|A Sky-High Disaster?|
|Written by Charles Corda, Special to the BT|
SkyRise Miami could bleed red ink from Day One
The Miami City Commission has approved a deal to allow for the construction of a 1000-foot-tall “observation tower” at the edge of Biscayne Bay. City voters will have a chance to vote on August 26 whether to proceed with the plan.
Biscayne Times was one of the first publications to report on this project, with Erik Bojnansky’s “Miami Children’s Museum Lights Up the Sky” (December 2013). So it seems fitting that its readers should now have the opportunity for a closer look at Jeffrey Berkowitz’s planned SkyRise Miami.
For the record, I don’t object to the construction of an observation tower within the City of Miami. However, I do object to the proposed SkyRise tower and possible future casino being constructed on publicly owned land. I believe we have the right to pose reasonable and fair questions about this proposal.
As such, I have examined Mr. Berkowitz’s “pro forma” spreadsheet. Doing so has given me serious concerns about its viability on two counts: the number of visitors and the basic economics.
Number of visitors: Mr. Berkowitz has stated that SkyRise will attract 3.2 million visitors a year. That breaks down to 8767 visitors a day -- and was the first thing that caught my eye, since 8767 visitors a day seems optimistic, given the size of our resident population and the number of tourists visiting Miami and the Beaches.
According to the Greater Miami Convention and Visitors Bureau, 14.2 million people visited here last year. The 2013 U.S. Census update puts the population of Miami-Dade County at 2.61 million. Thus, the combined total of residents and visitors to Miami-Dade County is 16.81 million people.
If Mr. Berkowitz anticipates 3.2 million SkyRise visitors per year, that would be a “capture rate” of better than 19 percent of the combined resident and visitor populations.
He also believes this is a conservative projection and cites, by way of example, the number of visitors to similar structures around the world, including the Empire State Building, the Eiffel Tower, the Statue of Liberty, and the Tokyo Skytree tower.
I looked at those same structures and ran some numbers. The following information comes directly from their respective websites and their locations.
Tokyo SkyTree receives 6 million visitors per year. Tokyo’s resident population totals 35 million people; the city receives about 426 million visitors per year (a huge number, compared to just about anywhere else). Thus, the combined visitor/resident population is about 461 million, making the SkyTree capture rate just 1.3 percent.
If this capture rate is extrapolated to Florida, then: 16.81 million x 1.3% = 218,623 visitors to SkyRise -- clearly far less than Mr. Berkowitz’s projection of 3.2 million.
Next, the Eiffel Tower receives 7 million visitors per year. The Paris resident population totals 2.34 million, and Paris visitors total about 70 million per year, making for a combined resident/visitor population of 72.34 million per year. The Eiffel Tower has a capture rate of just 9.7 percent.
If this capture rate is extrapolated to South Florida, then: 16.81 million x 9.7% = 1.63 million visitors to SkyRise, again, far less than Mr. Berkowitz’s projection of 3.2 million visitors.
The Empire State Building receives 3.5 million visitors each year; New York City has a resident population of 8.48 million. Approximately 48.7 million visitors come to the city each year (2010 figures), making the combined resident/visitor population about 57.18 million. The Empire State Building capture rate is 6.1 percent of this.
If this capture rate is extrapolated to South Florida, then: 16.81 million x 6.1% = 1.023 million visitors to SkyRise. Again, the figure is far below the projection of 3.2 million visitors.
Finally, the Statue of Liberty receives 4.2 million visitors per year. Again, the New York City resident population totals 8.48 million and visitors per year (2010) total 48.7 million. Thus, the combined resident/visitor population totals about 57.18 million. The statue’s capture rate is 7.3 percent.
If this capture rate is extrapolated to South Florida, then: 16.81 million x 7.3% = 1.22 million visitors to SkyRise, far below the projection of 3.2 million visitors.
Conclusion: Giving Mr. Berkowitz the full benefit of the doubt, and even throwing in a slightly higher number for the sake of argument, let’s say that SkyRise becomes the most successful observation tower on earth, having a projected capture rate of 10 percent.
Even so, 10 percent of the combined resident/visitor population of Miami-Dade County -- Miami and the Beaches -- would be 1.7 million people. Clearly, this is still far less than the projection of 3.2 million visitors per year -- in point of fact, it is almost 50 percent less than the projection.
Basic economics: Mr. Berkowitz has offered a spreadsheet on the project’s basic economics. He projects that at Year Five, the first full year of operation, that total revenue will be $99.989 million. Expenses before debt service (the repayment of interest and principal) total $57.839 million, with a cash flow before debt service of $42.149 million.
The projected debt service itself will run to $18.325 million, making for a projected net cash flow of $23.140 million. (Editor’s note: This sum appears in the original spreadsheet; the BT calculates the net cash flow to be $23.824 million.)
The yearly expense is the total of $57.839 million plus the debt service of $18.325 million, or $76.164 million. That is $208,668 per day.
The total revenue per person = $99.989 million divided by 3.2 million projected visitors = $31.25 per visitor per visit.
Assuming that 3.2 million people will visit SkyRise, the project will do quite well and show a considerable profit.
But if the number of visitors is more in line with established landmarks around the world, at a maximum of 10 percent of combined visitor/resident populations, Mr. Berkowitz will be in dire straits.
Extrapolating from his own projections, he must have 6677 visitors per day -- just to break even.
Now those 6677 visitors x $31.25 per visitor = $208,656.25 gross income per day, or approximately equal to his projected expenses of $208,667.82 per day.
But if actual visits are more in line with established landmarks around the world (adjusted by available population/visitor totals), then the project will be bankrupt almost immediately after it opens.
Looking at the combined Miami-Dade County/Miami and the Beaches resident/visitor population of 16.81 million x 10% = 1.681 million per year ÷ 365 days = 4607 visitors per day. Those 4607 visitors per day x $31.25 per visitor = $143,969 per day gross revenue.
With expenses fixed at $208,656.25 versus gross revenue of $143,969, this means that SkyRise loses $64,687 per day.
The question then becomes: Will SkyRise capture a greater percentage of the available population than the most iconic structures on earth?
In fact, SkyRise will have to capture approximately 150 percent more of the available population/visitors than the iconic structures, just to break even.
As such, it seems to be that its financial projections are highly optimistic, at best. If the actual visitor numbers are in line with other established structures around the world, this project will bleed red ink to the tune of approximately $64,000 per day, starting on Day One.
At that rate, the project loses $23.36 million in the first year of operation. I would assume that well before this occurs, the project goes into bankruptcy.
All of the above numbers, except those related to existing observation towers, are of a conjectural nature. No one can predict with certainty how many people will visit this project each day. Not I and not Mr. Berkowitz or his consultants.
However, if similar projects around the world are used as a guide for analysis, this project is doomed to failure. And we citizens of Miami will have a 1000-foot-high problem on our hands. The costs to the city could be astronomical.
In the final analysis, this clearly appears to be a high-risk project on public land. Given the extraordinary expenses the city could incur if this project fails, I respectfully suggest that Mr. Berkowitz build his project somewhere else -- not on our public land.
Charles Corda is an architect who lives in Coconut Grove.
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