LEFT TO RIGHT: Rey Melendi, Chief Operating OfficerJake Roffman, PrincipalArnaud Karsenti, Managing PrincipalDaryl Shevin, Chief Financial OfficerMichael Nunziata, Principal

LUCKY 13LUCKY 13Before the recession even ended, Arnaud Karsenti and the team at 13th Floor Investments were

buying distressed properties, building partnerships, and redefining how South Florida real estate deals are done.

By Jeff Zbar | Photography by Stephen Boxall

Lucky 13

ant to see the work 13th Floor Investments is doing in South Florida? Take a ride up in the construction elevator to the 19th floor of 400

Sunny Isles. From this perch in the two-tower, 230-unit condominium, you’ll get a lofty view of the development and investment firm’s projects. Surrounded by raw concrete in a still wall-less penthouse suite, the firm’s five partners peer south down the Intracoastal Waterway to the site of the boutique waterfront condo Sereno in Bay Harbor Islands. To the southwest across the Oleta River State Park is the site for a pair of 25-story high-rise condominium towers called The Harbor Beach. Off in the distance to the north is a two-acre parcel fronting the Intracoastal in Hollywood. There, they’ll build a yet-unnamed project with the Related Group. Or, just look out the firm’s penthouse offices along Brickell Avenue. One block to the southwest from the conference room you’ll see an excavator demolishing a 300-car parking garage. Before year’s end, 1010 Brickell will begin to rise on the site. The 47-story luxury condominium’s 350 units will infuse family-friendly, business and lifestyle touches to the downtown residential marketplace. Something else becomes clear as you sit in that boardroom, surrounded by the 13th Floor management team. You’re likely not the smartest person in the room. Three of the partners, including managing principal Arnaud Karsenti, hold Ivy League MBAs. One of the executives spent his career rising the ranks of residential construction. The other was a fund manager overseeing multi-billion dollar investments. Together, they’re changing both the marketplace and how development deals are done. From the coast to downtown, the Design District to suburban markets like Homestead and Tamarac, even south to Key West and west to Naples, they’ve picked up underperforming and distressed properties, often at a steep discount. They’ve successfully built or redeveloped the holdings, often turning a tidy profit for themselves and their investors alike. Along the way, this team of seemingly seasoned-beyond-their-years, Millennial

W executives have also assembled a host of partners who in other times or by other developers might have been seen as competitors. The strategy is simple: seek value investments that generate superior results, actively mitigate risk, what Karsenti calls “derisking,” all the while infusing efficiency into struggling properties. Since its founding in 2008, 13th Floor has invested more than $260 million of equity in 29 transactions, representing a total estimat-ed project value of over $1 billion. “We’re always in search of derisking,” said Karsenti.

Think back and consider market conditions in 2008 when 13th Floor was just ramping up its buying binge. The real estate market was in shambles, and investor wounds were fresh with more still to come. Don Ginsburg, president of commercial brokerage firm Realty Masters Advisors, met Karsenti that year as both were doing one-off deals, mostly distressed acquisitions. Karsenti was buying at a time “when most people were running for the exits,” said Ginsburg. “Arnaud was running toward the fire,” he said. “As Warren Buffet said, ‘Be fearful when others are greedy, and be greedy when others

40 EXECUTIVE SOUTH FLORIDA

are fearful.’ Arnaud had the nerve and liquidity to take advantage of a very dislocated market.” Karsenti had an advantage. His young company was unburdened by the debt-driven calamity befalling bigger players. This afforded 13th Floor access to capital and deal flow focused on distressed properties and time. “Most people were solving problems,” said Karsenti, whose company name reflects the philosophy. Where most developers see a 13th floor as bad luck, he sees opportunity. “We had the resources and the time to go out and do new things.”

Some welcome partnerships. Others are threatened. “Often, people think that you are bluffing and that you are really trying to cut them out of the deal,” said Karsenti. “Unfortunately, those groups find it very difficult to get collaborative deals closed because they focus so much on their position in the deal rather than the value that can be jointly created.” Collaboration is a fact of life as competition for trophy assets heats up in South Florida’s real estate market. Developers are increasingly looking at allied capital and partnerships between competing investment firms as a successful way to enter submarkets with high barriers of entry, like downtown Miami, Miami Beach, and Hollywood Beach. “What you have in today’s market is a lot of competition for fewer deals,” said Adam Lustig, a partner in the real estate group at law firm Bilzin Sumberg. Lustig has worked with both 13th Floor and Key International. “For next-generation developers, the question becomes: Why compete against each other and bid up the price? Let’s do this together.” The approach was a matter of practicality for the Hollywood deal, said Carlos Rosso, president of the Related Group condominium division. Both 13th Floor and Related had interestsin the property. So where Related may have sought to compete in the past, this time they talked for less than an hour and came to terms. “There was a meeting of the minds and we said, ‘Let’s do it together,’” said Rosso. “In my brief experience with them, that’s their characteristic.”

NOVEMBER/DECEMBER 2014 41

The Harbour Beach

A New School Approach He doesn’t do those things alone. Karsenti, 36,and this team of Millennials take a collaborative approach to development. The old-school way of looking at partnerships was to think about them in terms of a pie that had to be shared. Karsenti’s group values working together to grow and diversify the pie. At Eden House in Miami Beach, 13th Floor collaborated with Key International, the real estate sales and marketing firm. In Hollywood, 13th Floor is working with Key and the Related Group.

Building His Team Karsenti flew solo until his first hire in 2009. That’s when Michael Nunziata joined him as a real estate analyst. Conversely, his most recent executive hire was principal Jake Roffman, a Wharton MBA graduate, who assists Nunziata on acquisitions. Soon after Nunziata joined, Karsenti met Daryl Shevin. Skilled in numbers and capable of managing day-to-day operations, Shevin was flirting with job prospects. Negotiations to bring him on board took months. “We courted each other longer than we courted our wives,” joked Shevin. His arrival in 2010 came as Karsenti was transitioning from deal-to-deal projects to assembling his first capital raise. Previously, 13th Floor would target a property, and raise the funds needed to acquire it. Now, Karsenti wanted more flexibility. His first fund, the

Lucky 13

Florida Real Estate Value Fund, launched in 2010 with $50 million in capital commitments, mostly from private equity firms, pension funds, institutional investors, and high net worth individuals. A second raised $100 million. Shevin knew little about real estate. But he was a hedge fund and private equity veteran who had managed teams administering more than $10 billion in client assets. What Karsenti landed was a leader from the institutional fund world with a New York mentality and a focus on fiduciary responsibility. “On paper, it looks like 13th Floor picked up a CFO,” said Karsenti. “But what we really picked up was a strong partner who could lead the company.” Doug Berman has invested in close to two dozen individual 13th Floor deals, as well as in both of its real estate funds. Berman met Karsenti a decade ago when Karsenti had returned to Miami with his Harvard MBA. He watched as Karsenti assembled his team. “Arnaud’s smart enough to know he’s not the expert. He surrounded himself with a very smart, aggressive and thoughtful team that’s very disciplined,” said Berman, executive managing director with H.I.G. Capital, a private equity firm. “More than anything, you invest in a manager, someone with judgment, who’s smart and aggressive, but not crazy.” Next to join was COO Rey Melendi, at 45 the old man on the team. Melendi began in construction in his 20s laying roofs in Lennar’s suburban communities. He eventually rose to director of REO at Lennar subsidiary Rialto Capital Management LLC, where he managed some $300 million in commercial and residential lender-owned properties nationwide. With his arrival at 13th Floor in 2012, Melendi brought an interpretation of Lennar’s suburban development principles along for 13th Floor’s need for increasingly creative downtown high rises.

400 Sunny Isles exterior

42 EXECUTIVE SOUTH FLORIDA

Gym at 1010 Brickell Indoor pool at 1010 Brickell

400 Sunny Isles entry

NOVEMBER/DECEMBER 2014 43

1010 Brickell

THE KEY TO DEVELOPMENT In 2006, builder Moss & Associates was booked solid with work amid South Florida’s construction boom. So when Inigo Ardid of Key International approached Moss executive Joe Harris about building one of Key’s condominium projects, Harris was reluctant to take on new business. Yet, something about Ardid, a savvy executive who at the time was in his late 20s, convinced Harris to take on the job. “I told him, ‘I want to figure out a way to do your job,’” recounted Harris, executive vice president with Fort Lauderdale-based Moss & Associates. “With someone like that, you find a way to make it work.” A half-dozen successful construction projects later, Moss and Key continue to work together. And Ardid, his brother, Diego, and their real estate development and sales and marketing firm, Key, continue to change Miami’s skyline. Key and some of its projects, including Ivy Condominiums, suffered setbacks and even a lawsuit amid the recession’s backlash. But today, the firm forges on unabated. Key is or has been a partner in condo projects 400 Sunny Isles, 1010 Brickell, Eden House in Miami Beach and the Sereno in Bay Harbor Islands. The firm is also partnered in a two-story building, 330-unit project on North Miami Beach’s Biscayne Blvd. corridor. With the brothers as co-presidents, in August the firm announced it would do a joint venture with the Related Group and long-time partner 13th Floor Investments on a mixed-use condo-hotel in Hollywood. No stranger to hospitality, Key hotel projects also include the Marriott South Beach and the $350 million acquisition and makeover of the Eden Roc Resort and Spa. The family firm, Key was founded in the 1970s by Jose Ardid an architect who emigrated with his family from Spain when his boys were still toddlers. Development and construction was constant chatter around the family’s Miami home said Inigo Ardid. The father taught his sons to establish ties to the capital markets, but not to be afraid to invest their own money in a diversified portfolio. Today that includes high-rise condos, low-income properties, and a host of office buildings and rental apartments. “If you have income-producing property with low leverage on it, you’ll always be able to feed your family,” said Ardid. The philosophy provided stability though the recession, said Diego Ardid, 34, who runs Key’s hotel and commercial division. Today, he’s scouting parcels for new hotel projects, like the seven-acre Jacksonville Beach parcel the company acquired for a 300-room resort that will hopefully break ground in first quarter 2015. Victor Ballestas has worked with Key since the depths of the recession. He was paired with the developer in the struggling Mint condominium project, and recalled debating whether Key could see the project to completion. Together, they did and today continue working together. Ballestas then brought in Key to handle sales and marketing for Sereno, where the 38 units average $1 million each. A month from breaking ground, the project’s nearly sold out said Ballestas, principal with Integra Investments, Miami. “There are six other jobs in Bay Harbor that didn’t sell at that pace or that price,” said Ballestas. “That speaks to their results.”E —J.Z.

Lucky 13

“We’re taking master-planned communities out of the suburbs and we’re verticalizing them,” said Melendi, whose work on 1010 Brickell will deliver such “insane amenities” as a bowling alley, rooftop lounge, and a host of children’s activities. “It’s really an urban playground 50 stories above Brickell.” All this talk of high rises aside, 13th Floor is a multi-dimensional developer. Beyond condos, the company has built or acquired such projects as multifamily development Sierra Grande in Naples, projects in downtown Dadeland, the Central Parc single-family community in Tamarac, the Highland Park medical office building in Miami and 3650 Design Plaza in Miami’s Design District. Avra Jain worked closely with Karsenti on 3650 Design Plaza. A former Wall Street trader and now a veteran of more than a dozen Miami real estate projects, she first met Karsenti in 2012 when each had been offered a shot to buy a different Design District property. “Like so many other 13th Floor introductions, strangers soon became partners,” said Jain. In short order, Karsenti had negotiated and closed a deal and Melendi was pulling permits to transform an old school into a showroom. “As a group they have that experience to make those decisions and to make them quickly,” said Jain. “That’s where the opportunity lies.” 13th Floor has assembled partners like a portfolio of properties, though Karsenti was quick to caution against picking partners who lack accountability or are driven by greed. But as the development team has proven, a generational ethos of getting it done can lead to shared success. “Plus,” Karsenti added, “collaboration is just more fun.” E

Serenoon Bay, Harbor Islands

BELOW: The Harbour poolThe Harbour, North Miami Beach