How West Palm Beach won the COVID real estate wars

Twenty-eight years too early is how developer Stephen Ross describes his firm’s arrival in West Palm Beach, the Florida city he’s now helping transform with a trio of new office towers, ultra-luxury condos and soon a university .

Two-plus decades ago, mega-developer and founder of Related Cos. struggled alone to lease and re-lease downtown retail space amid high turnover.

“You couldn’t keep tenants because there wasn’t enough business year-round,” said Kenneth Himmel, president of Related Ross, the Florida-based firm spun off from Related in New York City. “Everything was fine during the winter. . . and then in the summer, there was nobody.”

What a difference a few decades – and a pandemic – make.

While Miami may grab headlines with its blighted apartment towers and island enclaves, the biggest post-Covid urban transformation is happening 70 miles north in West Palm Beach — a city of 124,000 that’s becoming a companion to the wealth of the nation.

“Almost overnight it became an extension of old Palm Beach,” said Rick Rose, who gives walking tours of that wealthy city’s historic Worth Avenue — and owns a vacation rental business in West Palm Beach — just across the intercoastal waterway. He has doubled the number of homes he manages for investors in recent years.

The number of millionaires in Palm Beach and West Palm Beach combined rose 93% in the decade to 2023, the third-largest increase in the U.S. behind Austin and Scottsdale, according to consulting firm Henley & Partners. The Palm Beaches have attracted millionaires on a larger scale in the past 10 years than Greenwich and Darien, Connecticut’s prettiest coastal towns where Wall Street money traditionally resides.

Well-heeled newcomers pushed Palm Beach County to the top of the heap in the national wealth shuffle. Between 2020 and 2021 new residents in the county (with West Palm as its seat) brought in $7.03 billion in new taxable income — more than any other county in the U.S., according to the Economic Innovation Group. In 2022 (the most recent data available) households moving into Palm Beach County had a median adjusted gross income of $260,100 — far higher than Miami-Dade’s $175,600, according to the Miami Association of Realtors.

These new arrivals aren’t just buying gated enclaves for quiet weekends on the water. They’re moving their businesses and employees with them, taking prime office space in West Palm Beach — and spurring the development of more. They’re inspiring a cluster of new luxury apartments (with Manhattan prices and origins) along the city’s waterfront.

And they are luring in a college. This week, Nashville’s Vanderbilt University unveiled plans for a $520 million university campus focused on business and artificial intelligence. Wealthy locals, including Related’s Ross, are raising $300 million to help the university build that campus, which Vanderbilt estimates could create 35,000 local jobs over 25 years.

“I hate to use the words ‘well’ and ‘COVID’ in the same sentence,” West Palm Beach Mayor Keith James said in an interview after he attended an April groundbreaking for an apartment tower where prices start at $5.9 million. “But COVID had been good for the city,” he said.

What may have started with Ken Griffin’s Citadel hedge fund operating from the Palm Beach Four Seasons during the COVID-19 lockdown in 2020 has brought a more stable, conventional workforce across the water to West Palm Beach in 2024. Goldman Sachs, BlackRock and billionaire Steven Cohen’s firm, Point72, has opened offices there.

In May, JPMorgan Chase, the nation’s largest bank, said it would also establish a presence in West Palm, with a new 13,000-square-foot space in Related’s 360 Rosemary tower. Richard Born, whose BD Hotels owns the Mercer and Bowery hotels in Manhattan, is investing in his first non-New York lodging property in West Palm Beach, with an upcoming 201-room hotel anchoring a 40-acre redevelopment district called Nora.

Plans for Nora (named for its location along North Railroad Avenue) — began in 2018, when NDT Development and Place Projects bet that greater West Palm could use a pedestrian-friendly neighborhood with restaurants and retail. They, along with Wheelock Street Capital, managed to buy the old industrial land, rezone it and look for tenants – the quality of which improved dramatically after the pandemic hit and it became clear to the niche sellers that the money was moving.

“There are early COVID tenants, there are mid-COVID tenants and there are today’s tenants,” said Ned Grace, co-founder of NDT Development.

Nora’s list of tenants so far can give Northeast transplants a sense of home. New York’s H&H Bagels is coming, as is Van Leeuwen Ice Cream, with its debut location in Florida. Broadway Restaurant Group will open its first restaurant outside of Boston (a taqueria and oyster bar), Pastis will be the hotel’s flagship restaurant, and a luxury clothing boutique called Mint will set up its first location outside of Long Island and the Hamptons.

“There’s a real city that’s emerged where people can live and work downtown that didn’t exist. And it really has since COVID,” Grace said.

Between 12,000 and 15,000 people currently live in downtown West Palm Beach, roughly doubling the population since 2008, according to the Downtown Development Authority.

“We’re not the retirement and hospitality community that everyone thought,” said professor Ken H. Johnson, a real estate economist at Florida Atlantic University’s College of Business. “I think we’ll look back on it with nostalgia.”

In 2021, with the pandemic migration fully underway, real estate investors poured $2.53 billion into West Palm Beach — nearly four times what they had just a year earlier, according to MSCI. In 2023, investors sunk in another $860 million.

Amid a national crisis of vacant office towers, West Palm office rents are rising as demand for Class A workspace continues to grow. Related tore down a movie multiplex last year and has plans to build two new office towers — totaling 1 million square feet — in its place.

The site today is still just a piece of land, but a future building there, 15 CityPlace, has tenant commitments for 60% of its space, said Jordan Rathlev, a senior vice president at Related Ross, who is overseeing the firm’s development. for more than 2 million square feet of downtown office space.

New York’s Related, which took up land in West Palm with a winning bid for a government redevelopment contract in 1996, eventually became the city’s largest owner of commercial property. And last month, Ross, its founder, threw himself completely behind that status: the 84-year-old developer left the Big Apple firm he started more than 50 years ago and spun off its Florida division into a venture young woman holding his own. that is.

The firm, Related Ross, has long-term plans in the city that include: at least three more office towers, a 400-room Hilton Signia hotel – and a role as a placemaker. It is looking to bolster the city’s medical offerings (reportedly luring a Cleveland Clinic) and is trying to cultivate financial firm talent locally by bringing a Vanderbilt business school to the city. Himmel describes that effort as a successful “tapping” of Vanderbilt’s rumored interest in locating in Florida.

“One of our partners who attended a football game sat in the box with the chancellor and the chairman of the board and literally, for three hours, sold out West Palm Beach,” Himmel said.

It is not just commercial property that has been changed by so many migrations. West Palm Beach’s residential market has also rebounded.

Just five years ago, in the second quarter of 2019, a West Palm Beach luxury home — defined as the top 10% of homes on the market by price — was anything listed at or above $680,000 (a figure that nor does one buy a one-bedroom apartment in Manhattan), according to Miller Samuel Inc. and Douglas Elliman Real Estate. In the second quarter of this year, this luxury threshold was $1.75 million.

“I see this as a market reset, rather than a peak scenario,” said Jonathan Miller, president of Miller Samuel.

So do the waves of developers who are arriving on the shores of West Palm Beach to build exclusive condos at amazing prices. Savanna, an investment firm with a portfolio of office buildings in New York City, is making its first investment in Florida: a 275-unit condo called Olara, where units start at $2 million. Miami developer David Martin is planning a hotel and condominium project – Mr C. Hotel & Residences – in collaboration with the Cipriani family, the first foray into West Palm for his firm, Terra Group. Mr. C.’s 146 units, which went on sale in November, are priced between $2 million and $5 million, he said.

Related Ross is also undertaking its first ultra-luxury condo in Florida: the 108-unit South Flagler House, designed by Manhattan billionaire architect Robert AM Stern. The most expensive unit there is asking for $72.5 million.

The firm held a groundbreaking ceremony for the project in April, with the mayor of West Palm Beach, government officials and real estate agents gathered to celebrate the 3.4-acre sandbank along the Intracoastal Waterway that will eventually one of the city’s priciest apartment towers was rising — nearly three decades after Related first envisioned West Palm as a future growth site.

“We saw this 28 years ago,” Ross said in his public comments. “But unfortunately we had to wait a long time.”

Oshrat Carmiel is the publisher of The highest and the besta South Florida real estate and wealth migration newsletter, and a former real estate reporter for Bloomberg News.