MIAMI, June 17, 2020 /Miami Herald – Measures to contain the spread of the coronavirus continue to shift — and so do responses by investors, developers, builders, banks and buyers. To track the impact, RE | source Miami is asking area real estate professionals in various sectors for on-the-ground reports.
Today we hear from Raoul Thomas, founder and CEO of the Brickell-based private equity and management firm CGI Merchant Group, LLC (CGI). Thomas transitioned into real estate after 25 years as an investor and bank regulator overseeing global financial institutions working in the United States. Thomas owns and manages downtown Miami’s Gabriel Hotel, named after his son, and has office buildings — including 550 Biltmore Way — as well as shared office spaces through Nexus brand in Coral Gables, Coconut Grove, Boca Raton, West Palm Beach, Wellington and Stuart. The next South Florida Nexus branch will open at 55 Miracle Mile in 2021.
Q: How has the pandemic influenced demand for office space in South Florida?
It is the consensus that working from home is not sustainable in the long-term. We see corporations seeking to have satellite offices in the suburbs, closer to home. We have been monitoring the trends of office markets within Asia and have seen the emergence of a similar approach, which gives us an encouraging view that this will become a broader trend. We continue to monitor the ability of the Asian markets and trends of companies seeking satellite offices to cater to their employees’ health and well-being.
We have also caught wind of a few large tech firms touring the market, which is largely driven by the quality of life, weather, favorable tax benefits, and more affordable pricing relative to their respective current markets. In our mind, the pandemic has kick-started this flight to quality.
Q: What drivers will influence demand, and when are you expecting to see an uptick in activity and why?
We believe that demand will increase due to companies needing to adhere to social distancing. We believe that rather than simply expanding office space in their building, companies will opt to have satellite offices closer to home. We believe that companies and individuals will want the flexibility that Nexus Workspaces provides, such as the option to rent private offices along with conference rooms as needed. That’s why we’re promoting ourselves as a private office space. This will be a permanent change even after the pandemic. More corporations are going to offer employees those type of private suites. We’re already seeing it in China. We want to get ahead of the curve.
We are looking to expand on our proprietary technological capability by delivering more services to our tenants’ desk, affording them the ability not to need to leave the office for particular desirable services. This will incrementally drive the increases in demand for us as the owner and operator, as we continue to be pioneers with our technology.
We also see an influx of Northeasterners. That will be to our benefit in terms of office demand.
Q: Where are you looking to buy more office space in Miami, and why?
I am bullish and am in the market to buy. Give me Coconut Grove and Coral Gables; not downtown and Brickell. There were major traffic concerns even before the pandemic in downtown and Brickell. But look at the Grove revamping itself with CocoWalk, and look at where all of the private schools are. People are going to want to be closer to home.
We also seek to acquire high-quality assets in affluent suburban neighborhoods. We are under contract for two properties in the Naples and Fort Myers area.
These markets give us a demographic that is appealing and stronger in our belief. These markets have highly educated people that lead small to medium-sized businesses, as well as a high number of individuals with graduate and post-graduate degrees, including professional certifications. We believe this gives us a stronger individual tenant in these suburban offerings and, as a result, a stronger tenant mix.
For the tenant, the cost is a small fraction of their actual income, so we are less impacted than traditional office settings that are much more costly for the tenant, as Nexus Workspaces are more affordable and smaller.
Q: What qualities do they need to have, and why are these factors important?
Our assets have visibility to main thoroughfares and highways, creating flexibility for tenants and their commutes. We look for assets that have curb appeal in strong sub-corridors with commercial activity. We ensure that the floor plan is conducive to our model of private offices and a geographic location with a movement egress.
Q: What will be the opportunities and challenges for traditional and shared work spaces in the months ahead?
In the short-term, both traditional and flexible offices may feel some repercussions of the COVID-19 pandemic, testing the abilities of non-credit tenants to support their monthly rental payment. But we do not think that working from home will be sustainable in the long-term, particularly when it comes to individuals with families, along with the potential of efficiency levels dropping while working from home. Therefore, we believe that corporations will exhibit increased demand for satellite offices, providing their employees with the option of working from flexible work spaces closer to their homes.
We will seek opportunities in the coming months, whereby assets will be forced to trade at values lower than those of 2019, due to capital and debt dislocations, resulting in motivated sellers. Further, we think these opportunities will be at their most optimum in suburban and other submarkets, such as Coral Gables and Coconut Grove.
Q: What are your expectations for office leases and membership rates for the remainder of 2020?
We have seen a negligible impact on our portfolio from outright cancellations. Some cases were restructured, where short-term abatements were given in exchange for term, but in the last 30 days, we have seen a spike in demand in some of our highly visible Nexus Workspaces locations.
We expect in the fourth quarter to see a stabilization in the majority of our Nexus portfolio to that of 2019 levels. Still, in selective locations, we are optimistic that we will see a net positive tenant gain, such that we will end the year in a sounder position than we were at during the height of the pandemic.
View the interview published in Miami Herald