Upstart in Miami Lures Luxury Stores From a Chic Citadel

MIAMI — For decades, the wealthy tourists and transplants who flock to South Florida bought their Chanels, Cartiers, Diors and the like at one place: Bal Harbour Shops, an open-air mall housing many of the highest-end retailers in the world around a courtyard of palm trees and koi ponds at the northern end of Miami Beach.

This was where Gucci opened its first shopping center boutique in the 1970s. It is where, last week, a 22-carat yellow-diamond ring priced at more than $1 million glittered in the window of the jeweler Graff. Last year, the International Council of Shopping Centers pronounced it the single most productive shopping center in the world as measured by sales per square foot of retailing space.

But recently a string of big-name tenants — Louis Vuitton, Hermès, Cartier and others — has been abandoning Bal Harbour’s rarefied confines for a scruffy city neighborhood 10 miles away. More than a dozen other Bal Harbour tenants, including Valentino, Giorgio Armani, Fendi and Harry Winston, have signed leases in the area and are expected to follow.

Their destination is the Miami Design District, once an enclave of furniture showrooms, low storefronts and empty streets in the shadow of two interstate highways. There, Craig Robins, 50, a local real estate developer with a passion for contemporary art and design, is engaged in a more than $1 billion effort to transform the neighborhood, and to crack Bal Harbour’s hold on the increasingly important local luxury market.

With middle-income families still struggling after the recession, spending by affluent consumers has been a critical ingredient in the economic recovery in the United States. While New York and Los Angeles have long been magnets for high-end shoppers, Miami’s popularity as an attraction for moneyed foreigners, particularly from Latin America and Russia, has created an increasingly vibrant luxury market. More than 70 percent of Bal Harbour’s sales these days are to foreign customers. Brazilians, in particular, have become so important that many of the stores in Bal Harbour employ Portuguese speakers.

In no city is the battle for the high-end consumer more intense than here.

“I realized there was this crazy situation going on in Miami,” Mr. Robins said in an interview in his office, an airy loftlike space that displays his personal collection of contemporary art. “This is the third-largest luxury market in the United States and there was this remote, inaccessible, beautiful mall that controlled 100 percent of the market share.”

The issue is a clause in the Bal Harbour lease — a common feature in shopping center contracts — that bars tenants from opening another retail location within a certain distance. (At Bal Harbour it used to be a straight radius of 20 miles but it has been modified slightly in recent years.) Bal Harbour’s intimate size — it is less than 500,000 square feet, compared with more than two million square feet for some other malls in the region — meant many tenants yearned for more space. But the success and cachet of the location kept them from seriously considering decamping — until Mr. Robins came along.

“Miami is completely under-retailed in terms of luxury and in terms of potential of the city,” said Emmanuel Perrin, the president and chief executive of Cartier North America. He said the jeweler had increased its retail footprint in the area twelvefold by leaving Bal Harbour and opening stores in the Design District and another mall in the area called Aventura. “It’s unfortunate we couldn’t find an agreement with Bal Harbour to have a multistore presence.”

Mr. Robins’s firm, Dacra, has entered into a 50-50 partnership with a private equity fund, L Real Estate, whose investors include LVMH, one of the premier luxury companies in the world. Its labels include Pucci, Celine and Louis Vuitton.

For several years, he quietly bought up property in the neighborhood at attractive prices — holdings now are valued at more than $1 billion after debt. Mr. Robins said the partnership was spending “hundreds of millions of dollars” to create a new street with pedestrian plazas at each end, buildings by renowned architects, luxury condos, restaurants (and of course, four vast parking garages so the people will come).

Referring to the family that built Bal Harbour in 1965 and still owns it, Mr. Robins said, “I don’t consider this a war between me and the Whitmans. I believe Miami is a two-location market and I want to be one of them.”

Mr. Robins said he asked the Whitmans a few years ago to waive their radius restriction so tenants could open a second store in the Design District, and he still hopes the two parties can have a collaborative relationship. But in the meantime, he has set about luring brands away. One of the big prizes in his sights was Hermès.

“When I met Craig Robins and he presented his vision of what the Design District could become, I was really convinced from the first minute that he started talking,” said Robert B. Chavez, the president and chief executive of Hermès of Paris. “We just thought, wow, this is really important and is really needed in Miami and something we wanted to become a part of.”

Hermès closed its 4,300-square-foot Bal Harbour boutique after its lease expired last December and has opened a temporary shop in the Design District. It has begun work on a flagship store to open in the neighborhood in 2015 with a three-story, 13,000-square-foot space and a roof garden. “You can imagine the breadth and depth of what we can offer,” Mr. Chavez said. “That’s something that’s not possible in a shopping mall.”

The Whitmans are fighting back with expansion plans of their own. Earlier this month they submitted plans to the village of Bal Harbour to expand the shopping center by about 250,000 square feet.

“We are responding to the needs of the marketplace, and what our tenants tell us they need, which, in two words, is more space,” said Matthew Whitman Lazenby, the 36-year-old grandson of Bal Harbour’s founder and president and chief executive of Whitman Family Development, the parent company of Bal Harbour Shops.

The Whitmans have also entered into a partnership with a Hong Kong real estate company for a new project in downtown Miami’s financial district called the Brickell CityCentre, nine million square feet of offices, hotels, condos and retail space. They will develop some 600,000 square feet of that for retail use, and tenants at Bal Harbour will be permitted under the lease to open a second location there.

To study the changing market, Mr. Lazenby went back to school last year for an intensive one-year master’s program in real estate development at the University of Miami. His conclusion: Go where the tourists are — which, he said, isn’t necessarily the Design District.

“All signs in our mind absolutely pointed to Brickell,” he said. “It has for a long time been the Wall Street of the South. It is where Latin America does its banking. It has a healthy reputation for being a solid business tourist destination.”

With five-star hotels like the Mandarin Oriental and the Four Seasons in the area and more luxury hotels on the way, he added, “That said to us in flashing red letters, that is the next luxury tourism area of town.”

Mr. Robins, who has experience in revitalizing neighborhoods — he was instrumental in the renaissance of South Beach more than two decades ago — says his vision extends far beyond shopping. He wants to turn the Design District into a cultural, as well as a commercial, destination. He has already brought galleries and the world-renowned annual Art Basel fair to the neighborhood. “We don’t intend to be a luxury ghetto,” he said.

To some prospective tenants, Bal Harbour is still the most desirable. The Webster, a boutique that sells a collection of high-end labels in South Beach, recently announced plans to open a new shop at Bal Harbour.

“I think it’s one of the most luxurious and beautiful malls in the world,” said Laure Hériard-Dubreuil, the Webster’s chief executive and founding partner, noting that she began shopping there when she first started visiting Miami around 2006. “It’s a place that I personally love.”

ORIGINAL SOURCE