In this webinar, Carlos Rodriguez, Jr. presents an exciting hospitality development in Miami.

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Webinar Highlights

• Driftwood’s history using both OZ and other incentives in the hospitality space.
• Overview of the Riverside Wharf project in a thriving Miami market.
• Demographic factors driving an influx of people and money to Florida and Miami in particular.
• Renderings of the Riverside Wharf project.
• Details about the development, including event space, clubs, restaurants, and more.
• Review of the key partners in this deal.
• Live Q&A with OZ Pitch Day attendees.

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Webinar Transcript

Jimmy: Carlos’s project is…it’s a beautiful project. I’ve seen the pitch deck that he’s gonna walk through. It’s the Riverside Wharf Miami QOZ development. It’s a enormous hospitality and entertainment complex, in the heart of downtown Miami, right on the Miami River. It’s gonna include an upper upscale lifestyle, 167-key Dream Hotel, and a whole bunch more. I’ll let Carlos tell you more about it. Carlos, how are you? Good to see you.

Carlos: Thanks. It’s great to be here with everybody. We are not new to the OZ game. We’ve done a few. Prior to OZ, we’ve been navigating different incentive programs for areas in need, and using the EB-5 to develop as well. And so, you know, it was great to start early on in the OZ space, as a vertically-integrated hospitality developer, operator, investor, and now lender as well. Over $3 billion of assets under management. And this is our most exciting QOZ deal to date. It’s been some time in the making, and that’s typical to our model. We take on all of the front work, and then bring it in when it’s, you know, more ready.

So, this project is in our backyard. We operate hotels all around the country, with over 80. You know, we operate in Miami, but we haven’t done too many investments in the city. And luckily, we’re able to do this one in the heart of downtown Miami. Without further ado, let me get into it here.

Again, Driftwood’s been around for over 30 years. We’re operating for third-party, and then control about half of our portfolio. We created a syndication model back in 2015, alongside, you know, institutional investor deals. So, we’ve been syndicating to accredited investors, you know, for quite some time, as traditional LP equity, and then taking advantage of different programs. This is our current portfolio to date of hotels under management. And as you can see, a lot in Florida, but not a significant exposure in Miami in the ownership side. So, excited to bring that to the table today with the Riverside Wharf.

So, the way this project came about, as everyone, I’m sure, is aware, Miami has seen an incredible post-COVID surge, but pre-COVID, right, this has been something long in the making. For the last 20 years, we’ve seen the city grow outside of just being South Beach. Brickell area had seen the first surge, and just over the bridge, in downtown, it was just very hard to get to a full revitalization. There were some important projects that have gone up over the years, but, you know, nothing that really connected the dots. And we’re starting to see that take shape and happening. And so, having the Opportunity Zone designation in this area, you know, very important. This is right on the river. We have 500 linear feet here on this site, and so, to be able to develop this project, and help bring Miami downtown together, there’s a, it’s a great story, and a great project.

And so, we came into it, in conversations with our partners who had owned the land since 2012, I believe, and they’ve been, they had actually been working with the city since… There’s a city lease component on the adjacent parcel that we were able to include as part of the whole master plan. And they’ve been working in it for 10 years before, you know, we came in. I think we started conversations in 2021, beginning of ’21, and then joined them. But they had a covered land play that resulted in one of the best bar venues in Miami. Just goes to show that, you know, the need that had been created in what is a, you know, entertainment hub, and not having something like that in this area, they ended up generating over $20 million, annually, in revenue, and it was just that half of the site that you see here is called the Wharf Miami. They ended up doing that concept, you know, throughout, you know, different parts of Miami now, in different venues. So, this is an experienced F&B operator. They’re gonna be bringing back the wharf concept as part of this mixed-use program. As we mentioned, just a dynamic MSA overall, seeing tremendous growth, and it’s only continuing. This is not a COVID-only surge. We’re seeing this be a real, lasting move, migration to this area, and projects like this one are in very much high demand.

Again, one of the top hospitality markets in Miami. I wanna pull up the snapshot of the project. Facing Brickell, as you can see here, this is the interstate, I-95, main thoroughfare of Miami, right off the exit, and right on the river on the opposite side, you’ll see that, you know, underneath the overpass, where the main access is and thoroughfare off the exit, there were a lot of parking lots, city parking lots, that we’re entering into an agreement to lease, so it just helps with the overall construction costs, not having to build the parking, still have LA and access to all of that city parking. And currently, it, given the way it’s all laid out in downtown today, just in that section, that’s where you’ve seen some homeless areas under the bridge, in those city parking lots, and then you have the new developments that are going up, residential towers, over $1 million a unit, and you needed to fill in these spaces, and we’re seeing that now. So, this anchors the turn on the river. Up the river, there’s a couple of restaurants, but nothing really like this, where you’re gonna have 500 linear feet of dockage.

And so, it’s a truly mixed-use complex. On one side, we have the Dream Hotel, that is catered to the nightlife market. Dream was actually recently acquired by Hyatt, as it’s grown in the lifestyle space, luxury lifestyle, tremendously, in that niche. And so there’s really, you know, not much else like it, which is what Hyatt, it paid an incredible price for it because of the growth trajectory that it’s on, and this one being a marquee project for them, and it comes with everything that it stands for in terms of the project, with all of the entertainment and nightlife. This is like Vegas, you know, transporting to Miami, and as much as Miami has had that in South Beach, it doesn’t really exist downtown, and even in South Beach, it hasn’t really been venues like this opening up. We’re gonna have a nightclub, a day club, two signature restaurants, an event space that overlooks the river, that’s world-class, a restaurant in the Dream Hotel, rooftop pool of the Dream Hotel.

So, it’s essentially two towers, the hotel tower and the entertainment tower, and they connect via these bridgeways. So, you know, it keeps the separation, while having the connectivity. On the ground floor, it’s that reimagined wharf 2.0 that I had mentioned. I have a lot of slides here to show you guys on the project in general, so I wanna cut through them all quickly, as we don’t have too much time. And happy to connect with everybody after in QA, and after the session, should there be interest. But we just couldn’t be more excited to participate in this project. We ended up coming in at a great basis on the land. Worked on the referendum to finalize the city lease, which is, again, below market. So, we’re contributing that land value at our cost basis, and the win of the referendum. As you can see here, we’re right at the edge of that QOF zone. But this is really a critical part of that revitalization of downtown. We’ve seen some projects come up here, like Miami World, etc., but not as much west and of the river.

And so, to be able to do that in a city that’s known for boating and access, there’s just not that much that you can get to via boat. So, to be able to contribute that, and have that mix is, it’s great because there, you know, there’s conversations right now of how do we connect that walkway, and it’s already been planned out, of having a fully-opened pedestrian walkway, all the way down the river, and wrapping around to the mouth of the river. This is a shot that gives you perspective of the entryway opposite the river, right off the highway, and direct access to the drop-offs. Hotel on the right, entertainment tower on the left, 167-key hotel, 20,000 square foot of meeting space, 100K of nightclub, day club, restaurants, wharf.

So, true entertainment complex, and we’re right at the point of breaking ground in June. Have the senior financing in place. Doing buyout right now with the contractor. Form, GMP negotiated, waiting on pricing to finalize that. We’re anticipating $267 million, but right now is a good time to be in the buyout process. So, excited for that. You know, the project team is, you know, this was one of the things that was discussed in the diligence, right, in terms of track record, experienced sponsor. Our partner is the same, in terms of MV being the group that has done a lot of the F&B, and have done the wharf concept, and brought us into this deal. Merrimac Ventures, you know, groups that we’ve partnered with before on other OZ deals, they’ve done luxury hotel towers, and they were critical in developing Miami World, as leads of the project. General contractor Moss, one of the most respected contractors in the industry. ICRAVE, one of the leading interior design companies, especially that cuts across not just hospitality on the hotel space, but also nightclub, day club design. CUBE 3 is an architect, extremely well-known group.

So, really, the best combination of talent. On the document side, again, we also used Holland & Knight for the Opp Zone structuring. Given our experience with EB-5, we’re also including EB-5 in the project as financing, which is a benefit to the Opp Zone investors, and that structuring we did with Greenberg. So, really well-thought-out and concepted. We’re just finalizing term sheet right now with the joint venture partner operator, with our sponsor, Breakwater, that is doing the wharf, bringing in a national nightclub/day club group that is extremely well-known and recognized, one of the, you know, premier groups in that space, and very excited to announce that soon.

So, we’ve been in this point right now, where we have some OZ dollars raised. Total target, roughly $50 million of OZ, but we’ve been waiting to announce the broader raise until now, that we’ve finalizing all the docs, and all these components have come together, with the plan to break ground in June. This gives you a sense of the design, the renderings, and the layout of how we’ve done the tower. Again, we didn’t want as much noise transfer. That’s why we, you know, separate towers made a lot of sense. You know, the hotel is also on the fee simple side, the ground lease, you know, long term with the city, and excited for that, but it made sense to have the entertainment tower sit on that.

There’s an incredible, because of the relationships with our sponsor on the wharf side, and with the nightclub/day club being negotiated through them, with the operator, there’s an incredible profit participation component, that’s outsized from market, that’s going to significantly help in how we ramp this project, and opening, because we also have the base leases, market leases on all these bases, for the entertainment tower, but we also have the HMA for the signature restaurant with Dream. So, overall, it is significant cash flow from the F&B, via both the profit participation, the HMA F&B venue space, and HMA, by the way, is the hospitality management agreement, with Dream as the operator. So, now, through Hyatt, and Hyatt World points. So, again, a great combination of cash flows, that, day one means of opening, which is 2026, it’s a two-year timeline, means, you know, a great annualized yield to investors. We’re projecting north of 12% for that first year of operations. If we hit our targets of opening at least the hotel and wharf before summer 2026, May, June of 2026, again, this is not in our projections, but that is also coincides with the World Cup in Miami, and Miami being one of the key cities in terms of the amount of games that it’s receiving, etc., it would open up with a very strong boost to cash flows, and flow nicely into what, that becomes high season, that we’ve seen just tremendous performance, and then opening the other venues in a staged fashion.

So, very excited for that potential as well. You know, not currently underwritten, and what’s great about it is, on the time frame basis, as we know, with the program, at least the way it stands today, it’s that tax payment date, by the end of the year, there is gonna be some cash flows already to generate for that. Overall, with refi included, it’s about a 20% cash-on-cash over the life, just given the amount of flows from the venues, and a 20% IRR on this 10-year hold. And it just, it comes back to the structuring of the deal, of the leases with the profit participation, and the hotel performance. Here’s a good view of the competition here. This is in Brickell. There’s really nothing like this on the water, with this amount of dockage. I haven’t mentioned yet the dockage revenues, the ancillary revenues of parking that we’re gonna be generating through valet. We’re gonna also offer membership, given the scale of this complex. So, all of those ancillary revenue streams make this truly unique in Miami.

What we’re seeing here is, our ramp-up, we’re anticipating starting at ADRs equivalent to where that concept market is as of last year. So, you know, typical to what we wanna do, make sure that, on all of these components, we have a lot of benchmarks for the values that we put into our pro forma, and feel very comfortable with our projections and assumptions of growth.

This is just, you know, the hotel bar and lounge. So, not even one of the signature restaurants. Just incredible design, and thoughtful all around, adding a very high-end appeal, with a little bit of that grittiness of the Miami River. And again, central to the program, and what we wanna highlight always, is the amount of direct jobs that we’re able to create, over 1800. Indirect, 1400. So, significant job count needed in this area. It’s great for OZ, great for EB-5. And needed in downtown with the growth that we’re seeing as it becoming an entertainment hub. So, couldn’t be more excited to create this, this win-win opportunity, with the Opp Zone program. We are expecting, I mentioned the IRR. You know, it’s a 3.5% equity multiple, on that 10-year hold, given the duration. We are anticipating the total cost at $267 million, and we already have a senior bank for 50%. The mezzanine loan from EB-5 would be an additional 20%. And then we have sponsor equity and the venue build-outs that make up the differential with the QOF, at about $50 million. So, all in all, a well-thought-out cap stack structure, with a lot of flexibility on the mezz, given the EB-5 race component, and that’s at a 10% rate, which, again, you don’t see in the mezz base on the senior side. It’s with Centennial Bank, our relationship bank. We’re getting at that senior construction loan sub-10%, which, in this market, very difficult for a deal this size, $125 million loan.

In terms of, you know, risk profile, really have, you know, de-risked it relative to what we’re building here, and what we’re doing with the structure and the quality of tenants alongside the operated components. Here’s a shot of The Wharf Miami. Again, this one, as just beer tents, was generating $20 million a year pre-COVID. We’ve shut that down to start developing. We’ve already been working on the sea wall, so it’s been offline for this entire year, but they have an immense following, and are now coming back with 30,000 square feet, and we’re gonna be getting 70% of that profit participation, until an 8% IRR, and then it flips back to the operator for the nightclub/day club, because we’ve negotiated with a national group. It’s at 50%, but they’re also contributing capital to that build-out, part of what I meant as the equity build-out here.

Let’s get to questions. Again, you know, I didn’t even get to the cap stack or the revenues here, just with the amount of pictures that we put up on it. But, again, happy to share that offline.

Jimmy: I think we’ll be sharing this presentation deck on our website for our attendees to view. There we go. That’s the money shot right there, Carlos. Scan that QR code to get more details…

Carlos: There you go.

Jimmy: …or email Carlos’s team, [email protected]. We did have one question come in about EB-5 and OZ benefits. The question is, “Are EB-5 and OZ projects compatible?” I think the answer is yes, but how do you kind of view those two different types of equity coming into one deal like this?

Carlos: Yes, absolutely compatible. We’ve already done it for two Opp Zone projects of ours, one in Fort Lauderdale, the other one in Wilmington, Delaware. That was an office conversion. And, you know, what’s great about the combination, you know, really, when you think about it from the OZ perspective, I think it was touched on on diligence side, right. These projects need to stand on their own as equity investments, and you get the optimum benefit. That’s not exactly, you know, the case with EB-5. This is a visa-based foreign investor, you know, program, where you’re investing $500,000 previously, now it’s $800,000 if it’s a targeted employment area. Again, the QOZs generally qualify. And so, with that new higher amount, that investor invested into a qualified deal, and they have to create the jobs, you know, 10 per investor, so you do it via regional center. We have our own regional center, so, it, all of that, all of those aspects of the program are carefully vetted for our team, and it’s a shorter timeline for them, and that’s why we’re structuring it as, you know, we’ve done, actually, EB-5 debt, and EB-5 equity. Equity we bring in as untermed, and at lower profiles, if we were to do, like, an Opp Zone. In this case, with the EB-5 mezz debt, we have, you know, long-term extension options, and really, the plan there is eventual refi takeout. We already have that modeled in this deal. The EB-5 debt we get up to, you know, it’s 20%. So, 70% total financing on the project, but at, again, favorable terms, of 10%, accrual-based, etc. So, not your typical loan, which is, you know, again, great for the Opp Zone investor, who can leverage off of that like it would on a lender, but at a reduced cost basis.

Jimmy: Terrific. Carlos, really wanna thank you. Appreciate your time and support today, and thank you to Pranav and Alex and everybody else at the Driftwood Capital team, for making today’s presentation possible. I just scanned that QR code and it took me right to your website. You can also type in the address if you want, driftwooddealdirect.com/OZ. Carlos, thank you so much for being with us today, and terrific presentation, beautiful project in Miami. Thank you so much.

Carlos: Thank you, Jimmy. Take care. Thanks, everyone.