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The Related Group: A Cool $2 Billion

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Jorge Perez explains his success with one word: Miami. The CEO of The Related Group of Florida grew his company's revenues 96.4 percent last year to a total $2.125 billion, making Related the No. 1 company on the 2005 Hispanic Business 500. Most billion-dollar companies don't double their revenue in one year; but as Mr. Perez observes, "most markets aren't Miami."

"There's only an old saying: 'It's better to be lucky than good,' and there's a lot of that here," Mr. Perez says. "The stars just lined up. Miami is the dear of the international community. It was a local market fueled by New Yorkers, and suddenly it became an international market."

A developer of upscale condominiums, Related caught the South Florida real estate juggernaut at precisely the right time. According to Director of Sales Harold Gallo, the company doubled its inventory of condos on the market during 2004, so the revenue jump followed naturally.

Demand peaked at the same time prices soared. "Prices have more than doubled in Miami over the last five years," says Manny Huerta, executive vice-president of American Southern Financial Group in Miami.

"The gains have been pretty incredible," adds Tom Milana, CEO of brokerage Milana Real Estate Investment Group in Boca Raton, Florida. "I've had customers, including myself, see gains of 300 to 400 percent. Related is one of the main builders we follow because anything [Mr. Perez] builds seems to turn to gold. He's probably the Donald Trump of South Florida right now."

Like most good luck, Related's hot streak came from hard work and great intuition about the direction of the market. Several years ago, the company's management team realized Miami would become more urban and populous. "We made the decision that [this trend] was going to happen, so we retooled our corporate structure to go away from rentals toward condominiums," says Mr. Perez. "We gambled, and now you're seeing the results of that gamble."

Several factors converged to produce the $2-billion year. First, Miami has emerged as the city of choice for international investors and vacationers. For decades, South Florida has functioned as a retirement destination for the East Coast of the United States, a market it still retains. Since the arrival of Cuban refugees in the 1960s, it has become a truly pan-American city, with strong communities of Cubans, Puerto Ricans, Venezuelans, Colombians, Argentines, Mexicans, and Central Americans. Mr. Gallo cites the U.S. Northeast and Latin America as the two main "feeder markets" for condominiums.

In the last few years, wealthy Europeans also have discovered Miami, thanks to the rising strength of the euro against the dollar. "The market in Miami is more diverse than it has ever been," Mr. Huerta says. "In addition to the Central and South Americans and European buyers, Miami is experiencing a large influx of Russian residents and investors."

Macroeconomic conditions helped fuel Related's growth. Low interest rates made it possible for more people to buy expensive condos as second or third homes, or for future retirement. Strong commodity prices in Latin America gave buyers from the region fresh capital to invest.

Mr. Perez's vision of a new urban lifestyle, with an emphasis on build-in construction and mixed-use projects, plays to the Miami market. Gentrification and new construction created a booming market for downtown residences. For years, Mr. Perez has predicted that "people are going to move away from suburbs into the city, especially the younger generation."

"With higher prices for single-family homes, many young professionals are now opting for the amenities and lower pricing available in the condominium market," Mr. Huerta confirms. "With increased traffic and congestion, the condo market provides a viable alternative for those who want to live close to their work place."

Build-in refers to the idea that cities should re-purpose centrally located land rather than building new projects on the periphery of urban sprawl. "As a city like Miami grows, travel distances grow," he explains. "The perimeter of the city expands farther and farther out, meaning people have to drive longer distances. But also, as more people come in, the same distance takes a longer time to travel."

Build-in works well in Miami because of its limited available land. With the Atlantic Ocean on the east and the Everglades on the west, Miami has nowhere to grow but up. As a result, most of Related's projects consist of high-rise towers with a mixed-use design that puts residential, retail, and office space within walking distance. Mr. Perez reports that his upscale Latin American and European buyers feel comfortable with this sort of lifestyle.

In architecture, these same customers like Spanish and Italian styles but that creates a problem for Related. By definition, high-rise buildings are modern structures; trying to convert them to a Mediterranean style comes across as visually confusing. So Mr. Perez has developed a simple formula for buildings modern on the outside, Mediterranean on the inside.

"Related builds contemporary, smart buildings," says Mr. Milana, noting that the units usually have wireless, DSL, and other modern technology. He describes the interior architecture as Tuscany or Renaissance.

Outside of its own developments, Related works "to make downtown Miami the most livable urban center in America." That phrase comes from the mission statement at Miami Downtown Development Authority, where Mr. Perez serves on the board. The authority has a master plan for developing retail, business, transportation, and public spaces downtown, where Related has numerous projects. The company's tagline reflects its commitment to the local market: "The Related Group of Florida: Redefining the South Florida Skyline."

When starting a new development, Related sets up the project as a separate legal entity and puts in 15 to 20 percent equity, either from its own funds or from equity investors, with debt paying for the rest of the costs. The low interest rates that have helped condo-buyers also have helped Related fund its growth. "Financially, we are as strong as you can get for a development company," says Mr. Perez.

The company first appeared on the Hispanic Business 500 in 1999, ranking seventh with revenues of $297 million. By 2001, it had nearly doubled its revenues to $506 million. Since then it has quadrupled revenues again, reaching $1 billion to rank third on last year's directory, and then becoming the first $2 billion company in the history of the Hispanic Business 500 this year.

But after a great run, The Related Group faces a different future. Rising interest rates will make condo-buying less manageable as an investment. Mr. Milana expects 30,000 units to come on the market this year, and he has clients forming investment pools to buy foreclosures when the market slumps.

"It will slow down," admits Mr. Gallo, the sales director. "But a bubble? I don't think so. Other cities in the world are experiencing this kind of growth in Spain and Mexico. Cities are growing that don't compare to us on a financial level." He adds that Miami hadn't experienced fast growth for decades, so it's more a catch-up than an oversold market.

"There will be a correction, a flattening or downward movement in prices," Mr. Perez believes. But with Miami's climate, location, beaches, and international culture all intact, the drivers for growth won't stop permanently. "Given the great exposure of Miami, that [correction] will last for a time, and then the market will continue upward."

For the short term, Mr. Perez can rest easy: every condo Related builds for the next three years already has a buyer. Beyond that, he plans to diversify to other geographic markets, retaining an emphasis on the new urban lifestyle. Already Related has Icon towers under construction in Las Vegas, and the company has plans for California.

In describing Related Group's competitive advantages, Mr. Gallo cites a sense of style provided by world-class architects and a sophisticated European and Latin American clientele. Above all, he cites the company's personal connection to the market. "Mr. Perez is one of those people Latino by birth, educated in Latin America and the United States. He loves art and has traveled the world," says Mr. Gallo. "He's very sophisticated. When he develops a project, he gets involved in miniscule details, and that gives a personality to the project. It makes our buildings unique and beautiful, and that is what allowed us to double our sales in one year."

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