WorldCity Business Magazine

2006: Another good year for real estate

by Mary Dempsey

The world’s biggest real estate brokerage weighs in on when and if the bubble will burst.

Even when four high-powered executives get together to discuss business, it’s hard to skip the question on everyone’s mind: When will South Florida’s real estate bubble burst?

Fortunately, one of the four business leaders at WorldCity’s CEO Roundtable in November had the authority to answer.

“We feel that the market will hold through the end of next year. We think it will level off in 2006 but we don’t expect a big bust,” said Scott Simes, managing director for one of the Miami offices of CB Richard Ellis, the largest real estate brokerage in the world in terms of revenue. “”But will it bust eventually? Yes. Like in any industry, there will be a downturn. Interest rates will rise. And who’s going to move into all these condo projects on Brickell?

He added: “But right now no one’s balking. There’s money chasing available deals.”

CB Richard Ellis handles $1 million to $18 million deals for private client investors, overseas acquisition of investment in commercial properties for institutional investors and other property investment services. The company announced third quarter revenues of $744 million, up more than 29 percent from the first nine months of 2004.

CB Richard Ellis has a nearly 30-year legacy in South Florida, enough to give it a sense of market ups and downs. Simes, who oversees the day-to-day activities at CB Richard Ellison’s biggest and most profitable office in Florida, said even the aggressive hurricane season hasn’t dampened demand.

Sime’s predictions come in the wake of an “incredible” 2005 for the Los Angeles-based company with 3,000 brokers in the United States and nearly 15,000 worldwide. In 2005, Simes’ office in Miami doubled its revenues when compared to the year earlier.

Although Simes office does not handle the Latin American region, he told the other executives at the WorldCity CEO Roundtable that Latin American companies are starting to show more interest in investments with the brokerage firm’s operations in Miami. “Latin America has come up on the radar screen,” he said. “Five years ago, CB Richard Ellis was looked over from the corporate perspective. This year, Latin American executives are checking us out.”

Latin America is also playing a growing role in the operation of the other corporations represented at the roundtable.

At Bureau Veritas, the global company that serves as third party to verify, inspect and certify products and assets across a range of industries, increasing trade has fostered growing demand for security inspection and compliance services.

Jean-Michel Caffin, who heads the French-based company’s international trade division from an office in Miami, said Bureau Veritas has handled import/export cargo inspection and certification contracts in Argentina, Peru, Ecuador, Mexico, Colombia and Venezuela. “These are quite large contracts, very demanding and also quite lucrative,” he said.

It’s not just trade agreements with the United States, Europe and within Latin America that have pushed governments and corporations to require inspection and certification. The seemingly unstoppable exchange of goods with China is also a factor. As Latin America links its fortunes to the Asian powerhouse, countries like Brazil and Argentina have gone so far as to change their mix of agricultural commodities to accommodate China’s requirements.

For example, Brazil now produces 60 million tons of soybeans a year, overtaking the United States as the world’s No. 1 producer of soybeans. Argentina has also become a major soybean player, harvesting an expected 39 million tons of soybeans in 2005. Both the South American nations export the majority of their crop to Asia.

As part of Bureau Veritas’ plan to become a leader in its field, the company is methodically acquiring competitors around the world. “In Latin America, we’re buying semi-distressed assets,” Caffin explained.

Roberto Cavalcanti, president of the Latin America and Caribbean Division for consumer business at AmericanExpress, said Latin America also offers promises of growth and expansion for his company, especially as new products are introduced. Among other things, his division handles the payments business, credit cards, prepaid travel services, business travel and other consumer products.

After weathering years of ups and downs in the region, American Express has entered a growth stretch in the region. Cavalcanti said 2005 was “an exceptional year, following 2004, which was also good.”

In the region, American Express has four proprietary markets: Brazil, Mexico, Argentina and Puerto Rico. With stable economies in all and growing consumer spending, he said they were doing well. “We’re firing on all four cylinders,” he said. “Brazil’s growing extremely well. Mexico has been growing well for seven years. Argentina is stable.”

Mexico is one of the most profitable markets in the world for American Express. “After the U.S., we have the highest brand recognition internationally in Mexico,” noted Cavalcanti. He attributes it to Mexicans’ preference for status-conscious products, as well as brand loyalty that was created when American Express invested in the country right after the 1994-95 financial shock dubbed the Tequila Crisis, in which the Mexican peso lost half its value in a matter of just months.

“Today [Latin America] is recognized as a significant part of the business, but 15 years ago we were not a significant player in the profit pool” for American Express, said Cavalcanti, who is retiring in February after 26 years with the credit-card company. “Consumer spending in Latin America is definitely on the risk. Credit risk management is something that’s becoming sophisticated in Latin America. We’ve gained market share in most markets.

“I think 2006 will continue the same trend,” he added.

For the architectural and design firm that employs Julio Grabiel, the fourth executive at the CEO Roundtable, Latin America has been a player for some time. Spillis Candela DMJM, which next year marks 80 years as a local company and took in $24 million in gross fees in 2004, has designed hotels, shopping centers, bank buildings and other facilities in Mexico, Argentina, El Salvador Panama, El Salvador and several islands in the Caribbean. It also worked on a design for Free Trade Area of the Americas headquarters should the trade pact ever get off the ground and Miami is selected as the seat of its secretariat.

Now Spillis Candela is pushing into the Middle East with architectural, engineering and design work in Dubai, Kuwait, Abu Dhabi and Oman. The firm recently hired an Arabic-speaking architect a Sudanese architect living in Miami to help expand the practice. Currently, about a third of the firm’s work is outside the United States. The goal is to make it 40 percent.

“Long term we see the international side of our business growing,” said Grabiel, a managing principal at Spillis Candela, which has 210 architects and designers. “There’s very good homegrown talent. There are two schools of architecture locally. And what helps us dramatically in Miami, because of the kind of city that it is, is that it attracts executive talent.”

Spillis Candela’s parent company, global design and management firm AECOM, has also helped the South Florida firm move across new borders. Not only does it require certification standards that make the Miami firm more competitive internationally, but AECOM’s global network provides support. “It’s given us access to markets that would have been impossible,” Grabiel said. “For example, it has an office in Abu Dhabi.”

Spillis Candela’s outward expansion has also extended to China, where the company is outsourcing design work for the first time as well as establishing links with Chinese architectural firms.

Bureau Veritas is also working to gain a stronger foothold in China. Caffin notes that while officially there are no restrictions to foreign firms operating in the country, practically speaking non-Chinese companies need to operate in affiliation with local companies.

“There’s a huge leap in world trade. There’s a huge opportunity to tag onto this trade,” said Caffin. “But our ability to be involved in many ways depends on our ability to partner with Chinese businesses. The best bet perhaps the sole bet is to find a Chinese partner.”

As far as South Florida real estate, China is not yet a major player, but anything is possible in this market.

Sims, 42, grew up in South Florida. “I’ve seen more changes in real estate in Miami in the past three years than in all the previous years of my life. There are so many factors going into this the Europeans who are buying, the Latin Americans, the currency, the strength of the euro.”

And for those who wonder if local prices have gone too far out of control, he noted: “It’s still cheaper than New York and with an ocean view.”