Condo-office conversion planned

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BY MATTHEW HAGGMAN

A Brickell Avenue office building hit hard by Hurricane Wilma will be sold and converted into office-condominiums, adding to a growing trend in South Florida's commercial real estate market.

Developer Edgardo Defortuna, who made his name building and selling residential condos, has agreed to pay $68.5 million for the 20-story, 235,532-square-foot Colonial Bank Centre building at 1200 Brickell Ave. in Miami.

The deal, expected to close within the next two months, would be Defortuna's second office-condo conversion and the third on Brickell Avenue in three years. The others are 1000 Brickell and Defortuna's 1110 Brickell.

''I am positive the demand is there [for office-condos],'' from users and investors, said Defortuna, who heads Fortune International in Miami. He said 1110 Brickell is sold out.

``The buyer who used to buy a residential condo as an investment to rent is now switching to office or commercial space because they are concerned about overbuilding in the residential market.''

In recent years developers increasingly have bought office buildings and divided them into individual condo units for sale, primarily targeting small and medium-sized businesses whose space needs are largely fixed and business owners from Latin America, where it is more common to own office space.

Their pitch: It's better to build equity -- particularly when interest rates are relatively low and property values may increase -- than pay rent. They also argue buying eliminates the risk of rising lease costs.

But the concept remains untested in South Florida over the long haul. Many companies -- especially large ones -- prefer paying rent because it allows them to expand and contract as business needs dictate.

For now, planned or already completed office-condo conversions account for about 11 percent of the market, according to commercial real estate brokerage CB Richard Ellis. The firm notes many of the planned conversions may never happen.

The largest office-condo conversion announced to date -- the 21-story, 295,000-square-foot SBS Tower in Coconut Grove.

''I don't think it will be a flash in the pan,'' said Hank Bush, principal with Miami's Bush Development, an active office-condo converter in South Florida. ``It will never be 60 percent of the market, but I think it will be a significant component.''

Colonial Bank Centre, meanwhile, suffered extensive damage following Hurricane Wilma last year. The high winds punched out numerous windows in the tower that has Morton's Restaurant on its ground floor.

Defortuna said the windows are being fixed, and all repairs must be finished before closing.

Tenants include Kroll, an international investigations firm, and real estate development company Terra Group.

''1110 Brickell was a tremendous success for us,'' said Defortuna, referring to his first office-condo conversion. ``We are finished with that building, and now this one is double its size.''