Finding Opportunities in a Booming Market

MIAMI—How do you manage projections knowing that the price of labor and construction material is slated to go up due to high demand? That's one of the questions we asked Rey Melendi, a former executive of Rialto Capital Management and president of Lennar's southeast Florida land division, who now oversees 13th Floor's development, construction and operational asset management of the sponsor's investments.

GlobeSt.com caught up with Melendi to talk about this, as well as where to find opportunities at a time when property values are increasing and distress assets are pretty much gone and other issues in part two of this exclusive interview. You can still read part one: What's Unique About Miami's New Boom.

GlobeSt.com: We are seeing a lot of residential construction on the horizon. How do you manage projections knowing that the price of labor and construction material is slated to go up due to high demand?

Melendi: There is no question that costs of labor and materials are escalating—and we believe these prices will continue to rise over the near term. Savvy developers are careful to take a forward-thinking approach when it comes to creating projections and budgeting for anticipated costs.

Here at 13th Floor, we always include an 'escalation factor' in our project budgets, which ensures we are staying conservative with our numbers and that we are prepared for changing market conditions.

GlobeSt.com: Many of your current projects are in markets with high barriers to entry, like Brickell, Sunny Isles and downtown Dadeland. Was this by design? How were you able to enter those markets?

Melendi: Among the factors that set 13th Floor apart from many real estate firms is our willingness to create strategic partnerships with other companies that would typically be viewed as competitors. Joint ventures have been an important strategy for entering tight markets, minimizing risk, increasing our purchasing power and leveraging complementary expertise among firms.

Take 1010 Brickell for example. We partnered with Key International, one of the top development, marketing and sales firms in South Florida. They bring a unique skill set while our team applies our experience in financing, capital markets and development. There are many other examples, with recent partners including Adler Group, Integra Investments, Avra Jain and Mast Capital.

GlobeSt.com: 13th Floor focuses on opportunistic deals. Where do you find opportunities at a time when property values are increasing and distress assets are pretty much gone?

Melendi: We are a vertically integrated firm capable of managing all aspects of development in-house—from planning and financing, to design and marketing, so that's how we seek to create instant value in our deals.

We spend significant time analyzing how market conditions will evolve over the near-, mid- and long-term, so we are always planning ahead and staying nimble. That's one of the strengths of our boutique model. In today's market, much of an asset's hidden value stems from what the owner can bring to the table, rather than what the market dictates.

GlobeSt.com: You recently brought on board an architect from renowned Arquitectonica what's the strategy behind that move?

Melendi: Gustavo Spokoiny's arrival was a big step forward for our firm, adding in-house architectural capabilities to our development platform and another service that we can manage internally. Gustavo will oversee the design of our developments and act as a liaison between our firm and outside architects and engineers working on various projects. We'll continue to work with outside architectural firms, but there's no substitute for internal design capabilities when it comes to evaluating potential acquisitions and planning new projects.