Merciful deal: a land for charity swap could be a harbinger of things to come, as developers seek prime waterfront land for condo projects
The recent land sale by Mercy Hospital to Ocean Land Equities was wrapped in the cloak of charity, but it is Miami-based mega-developer The Related Group of Florida that stands to make a windfall from the deal.
Mercy Hospital, in Coconut Grove, this month agreed to sell its 6.6-acre bayfront parking lot for $96 million dollars. Ocean Land and Related will co-own the land, which Related will build 300 condominium units on once the city of Miami issues a zoning variance to allow residential development on the site.
“Many people buy land when the land is zoned, and they don’t take the risk,” says Jean Francois Roy, Ocean Land Equities president. “This is, right now, a parking lot, which doesn’t generate income for the city. The development will generate $13 to $14 million of additional tax for the city. It just makes sense.”
Roy contends the price paid to Mercy is well above market value, and the premium should be considered a charitable donation. Ocean Land Equities specializes in procuring oceanfront property, re-zoning it, then finding a local company to develop the land. Related’s chairman Jorge M. Perez, says the deal is “a way that we can do some infill housing in Coconut Grove and make a major contribution to the improvement of Mercy Hospital.”
Perez plans three buildings for the site, each with 100 condominium units. He says each unit will be approximately 3,000 square feet and sell for around $1.5 million a piece–a sell out value of approximately $450 million.
Charles Foschini, senior director at CBRE L.J. Melody & Co., says most developers would pay as much as 20 percent of the sell out value of the project for the land purchase. In this case, that comes out to about $90 million.
“I believe they got a very fair price for the land,” Foschini says. “In today’s dollars, that would closely approach the reported price for the Mercy Hospital site. Given that the developer will be delivering units three to five years from now at a higher rate, that land proves to be a very smart buy.”
Perez agrees. “We might be paying slightly more than the market value, but I think that the price of the land is justified, in that it is the only waterfront piece of land in Coconut Grove,” he says.
Mercy Hospital CEO John E. Matuska says the money from the land sale will cover half the hospital’s capital needs for the next five years, during which the 55-year-old hospital plans to renovate some buildings and update its technology.
“We’re pursuing all avenues to be able to generate the capital that we need to [be] competitive in the market place,” Matuska says.
While Roy and Perez are eager to do more deals with not-for-profit organizations, Matuska says Mercy Hospital has no plans to sell more of its 42 acres of land.
“This was the premium parcel that we had,” Matuska says. “The rest of the land we’re going to need in order to be able to expand the hospital in the future.”
Re-zoning of this parcel of land could take anywhere from six to 18 months, but Ocean Land’s Roy says he is confident the project will gain the support of Coconut Grove residents and the city.
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