(This story, in slightly different form, originally appeared in ALM's Daily Business Review.)
MIAMI-Troubled Chicago-based Corus Bank has sold the construction loan on a luxury condo project in Miami Beach that sat on the market mostly vacant for almost a year. The loan was initially for $127 million. The bank let go of the note for $50 million, according to a source familiar with the deal.
The developer of the Miami Beach condo obtained the loan to renovate the historic Caribbean Hotel into a 103-unit beachfront condominium at the peak of the housing boom in 2006. But the housing and financial markets had crashed by the time the project at Collins Avenue and 37th Street was completed in July 2008. Since then, only 13 units have been sold, according to Miami-Dade County property records.
Investors are buying distressed loans backed by real estate from lenders who need to get them off their books. The deals, usually at a steep discount, are often an efficient way to take over the real estate securing the loans.
On Aug. 19, Corus sold the note to 3737 Caribbean Partners, affiliated with Melohn Properties, an investment group in New York. It is not clear how much was owed on the construction loan when it was sold. Property records show the developer, Caribbean Group Owner, paid back portions of the loan after selling the 13 units at prices ranging from $2.8 million to $1 million.
Local real estate experts see the deal as good news for the South Florida market. "Transactions like this one will make the [housing market] healthier for everyone," says Adam Lubkin, president of the Ibis Development Group in Miami. "You are eliminating distress and solving a problem. It is hard for the bank to take this haircut but helps the market."
Lubkin, who is a consultant to investors seeking to buy distressed projects and notes, says clients of his briefly considered making an offer to Corus for the Caribbean note. He says $50 million was a fair price in today's marketplace.
On paper, the developer—a partnership of Christa Development and Bluerock Real Estate—remains as the owner of the project. The new note owner may choose to file a foreclosure lawsuit to take title to the unsold units or negotiate a deed in lieu of foreclosure, which would save time and money for both parties.
Under the note purchase, Melohn Properties paid $555,555 a unit, giving it the flexibility to sell units for a lot less than the pre-construction prices. In 2006, units were marketed at prices ranging from $850,000 to $9 million.
The Caribbean is one of the most luxurious projects in Miami Beach. Miami architect Kobi Karp designed a new 19-story, 68-condo tower south of the historic hotel. Architect L. Murray Dixon designed the six-story historic building in 1941. The renovated hotel has 35 ultra luxury units. The developer hired Christopher Ciccone, brother of pop star Madonna, to design the interior of the buildings.
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