Real Estate
10:10 pm
Sun August 10, 2014

Is A Business On Lincoln Road Worth The Rent?

A record deal is in the works to sell six properties along Lincoln Road.
Credit Flickr user Mr. Usaji per Creative Commons license: https://creativecommons.org/licenses/by/2.0/

One of the most expensive property sales in South Florida history is in the works on South Beach. Six properties -- currently held by the Terranova Corporation and Acadia Realty Trust -- along Lincoln Road are expected to sell for $342 million.

The properties' current occupants are Starbucks, Armani Jeans, Fossil and the Khong River House restaurant.

As the Miami Herald reports:

The properties, sprinkled along the pedestrian promenade and on nearby Lincoln Lane, include the sites of such popular Lincoln Road hang-outs as Sushi Samba and Dylan’s Candy Store. They were originally purchased in two parcels in February 2011 and December 2012, for a total of $191 million. Therefore, the transaction translates to a profit of $151 million — or 79 percent, in a combined total of a little over three years.

Lincoln Road has become one of the priciest places to rent retail space in all of South Florida: $300 per square foot according to a report by the Cushman & Wakefield real estate firm. The storefronts are now dominated by international brands like H&M, Forever 21 and GAP.

WORTH THE RENT?

Having space within a global shopping and dining destination gives companies the potential for massive in-store sales. But there’s also a marketing component to being on Lincoln Road, says Frank Begrowicz, an associate director with Cushman & Wakefield’s Miami office.
 

A company’s sales may only make up $200 of the $300-per-square-foot rent, Begrowicz says. Many can “chalk the other $100 [per square foot] up to advertising to a customer from a market where it might be cost prohibitive for you to transact today.”

The institutional investor buying the six Lincoln Road properties hasn’t yet been disclosed but you can be sure those high rents are the main reason they’re buying, says Bill Hardin, head of Florida International University’s real estate program.

Real estate investment at the $342 million level is far from the the fix-and-flip kind of thing on HGTV. Rather than betting on a big pay day, institutional investors are buying an income stream like they would with bonds or stocks.

“These investors have looked at the existing leases in place,” says Hardin. “What they’re buying is a series of known cash-flows from these leases.”

Lincoln Road’s $300-per-square-foot average rental rate is very expensive by South Florida standards but it’s far from the highest in the country. That honor belongs to Fifth Avenue in New York City, where, per Cushman & Wakefield, the average asking price for retail space is $2,500 per square foot.