The Financial Times published an article (paywall) over the weekend about the Nobu Hospitality Group.
It stated that they have some 50 restaurants, 40 hotels, and 20 residential projects (i.e. branded residences) either open or in development around the world. One of the first of these branded residences was here in Toronto. And as of July 2024, which was a major liquidity event for the company, it was valued at US$1.3 billion.
According to group CEO Trevor Horwell, their approach always starts with a restaurant: "It's an upside-down business model where the restaurant is the social engine. If we believe a Nobu restaurant can become a genuine social hub for locals, then the hotel and residences can follow."
I like this business model because as we talked about a year ago on the blog, "everything is branded." Knight Frank out of the UK estimates that the number of branded residences around the world is going to go from 611 this year to around 1,020 by 2030. So it seems destined to become a bigger part of our business.
But the other reason I'm drawn to it is because it's a good business to be in. If you own a brand that has value, you can do licensing deals all around the world — which is what Nobu is doing — and not take on the same equity risk that developers typically take on. It's capital-light.
However, the trade-off risk is that you're dependent on the continued attractiveness of your brand. If Robert De Niro ceases to remain involved and/or Nobu just loses some of its cachet over time, then the business won't do as well. But that's true of any hospitality-type business, or any brand for that matter.
It has been over four years since the Surfside tragedy in South Florida and the partial collapse of the 12-storey Champlain Towers South building. In response to this, the state of Florida enacted stricter condominium regulations. Buildings over 30 years old (or over 25 years if located within three miles of a coast) must now undergo mandatory structural inspections. Condominium reserve funds are also required to be fully funded, and owners can no longer waive or reduce the contributions. Surprisingly, this was not the case before.
The site itself has also moved forward. In May 2022, Dubai-based DAMAC International acquired the 1.8-acre parcel for $120 million. They hired Zaha Hadid Architects (ZHA) and, in 2023, submitted designs to the Town of Surfside. Earlier this year, pre-construction condominium sales launched for The Delmore — with a starting price of $15 million and an average price of $40 million. And this month, the developer announced that they have secured a foundation permit.
With only 37 condominiums in the project, the land cost alone works out to over $3.2 million per suite.
Rendering via DAMAC
When I was in Miami at the end of last year for the Elevate real estate conference, I was given the impression that every new development project has a luxury brand associated with it and that buyers from all over the world still have an insatiable demand for the city. The Toronto developers in the room had no choice but to commiserate amongst each other and make up excuses for why abundant sunshine and low taxes couldn't possibly be that nice.
But things seem to be changing quickly in Miami. I am seeing reports that the condominium market continues to soften and that unsold inventory is starting to accumulate. This seems to be happening for a bunch of reasons: lots of supply, relatively high interest rates, higher insurance costs (due to climate things), more stringent reserve funding requirements (following the tragic collapse of the Surfside tower), and perhaps even the hostile environment that the US is now creating for foreigners.
I don't have clear data for the pre-construction side of the market (like I do for Toronto), but typically you need a strong resale market to support new development. And that's because pre-construction pricing tends to be higher than resale pricing. If the latter is softening, then the value proposition for something new is weakened. On top of all this, there's right now a risk premium on US assets. The country is being viewed as less safe.
So it's easy to be bearish.
If any of you have any direct insights on the South Florida market, please leave a comment below.
Cover photo by Tomas Lundahl on Unsplash