significance as more and more multinational users adopt mandates to locate in LEED-certified buildings. Deciding to certify the building early in the design process enabled Agave to substantially reduce the front-end costs of the certification. Tenants therefore see a direct advantage in lower operations costs, primarily utility expenses.
As more businesses have been placing an emphasis on sustainable workplaces, 396 Alhambra has been well received among major multinational corporate users looking to establish a South Florida presence. Today, the building is more than 75 percent leased and home to prominent tenants that include HBO Latin America, Mondelez International (formerly Kraft), multinational beverage company Diageo, law firm Richman Greer, P.A., mobile phone service provider Millicom International, architecture and design firm RTKL Associates, and Citibank N.A., among others. Initial lease terms ranged from five to 15 years.
The project’s newly launched retail component directly fronts Giralda Avenue, also known as Coral Gables’ “Restaurant Row,” and is situated just one block from Miracle Mile, the city’s main thoroughfare. It is the largest contiguous block of retail and restaurant space available in the Coral Gables business district and benefits from a built-in workforce population of more than 900 employees who frequent the towers on a daily basis.
With Miami in the crosshairs of companies from around the world, Agave believes that Coral Gables is among the most desirable commercial office markets in the U.S. This project stands as an example that adaptive reuse — when executed properly — can attract world-class users, enliven city streets, and create a new benchmark for smart development.
About the Coral Gables Office Submarket
Class A office space in Coral Gables continues to signal a “wait and see” trend for the next few years. In general, there is a lack of truly Class A product in the market. These select few buildings have enjoyed greater visibility as tenants shift from the traditional Brickell submarket. While much of the demand for space is being filled by tenants shuffling from one building to another, a handful of larger tenants — primarily from the financial services sector — are new to the market.
This game of musical chairs among Fortune 1000 tenants has resulted in near net zero absorption over the last few years. A case in point is Gibraltar Bank’s move from 220 Alhambra, which created a vacuum that forced rent rates down below $35 per square foot for the marquee tenant’s space. This will be offset by several smaller but equally important tenants, such as Principal Financial Group at 255 Alhambra and Apple at 1 Alhambra Plaza.
Asking rates for Class A product remain above $40 per square foot with taking rates closer to $36 to $39 per square foot, both full service. After concessions are taken into account, however, effective rates are almost 10 to 15 percent lower. Although there has been slight compression in free rent over the last few years, many landlords still are offering between one-half to one month of free rent for every year of term.
Tenant improvement allowances, though, are a different story. We expect allowances to remain flat for first-generation Class A space between $40 and $55 per square foot. Second-generation space will begin to see a decline to about $25 per square foot, although some of the more discriminating trophy tenants will require — and receive — significant build-out concessions.
Rent rates are expected to pick up over the next few years, with some buildings enjoying a 3- to 5-percent year-over-year increase over the short term — in spite of competition from the Waterford and Brickell submarkets.
Although decision makers are still very price conscious, factors like parking and proximity to local area amenities do influence them. This benefits buildings located closer to the “Main and Main” of Ponce de Leon Boulevard and Alhambra Circle, which are within walking distance of municipal parking garages as well as world-famous restaurants.
Overall, we expect to see improvement in Class A space performance, although the market is still hesitant to call it a complete rebound from 2010 until net absorption starts to turn positive.
Regarding the investment sales market, investment sales activity in the Gables has been limited to private client deals below $10 million. We have seen an occasional owner-user purchase over the last few years, but much of the Class A office product has remained on the sidelines. The recent $81 million sale of the BAC Colonnade by Frankfurt-based Deka Immobilien to TA Associates actually marks one of the first true Class A investment sales transactions in the past few years. Because of the lack of supply and quality of the asset, the sale sustains the approximately $375 per square foot benchmark sought by most owners.
By Carol Ellis-Cutler, Randy Olen, and Alex Morcate, Colliers International South Florida.