Interview: Jorge Perez

By Scott Judy

Jorge Perez, CEO of The Related Group of Florida, is arguably the top developer of multifamily and mixed-use projects in the Southeast, if not the nation. He's been called a "visionary" for his leadership in developing numerous significant multifamily developments in South Florida and other parts of the country - though his firm recently experienced a setback in Las Vegas when it had to return deposits for one of its planned condominium developments there.

Perez recently sat down with Southeast Construction and discussed his company's future plans, his opinion on the future health of the multifamily market - and its pending evolution into mixed-use. He also discussed urgent issues such as the availability of affordable housing and what cities across the Southeast need to do to help redevelop their urban centers.

SEC: In 2005, you were listed on Forbes magazine's list of the richest Americans, Time ranked you as one of the 25 most influential Hispanics in the U.S. and Hispanic Business magazine ranked The Related Group of Florida as the largest Hispanic-owned company in the country.

Perez: It's just a way of recognizing almost 27 years of doing this. It's an honor, and a way of counting, a way of keeping score. But it doesn't make you a better person or a more important person. I hope I bring a little bit of humility to this. I do things that I love to do, expanding the company. And actually some of those articles give me more of an opportunity to do more of what I love.

There are always opportunities out there. And when you're in the limelight, you get more of those opportunities presented to you. We get a lot of opportunities thrown at us, and to a large extent it's because of the positive publicity that we get.

SEC: Do you have things along those lines happening right now in other cities?

Perez: We are in a number of cities. We are just under contract with a very large tract of land in the Buckhead area of Atlanta with a major development there. We're going through the zoning processes now. It will be very similar to what we're trying to do in Las Vegas, which is creating an urban center. We're talking close to 4 million sq. ft. of mixed-use development a block away from the two best malls in the Southeast, in a very high-income area. So we're very excited about the possibilities of Atlanta.

We are looking very seriously at a very large development site in downtown Jacksonville on the water - again, a large mixed-use project: high-end, urban condominiums.

On the West Coast of Florida, we're establishing a big presence. We have acquired three more sites to provide future developments in that area. And we're looking at waterfront developments in Tampa, Bradenton, Marco Island.

We tend not to look at one job. We're only attracted to developments that have a real impact on a city - and where we can establish an ongoing presence. So going to a location and building a single building is really of little interest to us.

SEC: How can you tell when a project is going to have a real lasting impact?

Perez: Well, we've been very good at taking areas that have been undeveloped or underdeveloped and studying them and seeing the potential they have, and what needs to be done to make that potential a reality. We've done it in many places - downtown Miami Beach, downtown Miami, Coral Gables, Sunny Isles, Boca, West Palm Beach.

We're trying to do places where people can live and work and shop within a very short distance.

In Atlanta, for example, I was not interested in going there to do a (single) building. We looked at the demographics, and we think Atlanta has tremendous growth potential. It's a regional center of the South. It's got great infrastructure - cultural and otherwise. And it's a preferred location for large companies to locate. So it was a place we felt we wanted to be in the future in a large way - not just doing a building, but sort of re-creating what we've done here in South Florida. That's what our attempt is - to establish a Related Company of Georgia or Atlanta that will become within a short period of time a very major player in that location, bringing the expertise that we've developed over the years that many of these areas don't have, that we think is transferable.

SEC: Do you see these future projects as mixed-use with multiple buildings?

Perez: Yes - always with a very strong residential component. Residential is a driver. But we like to see restaurants and shops and all of that in the developments we're doing. So as we leave South Florida and go into other areas, almost every one of the developments we're looking at is a mixed-use development - whether it's Las Vegas or Atlanta or Jacksonville. They're all part of a greater development.

SEC: Is your company moving beyond high-rise condos, in a sense? Because there's a lot of curiosity about how much longer the high-rise condo market can keep going.

Perez: We will always have residential development being our bread and butter - what we do best and what we do most of. We believe that in order to be successful in creating residential communities, you need to provide the amenities that people need. And the amenities that people need, many times, are above and beyond the health club, the pool and the tennis court. We expanded that to provide retail establishments and office space and other type of uses, that complement our residential use and make our residential use that much more viable.

For example, in Las Vegas and Atlanta and now in Miami, we're associating ourselves with a hotel component. Icon Brickell is going to have a boutique hotel that will provide all of the apartments in that tower with hotel services (for) a much greater service component.

We want to make sure that the people who buy from us really have the easiest possible life they can have, and we provide the greatest comfort that we can. Whether it's the primary user - someone who lives in the city - or somebody who's a second homeowner, we want them to know and feel that almost everything is at their disposal.

SEC: What do you think separates The Related Group from other firms?

Perez: There a number of things… It's the constant attention to detail and the constantly reinventing ourselves. My vision today is different from my vision tomorrow. And it has to be. If not, you settle for giving the same formula to the same people, and you don't grow.

Technology's changed. The amenities of the buildings have changed. Designs have changed. And we bring art and design and make it an integral part of our development. We are constantly assessing ways of living and really are trying to adapt our buildings to those new ways of living and, in a way, maybe changing them. It's small design details, but those small changes lead to that totality of life and how you live.

SEC:How do you get the feel for what people want? Do you use focus groups?

Perez: We do focus groups internally. I'm always asking the sales managers and the sales people - the younger developers: What is it that you like? What is it that made you move here?

I can't design for myself. I have to get away from myself and look at trends. So we're constantly visiting the competition. We're constantly visiting other cities, to see trends in other cities. So it's a constant evolution, a constant process of reevaluating what works, what doesn't work, what are the demands that people are having? What new things are being thrown out there that people really appreciate?

SEC: What does the attitude and mentality of your architects, contractors and subcontractors need to be if they're going to work for you?

Perez: We're a company of very strong relationships and trust. We have used the same architects, the same contractors, the same subcontractors for many years. The trust allows us to price our product in a more competitive way than the rest of the market. So we build for a lot less than the great majority of people in this market - probably everybody in this market.

And the reason for that is the relationships. They know they're going to get paid. They know we never play games. So they give us the best prices. There will be a time when the residential market is not as hot. And that is when those relationships become even more important.

SEC: What would you say has been the influence of The Related Group on the design and construction communities over the years?

Perez: I think we're seen as design trendsetters. People know we take design risks. We come up with the new ideas in appliances, amenities, technology, in art, in interior and exterior design. I think we are copied.

We make other people be on their toes a lot more. We make other people make sure that they are designing buildings that will compete. So we've pushed that envelope, and we've gotten other people to follow pushing that envelope. So it's been very positive that way.

That makes everybody more design-conscious, and people expect more today.

SEC: What concerns you about the future of the market? There's been a lot of discussion about the flipping of condos, and of course the shortage of materials and labor, and therefore the costs have gone up.

Perez: There are two concerns - one on the demand side and one on the supply side. From the demand point of view, we are concerned that there's too much speculation. We try to cut down the speculations. We won't sell more than one condominium per person. We require very large down payments. We don't start our jobs until we're at least 80 percent sold, with 20 percent deposits. But when you look at all of the projects that have been announced, not only in Miami but almost of the Southeast, you'll see that supply might be outpacing demand.

Now, the question is will all of these jobs get built, or will the lenders, seeing what's happening, tighten their screws and make a lot of these jobs not possible. And we're seeing some of that.

Is there too much speculation? Will all of those people close when times are not good? That continues to be a big problem. So far, the market's stayed very strong, but we continue to monitor it.

The other concern is construction costs. In some areas, like in Las Vegas for example, we were blown away by the costs. Costs have become a very important factor.

Before, if you got it sold then you could build it. Now, costs are really causing big problems with some of the developments that sold a year ago and all of sudden costs have gone up 30 percent and (developers realize), there goes the profitability.

And another problem is the issue of interest rates. If we see interest rates continue to go up, we're going to see it really start taking a toll on housing. They're talking about another couple of increases and then maybe interest rates stabilizing. I hope that happens.

People are buying, to a large extent, with adjustable mortgages, as opposed to fixed-rate mortgages. If interest rates go up, it will cause a tremendous amount of problems, not only in the ability of people to buy and close, but also with people who already have variable-rate mortgages. If they increase, we could have a very serious default problem.

So far, we have not experienced any problems in the buildings that we are delivering. But we could, at any time.

SEC: What's your thought about all of the condos that have been built, and all of the people who have suddenly become developers? How has that impacted you?

Perez: One of the problems with development is the ease of entry. You don't have to be a rocket scientist to become a developer. All you need to do is have someone who backs you, find a good site, and everybody seems to become a developer. We've seen a lot of that. Architects have become developers. Accountants are becoming developers. Everybody's becoming a developer. That increased the competition.

You're seeing a lot of those people fall as they appreciate that it's not so really so simple to do development.

But we look at long-term perspectives of the market, and we very strongly feel that South Florida, in particular, is poised to be the highest-growing area probably in the country over the next 20 years.

We have a huge international demand both from South America and from Europe who are looking to South Florida as either a place to live, or else a place to own a second home.

I think the immense demand that we have continues. There's going to be a correction at some point, in that too much has been announced. And when the economy suffers, real estate will suffer. But once we get through that correction, we're going to have another period of great growth.

Just as certain as I am that we're going to see a correction, I'm very certain that after that correction, we will have an upswing again. People want to come to Florida.

SEC: You started out building affordable housing. Now, as luxury condos become more prevalent and the price of all housing has escalated so much, there's a concern lately about the lack of affordable housing. Should something be done to increase the availability of affordable housing in urban areas?

Perez: Absolutely. That's the biggest issue we have. Cities are becoming the places for either the very poor, who get their rent subsidized by the government, or the very rich. And very few people can really afford $500,000 to $5 million condominiums. So what we're seeing is a real need for workforce housing - for those people who work downtown, who make between $30,000 to $70,000 a year. Are we defeating the purposes of cities, because if you can't afford it (to live downtown), you're not going to be close to your employment.

So we've been working very closely with different cities in trying to create affordability programs. If we could build apartments at $300 per sq. ft. in downtown Miami, I'd sell them like hotcakes. But because of the land prices and construction prices, it's impossible to build urban (projects) and sell them at those prices, because the numbers are just not there. So you've got to get creative, and you always need the public sector to get creative, in order to try to bring down the cost of that housing and make it affordable to the working, middle class who want to live in urban areas where they work.

How do you do that? There's a million ways. The federal government can give grants. State and local governments need to be involved. For example, we had a loft project downtown where the city provided the parking, so we built a building without parking. We're closing now at $200-a-sq.-ft. - which I couldn't do today even if they gave me the parking - and we sold it to public employees. The first people who got a crack at it were public employees. And they sold immediately.

We need to continue to work with government to find those alternatives that will make some of this housing available to the working folks. That might be the single biggest issue facing cities today - how do we provide housing for workers?

It takes a tremendous amount of political will and foresight to do it.

SEC: Do you think we'll see more of these types of programs?

Perez: Yes. I think we have to. Housing price increases have outpaced income increases. So the affordability gap is getting bigger. And rentals, which used to be one of the solutions for the middle class, are disappearing. They're all becoming condo conversions at much higher prices. So affordable housing is really disappearing, and we are going to have a major problem.

SEC: Do you think something can be done?

Perez:Yes. But it requires a concerted effort, through the public and the private sector, to build that housing. In the lofts project we sold, our profits are much lower than our profits on the regular condos.

(However), we have less risk, because the market is there and it's ready. Before, if I was making X, now maybe I'm making half of X, but I'm serving a purpose and having less risk. So both sides are going to have to give to create this type of housing. And once it's created, the demand is almost infinite.

City governments need to understand and be thinking that way. When speculation and this huge demand for urban sites happens, then prices are just driven up to the point where the middle class is just totally, totally cut out of the housing market.

SEC: Five to 10 years from now, what do you see happening? Where do you see yourself? Where do you see your company?

Perez: I hope to see myself alive, you know! And doing the same thing. I really love creating cities. I really want to do more great residential/mixed-use developments. And I always want to be an integral part of South Florida. We're expanding the company outside, but South Florida is where home is. I see us growing. I see changing the concepts. But doing mixed-use and residential developments.

That is what I love doing. I love changing cities. I love changing lifestyles. There's no greater satisfaction than finishing a job well done, and knowing it's going to be there for many years to come, and you've done something to make the cities better.

So I see myself doing that. Hopefully in 10 years I'll have the energy to continue to do that.

SEC: What are you most proud of?

Perez: My kids. I have four great kids. And I have a great marriage. Having that solid family is very important. Family is the first thing that comes in. And then just what we as a company have achieved. We're not just large developers. I think we have become instrumental in making urban places better places to live. In doing density in a way that is human and livable. Urban living is very important. It's not just a fad. With limited resources, we are going to have to live in cities, much denser environments, and making those environments as human and as livable as possible, full of art and amenities, is a real challenge and I think we are helping create and enhancing that environment.

Click here for The Passion and Vision of Jorge Perez