Businesses are quietly closing in Miami Beach’s Sunset Harbour

Sunset Harbour

Susan Askew
Susan Askew

Businesses are quietly closing in Miami Beach’s Sunset Harbour:

Increased competition, not enough foot traffic, higher rents cited

The big Miami Beach real estate story this week was the bombshell announcement that Purdy Lounge will close its doors for the final time in February. In a much quieter fashion, a number of other Sunset Harbour businesses have closed or are winding down.
Blue Dahlia, Soul Tavern, Pubbelly Noodle. All closed. Due Baci “closed for the summer” and has not reopened. La Moderna has been “taking a well deserved vacation” since at least early September. TKS Sports is selling everything including the fixtures as it prepares to close its retail operation.
In conversations with residents and business owners, there is no single reason for the closures though one thing is clear, there is more uncertainty ahead.
RE:MiamiBeach tried to reach out to all of the shuttered businesses as well as some of the successful ones in the area but many did not return calls or emails so this is not the complete picture, but it is a pretty good snapshot. 
Common themes among those we talked to: increased competition from areas such as Wynwood, Brickell, and the Design District, not enough foot traffic, and increased rents.
Bruce Backman, a resident of Sunset Harbour since 2002, said, “There’s a lot broader area competing with our businesses.” When the first Art Basel satellite fairs started in Wynwood, Backman said, the area “was desolate… there was nothing there.” Now he says, “I’m guilty of that, too, going over there” on occasion to eat.
Dominic Cavagnuolo, owner of the popular Lucali restaurant, said in a text, “[M]arkets such as Brickell/Wynwood/Downtown have hurt the Sunset Harbour market tremendously! Sales are down almost 20%." He said Lucali survives because, “Our price point is less expensive than other restaurants. [Outside] of that we are still down in sales.”
Residents also say one of the things they love about Sunset Harbour is its neighborhood feel. They like the fact it isn’t a tourist hotspot but they also question if there are enough residents to sustain the many restaurants there.

Commissioner Ricky Arriola, a Sunset Harbour resident said, “The area just does not have the density to support that many restaurants. You’ve only got a limited number of condos in the area, many of them are second or third homes, many of them are not full-time residents… The area lacks full-time residents to support that many restaurants.”
Oversaturation is one of Tracy Slavens concerns. Slavens is a land use and zoning attorney who’s lived in Sunset Harbour for eight years. She counted them off in an email. “3 Italian/Pizza restaurants or 3 juice/health/raw food cafes, etc. cannot compete with each other and succeed in such a small area. It’s likely that the same will prove to be true for the 3 grocery stores and one will end up closing.”
Then there’s the higher costs brought about by recent sales of properties in the area. Sunset Harbour was once an industrial zone that transitioned to a thriving residential and commercial area largely due to former Mayor Philip Levine and developer Scott Robins. Located in the lowest lying area of the city, roads in Sunset Harbour were raised as part of the City’s efforts to combat sunny day flooding, one of Levine’s campaign promises. Despite the new development and more of a residential feel, the area is still zoned industrial.

Levine and Robins sold a large portfolio of properties in Sunset Harbour in 2018 to Asana Partners. The sale reflected an increase in property values and, now, rents are going up along with taxes and insurance. Under “Net Leases” the tenant is responsible for taxes, insurance, and maintenance costs. 
Cody Patrick is a Sunset Harbour resident and owner of two fitness businesses, Sweat 440 and Shift. He opened Shift in 2011 “just as the neighborhood was beginning to develop,” he said. Shortly after, he moved his residence into the neighborhood.
When he came up with the new concept of Sweat 440, he said, “I looked all over town and the space below my other gym had been available the whole time and I thought this neighborhood could support the new concept so I went ahead and took the leap and started it here” in 2018.
His location at 1916 Bay Road is one of the properties sold to Asana. “I think that they’re expecting to be able to pump up the neighborhood to a certain level and either make it something more profitable or something they can sell,” Patrick said. “It’s what appears to be happening and, unfortunately, I just don’t think a lot of the businesses can sustain the increase in rents.”
The taxes and insurance costs that are passed through have nearly doubled, Patrick says, though he doesn’t blame that on Asana. He said a group of affected businesses is considering options to appeal the new tax assessment as a way to get some relief. 
Patrick also cites the cost of the CAM passthroughs or Common Area Maintenance charges passed from the landlord to the tenant. His CAM charges went up 30%. “That alone makes it prohibitive for businesses to stay open. Beyond that I think there’s been some pretty sharp increases in rent. I’ve heard 40% on some of these lease renewals.” The new owners are valuing the leases similar to those on Lincoln Road, he said, “and that’s not what we are here.”
Patrick gathered “a group of 20 or so" businesses in the neighborhood to discuss their common issues. They sent a letter to Asana Partners expressing their concerns which, Patrick said, Asana seemed responsive to. “They say they’re willing to work with us, however it doesn’t seem to have actually moved any of the numbers. I know that it’s hurting our food service people more than the basic services.”
The fitness businesses, he said are “not impacted quite as heavily. Our food service businesses in our neighborhood are suffering tremendously.” Many are “trying to determine if it’s even viable for them to remain open."
“It appears that [Asana is] pushing out the smaller businesses to possibly move national tenants in and really push the rent up. I don’t know that that’s what’s happening, but it feels that way based on what I’m seeing and historic business practices of funds… that’s typically the strategy,” Patrick added.
Sign outside TKS Sports

Lyle Stern is president of Koniver Stern, a retail leasing company based in the Lincoln Road District. The partnership also invests in properties and recently sold its interest in 1784 West Avenue where Sushi Garage, Epicure Flowers, and the soon to close TKS is located to Asana.
“All a tenant can pay is what it can afford,” Stern said. On the other hand, the only way the County or City has revenue to pay for schools or other services is through taxes.
“Lincoln Road and Sunset Harbour real estate taxes have gone up astronomically,” and if a tenant can’t afford them, “ultimately, the landlord has to pay the taxes or they lose the property,” Stern said. 
He said he doesn’t see property taxes going down and likens the taxes generated from a large sale to a “one-time heroin fix” that delivers a revenue high for local municipalities “but every time we force someone out of business.” 
Asked if tax relief is an option, Stern said, “I would argue if there was a cap on what the increases could be… if there was some reasonable cap put on the increase from sale to sale, I would argue we would have more transactions, more jobs [and] the cumulative net collectible rent would be higher.”
When a building sells and the new owner improves it, “that creates a new windfall” in permit fees, materials, and other transactions. “Anything that we can do to lubricate the sales in a reasonable way so that tenant expenses are bridled or have a governor on them would be better for everybody,” Stern argued. “Right now, it’s one stop, we want to suck as much money out as possible based on a sale and that lives with the property forever and it actually slows down transactional volume because potential buyers say the tenants won’t be able to afford the passthroughs and we won’t be able to afford the debt if the tenants can’t afford the passthrough. It’s endemic.”
Stern said the issue lies mostly with the County where the largest percentage of taxes go. We asked Miami Beach CFO John Woodruff for the breakdown and he responded “The County’s portion of the property tax bill is 28%. The City’s portion is 31.1%. The largest portion is the [Miami Dade County] School Board at 36.9%.”
Arriola agreed that commercial tenants bear the brunt of real estate taxes. With no state income tax, he said, cities rely on other taxes to raise revenue and with the Save Our Homes homestead exemption, “one of the primary mechanisms for governments to raise taxes is through commercial properties that have very little protection at all so a disproportionate burden falls on commercial properties and so we have retailers in commercial properties who have to, basically, pay the taxes on ever appreciating commercial buildings.”

Marc Halpern, another long-time Sunset Harbour resident said the area needs “grassroots, quality type tenants” like early tenant Pubbelly Noodle which recently announced its closing. A report in the New Times cited "a grease-trap issue" but also an increased focus on other projects by the founders. 

Halpern said the growth of Pubbelly from a single location to a global business happened in Sunset Harbour. “We were, in fact, an incubator for that business.”
“You can never go back,” Halpern said. “Wynwood is feeling the same pressures of businesses not being able to afford that area. I don’t know the answer of what you do to allow for those startup restaurants. I don’t know the answer to that. [Asana Partners is] a REIT and they’ve gotta give a return on investment for their investors.”
“It’s the same thing that happened on Lincoln Road so now you’ve got vacancies on Lincoln Road because who can afford $350 a foot?” he asked. “Circling back to our neighborhood here, I don’t have the magic answer for it because it’s really economics… they can certainly afford these vacancies. Our neighborhood can’t.”
The rent increases, Slavens said, mean higher costs are passed on to customers. “The result is that people cannot afford to be regular patrons and they go elsewhere” creating further pressure on businesses.
“The REITS are willing to sit on [vacant properties] until they get the tenant they want so they don’t really care, which is deeply upsetting,” Backman said. “If someone can tell me how long these people can maintain their vacancies and not care about it, I just think it’s insane.”
He wonders if there’s any way to encourage landlords not to keep spaces vacant. His message, “You’ve got to be realistic. You’re damaging the fabric of the city.”

Did Sunset Harbour become a victim of its success?

“Sunset Harbour, as a whole, is a victim of its success,” Halpern said. “I think to keep it as a neighborhood go-to place we want to work with the new owners to make it work for them to make their investment work as well, but there needs to be some sort of balance for the longevity of the neighborhood.”
“I don’t think so!” Cavagnuolo said. “I feel it’s real estate investors unrealistic expectations of what mom and pops can pay for rent. These investors overpay for real estate with the delusion that they can substantially raise rents to increase their returns.”
“In some ways it’s possible,” Patrick said. “Yes, maybe it did allow for the property to sell at a significantly higher value and the only people that could buy it would be a large fund… It’s not their fault. They’re business people looking at spreadsheets. I don’t think they mean any ill will by it, but it’s what they do… If the buyers were to, maybe, be able to have an insight into how this neighborhood functions they could also turn it into a good cash producing asset for themselves instead of trying to inflate and flip it.” 
Asana Partners did not respond to our request for comment.

Soul Tavern

What’s next?

“This could be a microcosm for what’s happening to retail nationally,” Arriola said. “Locally, is this the canary in the coal mine which is we’ve taken our eye off the ball and we’re letting one of our most cherished and important neighborhoods slip away by neglect, potentially going back to the industrial warehouse zone that it was 20 years ago?”
Asked to define “neglect”, Arriola responded “Not being forward thinking and trying to, on the government side, work with local businesses to identify ways to support them, for example, the live entertainment ordinance that was shot down.”
“If we had thought about Lincoln Road much the way we’re thinking about Sunset Harbour now, we might have been able to avoid what we’re facing on Lincoln Road right now with the loss of mom and pops and the invasion of big box retail.”
Fearing that the only businesses that will be able to afford the rents are national chains, Arriola is considering legislation to ban them from Sunset Harbour. He sponsored similar legislation that is now law for Ocean Drive, Lincoln Road, and Ocean Terrace. 
Patrick said, “I think that it’s a very smart idea… I think the Sunset Harbour neighborhood is built by locals. It’s built by small business owners who are investing our entire lives and the shirts off our back and putting everything we’ve got into operating these businesses and I think that the people that come to support these businesses are primarily locals.” 

He doesn’t want to see Sunset Harbour attract businesses that appeal to tourists. “Bringing in national tenants and the type of marketing strategy that they would employ here would be detrimental,” he said. “As a business owner, specific to me, it would probably push out the clientele that patronize my gym. A lot of the locals don’t want to be caught up in the tourist areas.” As a resident, he said, “I don’t want it to happen, the spring breakers and crazy tourists making noise. I think it’s great they’re on vacation and having fun, but I’d prefer it stay at a distance.”
Slavens, on the other hand, is not a fan of the idea. “Restrictions on uses, types of tenants, FAR [Floor Area Ratio], sound, outdoor activities, hours of operation, and the extensive and expensive process required for most properties – Planning Board, Design Review Board – are difficult for a small business owner to deal with,” she wrote in an email. “Unfortunately, it is nearly impossible to change these restrictions in the land development regulations. Additionally, empty storefronts send a negative signal to businesses looking for a new location to open up shop. I agree that not all types of businesses are desirable or appropriate in Sunset Harbour but that should be a decision made by the market and not one made by the government.” 
Backman isn’t opposed to attracting tourists but he’s looking for “tourist traffic of a better quality” which he hopes will come to Sunset Harbour when the Convention Center hotel is built and the new Kimpton Palomar Hotel at the corner of Alton Road and Dade Boulevard opens. 
He’s also thinking about temporary pop-up retail options to fill vacant spaces in the short-term along with potential long-term solutions such as office space. “Instead of constantly creating more and more low paying jobs with restaurants, it would be helpful to bring in more people who can afford to patronize the restaurants,” he said using medical offices as an example. “Maybe with businesses like that locating here, people could actually afford the restaurants.”
“The gyms are doing that by the way,” he said, bringing in customers for other local establishments. “They are going in and patronizing Delicious Raw or Dr. Smood… they’re in their gym clothes.”
Cavagnuolo is a little more pessimistic saying he expects the area “will stay the same and gradually drop off in pedestrian traffic.”

Properties included in the recent sale of the Levine/Robins portfolio to Asana Partners along with changes in assessed taxable value according to the Miami-Dade County Property Appraisers office which determines the assessed value.
Address Businesses located there 2018 Taxable Value 2019 Taxable Value
1787 Purdy Ave Stiltsville $1,032,350 $2,690,000
1919 Purdy Ave Flywheel Sports $777,165 $1,018,334
1929 Purdy Ave Formerly Ofa $885,490 $1,715,000
1900 Bay Road Commercial areas include La Moderna (among others) $7,500,000 $9,351,160
1916 Bay Road Shift/Sweat 440 $908,776 $2,800,000
1930 Bay road Bay Club, Lucali $752,912 $1,046,676
1935 West Ave Modo Yoga, OXXO Care Cleaners $3,961,898 $6,500,000
In a separate transaction, 1784 West Avenue, home to Sushi Garage, Epicure flowers, and the soon to be closed TKS, was sold to Asana Partners for $8.6 million in April 2019. The assessed value for the current year was $1,928,580. Stern and his partner Bruce Koniver are listed as members in the LLC that sold the building.

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