Chairman Stephen Bittel talks real estate, trends, and building better communities.

Surf, Sun and Shopping: CRE Executive Stephen Bittel on the Strength of the Pedestrian Mall in South Florida

EntrepreneursBreak, by Ethan – November 17th, 2022  


With gorgeous beaches of fine white sand and turquoise blue waters, dotted with palm trees and temperatures that rarely dip below 70 degrees, it is obvious what draws people to live and play in South Florida. Nobody can deny the siren song of a city that sees sunny days for over two-thirds of the year, but the weather does more than just create perfect beach days. It has also helped Lincoln Road flourish as one of the few remaining original pedestrian malls in the United States.

According to Stephen Bittel, an investor with over three decades of experience in commercial real estate, the most-visited destination in Florida is the beach. Calling it the “starting magic,” he explained that with Lincoln Road’s location only a few blocks from the ocean it is ideally located as a spot for retail and dining after a day at the beach. Bittel’s company Terranova Corporation has owned property on the street since 2011 when it closed on a landmark three-building deal to the tune of $52 million. By 2014 his firm had purchased six properties in total on Lincoln Road at the cost of $191 million, and later completed one of the largest deals in South Florida history when it sold them for $342 million, and again reinvesting.

Terranova’s investment in Lincoln Road properties was part of a larger pivot on the part of Stephen Bittel, whose previous strategy for the business involved a heavy focus on the suburban properties that had spurred the development of pedestrian malls in the first place. In post-World War II America people began migrating to the suburbs at record rates, and by the 1960s and 1970s enclosed shopping centers began appearing en masse in these areas, further driving customers away from the downtown shopping malls that had proliferated in earlier years.

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2019 Enters With a Storm

January 2, 2019 – I continue to get asked where we are in the commercial real estate cycle, with a good bit more urgency after the last tumultuous weeks.   So much of where we are going as an economy is better understood by a quick explanation of where we have been.

2018 experienced the long anticipated increases in interest rates throughout the year.  While rates are still low compared to historic levels since 1979, when I began my career, we have been spoiled by short term rates at almost zero and long rates, under 4 percent.  Cash deposits have earned almost nothing compared to over 2% today.  Low borrowing costs motivated both corporate and individual borrowers to drink deeply at the debt trough for a long period, increasing the amounts of government, consumer and corporate debt, all over the world, to record levels.  When borrowing costs go up, commercial property values tend to decline as investors still rely on debt for 50 to 80% of their capital stack.  Properties have reduced cash flow after servicing more expensive debt. Conventional bank and life company lenders have become more selective on both borrowers and collateral, while there has been an explosion of new lenders for higher proceed loans and less than super core assets, injecting a bit more risk in the market.   The REITS have been mostly out of the acquisition business for much of the year as their stock prices have declined and dividend yields increased.   Professionally managed funds are loaded with cash awaiting placement, but slow to deploy capital given the cloudy future.  No one wants to time new investments incorrectly, but the funds cannot sit on the sideline forever.

The sticker shock of new higher rates, even given the recent slight decline, has slowed the purchases of bigger ticket items like homes and cars.  When buyers pull back from new home buys, apartment rents and occupancies rise as demand grows.  People have to live somewhere, and our housing affordability crisis continues to grow.

The long prophesied retail apocalypse was delayed this season as retailers experienced the best holiday sales in six years.  We still need a serious culling of retailers, but brick and mortar retailers who are enhancing their online and delivery strengths did well, while digitally native or online retailers keep adding more brick and mortar stores.   Consumers had extra money generated through wage growth, gas price reductions and tax breaks.  More cash quickly turned into more sales especially for clothing and home décor.  Demand for restaurant space and service users continues to be strong as our economy shifts, while online retail sales keep growing.   Top tier malls are performing well but secondary and tertiary market malls are suffering along with a declining department store industry.   All retailers and retail property owners are rushing to enhance the experiential component of shopping to continue to capture consumer participation.  Those that do are prospering and expanding, while those that don’t are withering. Our retail world is evolving, as it always has.

Industrial real estate continues to be the shining star amongst the asset classes with the continued expansion of demand for distribution capability of online retailers.  Fulfillment and logistics centers continue to absorb space at a rapid pace with growing demand driving rental rates and development.  Last mile sites like our District 79 project in Doral, are poised to succeed even amidst a slowing overall economy.

Limited office development has seen office occupancy increase, with the only giant demand increase coming from co-working facilities that today are probably the largest office space users in the nation.   Even growing office users are shrinking their footprints as individual offices continue to decline in size.

Operating businesses with a real estate component like hotels and self-storage performed well, but both have seen huge additions to supply over 2018 likely leading to some pricing pressure in the year to come.

The stock market decline and volatility in December seems to have had little impact on short term consumption, but clearly is driven by caution regarding of what lies ahead.  Professional money managers just aren’t sure how many more of the political “bombs” the economy can withstand.  The government shut down, the fight about funding the wall, Cabinet exits, trade wars, a shift in House control, the Mueller investigation, the Twitter war, and on and on and on cause people to worry about what comes next in the United States. Leadership in so many other countries is highly unpredictable as well, causing concern as investors exit the public markets and hold cash, which now can earn a little yield, while waiting out the period of uncertainty.  Political instability may be the driver of the next market correction, even while the economy continues to perform fairly well, with low unemployment and strong profits.  The nightly news has turned into a daily horror movie with journalists taking sides in a way never seen before at anywhere close to this level.

After a peace time economic expansion now well in to at least the tenth year, the public equity market volatility is clearly telling us that bigger money investors are nervous and might watch for a while until they get some clarity on the future.  Trees really don’t grow to the sky, and after long periods of growth, our economy tends to regroup and consolidate and even soften, as one cycle ends and another begins. Asset prices have certainly come down in many cases, and that is tempting many back into the market, just like there are often buyers just after big market declines.  The question is what’s next and when?

High liquidity amongst investors will likely temper any major downward pricing adjustments, but some continued softness is expected in 2019.  A crash is less likely than a continued slow down. Capital is raised and primed for deployment quickly as real investment yields after the cost of debt service improve, and especially in higher growth markets where a story can be told about what is driving the potential for over performance.  So yes, I’m a bit concerned and nervous, but as a brand new grandfather for the first time, that is a distinct part of my job description.  Nervous markets make investors of debt and equity capital more selective and we can expect choppy waters in 2019, with special opportunities awaiting the best prepared investors.  The year ahead will require even more patience, discipline and focus than normal, but buying when others are watching is always an opportunity.

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At Terranova, we acquired a large industrial property in the last days of 2017 leased back to the Fortune 500 user for two years as we prepared for a major development.  The deal was a clear recognition that investments over the next few years would require us to create value through development activity versus many years of buying existing assets.  We sold a new McDonald’s scraped and rebuilt land lease, refinanced our gas station portfolio as we got ready to do one of our own scrape and rebuilds, adding a full tunnel car wash.  Our Lincoln Eatery food hall just off Lincoln Road is poised to open in the next weeks. At year end we added one more building to our Coral Gables Miracle Mile portfolio and refinanced all the buildings as well.  Leasing was better in 2018 than the prior year, and we have several large developments in the pipeline.  Debt and equity capital have been readily available on our projects but closing the transactions have been a lot more work, we think as a result of overall nervousness.

Stephen Bittel

Bittel Announces Parkinson’s Foundation Centers of Excellence

October 15, 2018 – Amidst a real storm in the Florida panhandle and a tornado of political activity all over the country as the midterm elections quickly approach, we took time out recently to visit the Cleveland Clinic in Cleveland and the Medical University of South Carolina (MUSC) in Charleston to see our investment in the Parkinson’s Foundation Centers of Excellence program come to life.  Both facilities are at the leading edge of the diagnosis and care of Parkinson’s and related movement disorders.  They provide a single facility for patients to see neurologists, occupational therapists, speech therapists, and all the related specialties, easing the care process while providing a remarkable research data gathering opportunity to utilize in research for a cure.

The Cleveland Clinic facility houses some remarkable cutting-edge technology on movement disorders and provides telemedicine opportunities for interim patient contact.  Care in door width, corridor size and easy front door parking access make this a special one stop place for Parkinson’s patients to get all their needs addressed in a single visit.  After the designation ceremony and tour, we dined with Cleveland area supporters in the evening to discuss what we have been doing and what lies ahead.

The next morning, we flew to Charleston, South Carolina with professionals from the Parkinson’s Foundation team to name the next Center of Excellence at the MUSC, housed at the James Clyburn Research Center.  That night at dinner, a local leader who has been living with Parkinson’s said that the same drugs have been used to treat the symptoms for the last forty years.  This comment made clear the need for far greater urgency in our push to change the trajectory and timing of progress in understanding the cause, care, and eradication of this disease.

University President Cole said we all had chosen to be there for the plaque unveiling. When I stood to speak, I differed and said that none of us came by choice, but instead were chosen by having people we care about get diagnosed. I never planned to engage in this fight, but when the President of our company got the call to say she had Parkinson’s, there was but a single path forward, to go all in to try to make a difference at an accelerated pace.

At the end of this week we head out for a day and a half to Las Vegas to name one more Center of Excellence at the Cleveland Clinic Lou Ruvo Center for Brain Health.   The next morning, we will walk with in the Las Vegas Moving Day event before coming back home.  We look forward to keeping the pressure on to keep progress driving forward on a cure and better care.

If former Vice President Joe Biden can create his “Moonshot” project to cure Cancer, why can we not do the same for Parkinson’s. Regular people from every walk of life have been diagnosed as have leaders like President George Bush, Governor Ed Rendell, Senator Johnny Isakson, Alan Alda, Neil Diamond, Jesse Jackson, Brian Grant, Linda Ronstadt, Jerry Lewis, and the list goes on endlessly. Senator Cory Booker’s father and former Attorney General Janet Reno all had Parkinson’s. It seems everywhere I go, someone has a friend or relative who received that same call, and there are many more that have the condition and never have seen a doctor for it.  Doing something is not a choice, it’s an obligation to those for whom we care who had the bad luck to be diagnosed and for those not yet diagnosed. Many thanks to all of you have helped. A massive federal funding of research is what it will take to have our own Moonshot. It’s time to start talking to our elected leaders about making this funding a priority in every state and in our federal budgets.  If we can send a man to the moon, we surely can find a cure for Parkinson’s.

Stephen Bittel