Bulk Sales of Florida Condos Nearing an End
The offering of two broken condominium projects in South Florida could be among the last large-scale opportunities due to the region’s housing rebound.
Crescent Heights is marketing 236 unsold units at the Tao complex in Sunrise, about 30 miles north of Miami. Bids are expected to come in at about $68 million, or $288,000/unit. HFF has the listing.
Meanwhile, Lone Star Funds is shopping a nonperforming mortgage on Promenade at Boynton Beach. The debt is likely to trade for about $55 million, less than half its unpaid balance of $118 million. A buyer would be able to quickly take possession of 246 condo units, 77 hotel rooms and 19,000 square feet of retail space. Eastdil Secured is the broker.
South Florida condominium properties devastated by the crash are still available at steep discounts to their one-time values, but in dwindling numbers. Meanwhile, the apartment rental market is thriving and demand for condos has begun to revive, making the properties more attractive to investors. Complexes like Tao and Promenade are now seen as short-term rental plays, with the prospect of an early exit by selling off the units.
The offerings of big failed condos appear to have run their course in South Florida, with only a few current listings. Carlyle Group tapped HFF last month to shop the 150 unsold units at the 288-unit City Palms mid-rise in West Palm Beach, which is likely to fetch bids of $37 million, or $246,000/unit. And iStar Financial may hit the market soon with the remaining 173 units of the 373-unit Oaks at Biscayne Bay in North Miami.
The collapse of South Florida’s condo boom in 2007 left the market flooded with thousands of unsold units. But most of them have since been absorbed, having either been converted into rentals by their developers or sold at deep discounts to bulk buyers.
Tao and Promenade have similar tales of woe. Both were planned as luxury condo projects, and both were highly leveraged. They opened in 2009, amid the recession and the region’s moribund condo market. Early buyers sued to get out of purchasing units they could no longer afford. Foreclosure proceedings froze marketing campaigns.
But there has been a recent resurgence in demand for apartments, while multi-family construction has been at a standstill. Tao is in Broward County, which now has occupancy rates of 95.3% overall and 96.1% for newer, Class-A properties. Promenade is in the West Palm Beach market, where occupancy is 94.3%, up from a low of 89.4% in 2010. Even demand for condos has revived, largely thanks to Latin American buyers. Miami has fared the best, but that demand is slowly spreading out to Broward and Palm Beach Counties.
The Tao complex, at 2641 North Flamingo Road in Sunrise, has two 26-story towers with 396 units, of which 160 were sold. Miami-based Crescent began renting the remaining 236 units in 2011, and 94% are now occupied. The units have 1-3 bedrooms. Amenities include lagoon-style pools, a fitness center, a lounge and a sauna.
Although it’s being pitched as a rental property for the near term, a buyer might be tempted to start selling units immediately. HFF estimates Broward County has an inventory of just 200 unsold condos, not including Tao, which should burn off by mid-2013.
Developer Weitzer Communities of Davie, Fla., lost the project in 2008 to Corus Bank, which held the $126 million senior loan on the project. After Corus failed, the loan ended up in the hands of a partnership between the FDIC and Starwood Capital of Greenwich, Conn. The partnership sold Tao to Crescent Heights in 2011 for $50 million.
Promenade, at 300 and 400 North Federal Highway in Boynton Beach, encompasses two 14-story towers with 318 residential units, of which 72 were sold as condos, plus the 77 hotel rooms, two swimming pools, a conference facility and a fitness center. The units have 1-3 bedrooms and feature balconies, washer/dryers and stainless-steel appliances.
Dallas-based Lone Star acquired the $118 million of debt on Promenade in 2009 at a discount via its $3.4 billion purchase of 145 loans from Anglo Irish Bank. It has reached a “friendly foreclosure” agreement with the developer, a joint venture headed by New Boston Fund of Boston, under which the property will be surrendered to the holder of the loan by yearend. Lone Star tapped Wells Fargo to service the loan, and the bank gave the marketing assignment to its brokerage affiliate, Eastdil.
While a buyer could try selling units immediately, the best course likely would be to continue operating the property as rentals for at least a year to give the West Palm Beach market time to catch up with Dade and Broward Counties.
CORRECTION (7/25/12): This article has been corrected. The original version understated the estimated total value of the 150 unsold units at the City Palms residential complex in West Palm Beach, Fla. The estimated value of $246,000/unit equals $37 million, not $27 million.