Has The Real Estate Selloff Begun?

Hedge funds, private equity groups, and pension funds are actively seeking and beginning to purchase problem mortgages in bulk from investment banks and lenders that are desperate to clean up their portfolios, according to the Palm Beach Post.

For example, Lone Star Funds, a Dallas-based opportunity fund, has agreed to purchase a $30.6 billion mortgage portfolio for 22 cents on the dollar from the New York City investment bank Merrill Lynch & Co. The purchase price of $6.7 billion works out to a discount of $23.9 billion off the book value of the portfolio, according to the article.

As Lone Star Funds buys loan portfolios secured by various residential assets, many private equity groups, hedge funds, and institutional investors are searching Florida, California, Nevada, and Arizona for stumbling national and state banks that are willing to sell off loans on specific projects at deep discounts.

Banks are increasingly willing to deal in hopes of shoring up their balance sheets in hopes of avoiding repercussions from federal regulators that have shut down seven banks in 2008. Three banks located in the distressed real estate markets of California, Nevada, and Arizona were shut down by the Federal Deposit Insurance Corp. in the month of July.

No Florida bank has yet been seized although speculation is swirling that such an action could be coming given the plummeting real estate market in the Sunshine State.

Banking analysts have identified two Florida-based institutions that are the watch list of regulators. The two institutions combined by more than $1.2 billion in assets and 19 locations in Florida.

Peter Zalewski is a principal with the consulting company Condo Vultures® LLC and a licensed real estate broker with Condo Vultures® Realty LLC. Peter can be reached at 305-865-5629 or by email at peter@condovultures.com. Be sure to check out Peter’s blog at CondoDump.com. Don't forget to sign up for our weekly Market Intelligence Report. Looking for a property at a deep discount? You are encouraged to take a peek at the Vultures Database™ .

Copyright © 2008, Condo Vultures® LLC

Report: Miami Bank Put On Watch List By Regulators

A Miami-based bank with six locations and $613 million in assets is on the watch list of federal regulators due to the institution’s deteriorating balance sheet, according to the Miami Herald.

Republic Federal Bank in Miami has been slapped with a formal reprimand by the Office of the Comptroller of the Currency. As part of the 24-page order, Republic Federal is to implement “a sweeping compliance program, covering much of the bank's programs and performance and demands the bank draw up a three-year strategic plan,” according to the article.

Under the order, Republic Federal must also “design steps to improve earnings, better its loan-portfolio management, establish periodic reviews of loans of doubtful payment or other problems, establish reserves for loan losses and accurately recognize foreclosed assets, among other issues. The bank agreed to a new capital plan and to only pay dividends when it had complied,” according to the article.

Republic Federal was created in 2007 as a result of the former Hemisphere National Bank in Miami purchasing local competitor Pinebank and adopting the current name.

Republic Federal has $438 million in deposits and employs 123 people at its six locations in Miami-Dade County, which includes the headquarters in the city of Doral, according to the Federal Deposit Insurance Corp., which insures deposits up to $100,000 per account.

Republic Federal reported a loss of $486,000 in the first quarter of 2008 ending March 31 compared to a profit of $467,000 a year earlier in March 2007, according to the FDIC.

The loss occurred as the bank’s problem loans spiked. Noncurrent loans and leases jumped 312 percent to $30.5 million in March 2008 from $7.4 million in March 2007, The bank’s ratio of noncurrent loans to overall loans jumped to 6.64 percent in March 2008 from 1.44 percent a year earlier in March 2007, according to the FDIC.

Financing related to construction and development or multifamily housing was the primary factor for the balance sheet problems.

Noncurrent construction and development loans surged to 35.5 percent in March 2008 compared to zero in 2007. Noncurrent multifamily real estate loans increased to 6.33 percent in March 2008 after reporting no problems a year earlier, according to the FDIC.

Investors are closely watching the banking industry in Florida given the state’s rapidly deteriorating real estate market, which was a key lending focus for most institutions.

Deteriorating real estate markets on the West Coast of the United States has prompted federal regulators to seize three banks in the month of July, and seven institutions so far this year.

Earlier this week on July 28, a veteran investment banker disclosed that Florida-based Peninsula Bank, which has seven South Florida locations and assets of $606 million, is also being closely monitored by banking regulators, according to the Sarasota Herald-Tribune.

Peninsula Bank in Englewood, Fla., on the state’s Gulf of Mexico coast is under regulatory scrutiny due to the instituion's noncurrent loans spiking 723 percent to $38.7 million on March 31, 2008 compared to $4.7 million in March 31, 2007. The bank’s noncurrent loans to total loans jumped to 8.99 percent in March 31, 2008, compared to 1.05 percent in March 31, 2007, according to the FDIC.

Noncurrent construction and development loans were a major factor in the bank’s rapidly deteriorating portfolio. Problem construction and development loans jumped from 1.19 percent on March 31, 2007, to 11.14 percent in March 31, 2008, according to the FDIC.

A Florida bank has not been seized since March 12, 2004, when regulators took over Guaranty National Bank of Tallahassee, which had assets of $74.1 million.

Out West, federal regulators shut down on July 25 two banks in three states with combined assets of $4.6 billion and 28 locations scattered around Arizona, California, and Nevada.

Regulators seized the First National Bank Holding Co. in Scottsdale, Ariz, the parent company of First Heritage Bank in Newport Beach, Calif., and the First National Bank of Nevada in Reno, Nev.The First National Bank of Arizona merged with the First National Bank of Nevada on June 30, only to be shutdown 25 days later.

The estimated cost of the failure of First National Bank of Nevada and First Heritage Bank is projected to be $862 million, according to the Federal Deposit Insurance Corp, which guarantees deposits up to $100,000 per account.

Earlier this month on July 11, federal regulators shut down IndyMac Bank, a $32 billion institution based in Pasadena, Calif. The estimate cost of that seizure is between $4 billion and $8 billion, according to the FDIC.

Before IndyMac, regulators seized Minnesota-based First Integrity Bank with $54.7 million in total assets and $50.3 million in total deposits on May 30; Arkansas-based ANB Financial with $2.1 billion in total assets and $1.8 billion in total deposits on May 9; Missouri-based Hume Bank with total assets of $18.7 million and total deposits of $13.6 million on March 7; and Missouri-based Douglas National Bank with $58.5 million in total assets and $53.8 million in total deposits on January 25, according to the FDIC.

Peter Zalewski is a principal with the consulting company Condo Vultures® LLC and a licensed real estate broker with Condo Vultures® Realty LLC. Peter can be reached at 305-865-5629 or by email at peter@condovultures.com. Be sure to check out Peter’s blog at CondoDump.com. Don't forget to sign up for our weekly Market Intelligence Report. Looking for a property at a deep discount? You are encouraged to take a peek at the Vultures Database™ .

Copyright © 2008, Condo Vultures® LLC

Analyst: Regulators Monitoring Florida-Based Bank With Troubled Loan Portfolio

A Florida-based bank with seven South Florida locations and assets of $606 million is being closely monitored by banking regulators, a veteran investment banker told the Sarasota Herald-Tribune.

Peninsula Bank in Englewood, Fla., on the state’s Gulf of Mexico coast is under regulatory scrutiny due to the instituion's noncurrent loans spiking 723 percent to $38.7 million on March 31, 2008 compared to $4.7 million in March 31, 2007.

The bank’s noncurrent loans to total loans jumped to 8.99 percent in March 31, 2008, compared to 1.05 percent in March 31, 2007, according to the Federal Deposit Insurance Corp., which insures deposits up to $100,000 per account.

Noncurrent construction and development loans were a major factor in the bank’s rapidly deteriorating portfolio. Problem construction and development loans jumped from 1.19 percent on March 31, 2007, to 11.14 percent in March 31, 2008, according to the FDIC.

“It gets back to the way they judge their risk," Ben Bishop, chairman of Allen C. Ewing & Co., a Jacksonville-based investment bank, told the Sarasota Herald-Tribune. "The regulators are looking over their shoulders and if they do something that isn't proper, the regulators will call them on it."

Founded in January 1986, Peninsula Bank had 133 employees working from a dozen locations throughout Florida on March 31. Peninsula Bank operates five branches in Palm Beach County, and one branch in both Broward and Miami-Dade counties. Peninsula’s other five branch locations are situated in Sarasota County, where there are two branches, and Charlotte County, where the headquarters and two branches are located, according to the FDIC.

Investors are closely watching the banking industry in Florida given the state’s rapidly deteriorating real estate market, which was a key lending focus for most institutions.

Deteriorating real estate markets on the West Coast of the United States prompted federal regulators to seize three banks in the month of July.

Federal regulators shut down on July 25 two banks in three states with combined assets of $4.6 billion and 28 locations scattered around Arizona, California, and Nevada.

Regulators seized the First National Bank Holding Co. in Scottsdale, Ariz, the parent company of First Heritage Bank in Newport Beach, Calif., and the First National Bank of Nevada in Reno, Nev.

The First National Bank of Arizona merged with the First National Bank of Nevada on June 30, only to be shutdown 25 days later.The estimated cost of the failure of First National Bank of Nevada and First Heritage Bank is projected to be $862 million, according to the Federal Deposit Insurance Corp, which guarantees deposits up to $100,000 per account.

Earlier this month on July 11, federal regulators shut down IndyMac Bank, a $32 billion institution based in Pasadena, Calif. The estimate cost of that seizure is between $4 billion and $8 billion, according to the FDIC.

Before IndyMac, regulators seized Minnesota-based First Integrity Bank with $54.7 million in total assets and $50.3 million in total deposits on May 30; Arkansas-based ANB Financial with $2.1 billion in total assets and $1.8 billion in total deposits on May 9; Missouri-based Hume Bank with total assets of $18.7 million and total deposits of $13.6 million on March 7; and Missouri-based Douglas National Bank with $58.5 million in total assets and $53.8 million in total deposits on January 25, according to the FDIC.

A Florida bank has not been seized since March 12, 2004, when regulators took over Guaranty National Bank of Tallahassee, which had assets of $74.1 million.

Peter Zalewski is a principal with the consulting company Condo Vultures® LLC and a licensed real estate broker with Condo Vultures® Realty LLC. Peter can be reached at 305-865-5629 or by email at peter@condovultures.com. Be sure to check out Peter’s blog at CondoDump.com. Don't forget to sign up for our weekly Market Intelligence Report. Looking for a property at a deep discount? You are encouraged to take a peek at the Vultures Database™ .

Copyright © 2008, Condo Vultures® LLC

Report: Deepest South Florida Discounts In Palm Beach, Broward Cities

Discounts in the Vultures Database™ fell to an average of -29 percent on condominiums, townhouses, and single-family houses located in coastal South Florida through June 30, representing a -1 percentage point drop from the -28 percent average price reduction the previous month, according to a new report from Condo Vultures® LLC.

As the average price in the Vultures Database™ Report dropped in percentage terms, average discounts in dollar terms actually strengthened to -$219,907 through June 30 compared to an average reduction of -$223,067 on May 31, according to the Vultures Database™ Report for July.

As the average discount drops in percentage terms, several cities in Palm Beach and Broward counties are jumping to the top of the rankings for the deepest price reductions by neighborhood or municipality.

Palm Beach and Broward counties now account for the four markets with the deepest average drop in pricing. It is worth nothing though that the total quantity is limited in comparison to Miami-Dade County.

Royal Palm Beach in Palm Beach County leads the list with one property falling -45 percent. Delray Beach in Palm Beach County ranks second with five properties falling an average of -38 percent. Lantana in Palm Beach County and Oakland Park in Broward County are tied for the third deepest average price drop at -37 percent, according to the report.

The first Miami-Dade County community to make the list at the No. 5 position is Biscayne Park, where the average property drop is -36 percent.

Rounding out the top 10 cities for the deepest discounts are Boca Raton and Palm Beach with a -34 percent average price reduction. Boynton Beach, the Hypoluxo area of Palm Beach County, and North Miami are all tied for the No. 8 position with a -33 percent discount.

“The real estate contagion is expanding at a rapid pace beyond Miami-Dade County to the neighboring South Florida counties of Broward and Palm Beach,” said Peter Zalewski, a principal with the Bal Harbour, Fla.-based consultancy Condo Vultures® LLC. “Miami-Dade County still dominates in the number of distressed properties and discounts in the Vultures Database™, but the discounts we are tracking in the central and northern portion of the South Florida region are beginning to surpass that seen even in the Miami area.”

The Vultures Database™ tracks properties east of Interstate 95 and/or U.S. 1 in the South Florida region of Miami-Dade, Broward, and Palm Beach counties that have decreased in price by at least 10 percent or $100,000.

The Vultures Database™ is comprised of 4,729 properties that have been reduced by -$1.04
billion and have languished on the market for an average of 598 days. Condos represent 69 percent of the total inventory, and single-family houses and townhouses the remaining 31 percent of the properties in the database.

There are 3,265 condos in the database that have experienced an average price drop of -29 percent or -$172,360. The number of single-family houses and townhouses total 1,464 properties, where the average drop is -30 percent or -$325,944, according to the report.

Miami-Dade is the source of 3,274, or 69 percent, of the properties in the Vultures Database™. Broward has 1,316, or 28 percent, of the properties, and Palm Beach 139 properties, or 3 percent.

Miami-Dade’s average discount is -$231,767, which should come as no surprise given the amount of speculative buying that occurred there during the real estate boom from 2004 through 2006. Broward’s average discount is -$199,712, and Palm Beach has an average price reduction of -$131,729, according to the data.

Even with the deep average discount of -29 percent, properties aren’t being purchased until sellers are willing to reduce prices by an additional nine percent, according to the report.

There have been 603 properties in the Vultures Database™ that have sold in 2008 at an average discount of -38 percent, or $309,438. In 2007, there were 1,213 total sales for the year that closed at an average discount of -29 percent or -$257,675.

Peter Zalewski is a principal with the consulting company Condo Vultures® LLC and a licensed real estate broker with Condo Vultures® Realty LLC. Peter can be reached at 305-865-5629 or by email at peter@condovultures.com. Be sure to check out Peter’s blog at CondoDump.com. Don't forget to sign up for our weekly Market Intelligence Report. Looking for a property at a deep discount? You are encouraged to take a peek at the Vultures Database™ .

Copyright © 2008, Condo Vultures® LLC

Feds Seize Banks In Arizona, California, Nevada; Is Florida Next?

Federal regulators were busy in three states on Friday afternoon shutting down two banks with $4.6 billion in assets and 28 locations in the distressed real estate markets of Arizona, California, and Nevada.

Regulators seized the First National Bank Holding Co. in Scottsdale, Ariz, the parent company of First Heritage Bank in Newport Beach, Calif., and the First National Bank of Nevada in Reno, Nev.

The First National Bank of Arizona merged with the First National Bank of Nevada on June 30, only to be shutdown 25 days later.

The estimated cost of the failure of First National Bank of Nevada and First Heritage Bank is projected to be $862 million, according to the Federal Deposit Insurance Corp, which guarantees deposits up to $100,000 per account.

In preparation of the seizure of the First National Bank of Nevada and the First Heritage Bank in Southern California, the FDIC entered into a purchase and assumption agreement for all of the deposits and certain assets to be sold to Mutual of Omaha Bank in Omaha, Neb., according to regulators.

The former First National Bank of Nevada and First Heritage Bank locations will be open for business on Monday morning as Mutual of Omaha Bank. Temporary signage will cover the original bank names until permanent monikers can be put in place.

Under the agreement with regulators, Mutual of Omaha Banks, which has assets of $738 million and a single location, will guarantee depositors their full amount.

“Mutual of Omaha Bank will also purchase approximately $200 million of assets from the receiverships,” according to an FDIC statement. “Mutual of Omaha Bank will pay the FDIC a premium of 4.41 percent to assume all the deposits. The FDIC will retain the remaining assets for later disposition.”

The seizure of the First National Bank of Nevada and the First Heritage Bank marks the sixth and seventh institutions to be shutdown by federal regulators in 2008.

Two weeks ago on July 11, federal regulators shut down IndyMac Bank, a $32 billion institution based in Pasadena, Calif. The estimate cost of that seizure is between $4 billion and $8 billion, according to the FDIC.

Before IndyMac, regulators seized Minnesota-based First Integrity Bank with $54.7 million in total assets and $50.3 million in total deposits on May 30; Arkansas-based ANB Financial with $2.1 billion in total assets and $1.8 billion in total deposits on May 9; Missouri-based Hume Bank with total assets of $18.7 million and total deposits of $13.6 million on March 7; and Missouri-based Douglas National Bank with $58.5 million in total assets and $53.8 million in total deposits on January 25, according to the FDIC.The last Nevada institution to be shuttered by regulators was Frontier Savings Association in Las Vegas on December 14, 1990 during the Savings and Loan crisis, according to the FDIC.

A Florida bank has not been seized since March 12, 2004, when regulators took over Guaranty National Bank of Tallahassee, which had assets of $74.1 million.

First National Bank Holding Co. was the largest Arizona-based institution with 1,072 employees, 38 locations, total deposits of $3.4 billion, and assets of $4.6 billion on March 31, according to the FDIC.

Founded in May 1989 in Scottsdale, Ariz., the First National Bank of Arizona merged into the First National Bank of Nevada on June 30. At the time of the merger, the First National Bank of Arizona employed 839 people, operated 28 locations, and had assets of $2.8 billion and deposits of $1.9 billion, according to regulators.

The First National Bank of Nevada, which was founded in July 1987 in Reno, employed 210 employees throughout 10 locations, and had assets of $1.6 billion and deposits of $1.4 billion through March 31, 2008, according to the FDIC.

In February 2005, First Heritage Bank was created in Southern California to focus on business banking and commercial lending.

First Heritage Bank had built up $159 million in total assets and $136 million in total deposits through March 31. The nationally chartered institution had 27 employees working from three offices located in Los Angeles, Orange, and San Bernardino counties at the time of the FDIC’s seizure.

Peter Zalewski is a principal with the consulting company Condo Vultures® LLC and a licensed real estate broker with Condo Vultures® Realty LLC. Peter can be reached at 305-865-5629 or by email at peter@condovultures.com. Be sure to check out Peter’s blog at CondoDump.com. Don't forget to sign up for our weekly Market Intelligence Report.

Copyright © 2008, Condo Vultures® LLC

Only 53% of Miami's Preconstruction Condo Buyers Close

Buyers have closed on slightly more than half of the new condominium units built and delivered in Greater Downtown Miami since 2003, according to a new report from Condo Vultures® LLC.

Extensive research comparing Miami-Dade County records with the Condo Vultures® Official Condo Buyers Guide To Miami™ has concluded that warranty deeds have been recorded for 10,665 new units out of a total inventory of 20,045 condos delivered between Jan. 1, 2003 and the June 30, 2008, according to the report.

With credit tight and buyers concerned about not knowing the bottom, closings of new condo units have tapered off in 2008. From January through June 30, only 26 percent of the total units delivered or scheduled to be completed this year have closed.

The 2008 ratio is likely to increase in the months ahead as additional units in semi-finished projects are cleared to close by the Miami Building Department. The entire closing process for a building typically takes about six months to complete and occurs for a block of consecutive floors starting at the bottom, and moving up in a tower.

The current 2008 closing ratio is down drastically from 2007 when 66 percent of the total inventory was closed.

During the three previous years when speculation was widespread, buyers closed at a ratio of 99 percent in 2006, 97 percent in 2005, and 100 percent in 2004, according to the report.

“With 88 percent of the new condo inventory in Greater Downtown Miami now or about to come online in the upcoming weeks, we were surprised to learn that a bit more than half of the buyers of units have stepped forward and actually closed on their preconstruction contracts,” said Peter Zalewski, a principal with the Bal Harbour, Fla.-based consultancy Condo Vultures® that produced the report.

“Developers have repeatedly predicted that only about 20 percent to 40 percent of their preconstruction contract holders would walk away from 20 percent deposits. Looking at the closed sales to date, there may be some truth to their 40 percent walkaway projection.”

The 20,045 new units that have been delivered thus far in Greater Downtown Miami are located in 78 condo buildings (including one townhouse project) situated within a 60-block stretch from the Rickenbacker Causeway north to the Julia Tuttle Causeway, and Interstate 95 east to Biscayne Bay. This is the primary area where Miami's condo boom occurred.

The 20,045 new units already online represent 88 percent of the total 22,737 new units proposed and built in Greater Downtown Miami since 2003. The 78 new condo buildings already delivered account for 92 percent of the 85 total projects planned, approved and proceeding, according to the Official Condo Buyers Guide.

Developers are scheduled to deliver six buildings with 2,197 units in 2009, and one building with 495 units in 2010.

For comparison sake, during Miami’s first condo boom stretching from 1978 and 1983 there were 17 towers constructed with 2,112 units and 3 million gross livable square feet. This boom is projected to account for more than 24 million gross livable square feet, according to the Official Condo Buyers Guide.

With the number of residential construction cranes dwindling from 40 at the peak to only three today, developers and lenders are rapidly being forced to figure out ways to sell or maintain units that have been forsaken by preconstruction contract buyers who tended to be speculators.

To address the problem, some developers are offering deep discounts off of retail pricing while others are pitching attractive incentives, such as contributions toward closing costs and the buildout of units that are generally delivered with concrete floors and primer on the walls.

Other developers are quietly negotiating with bulk buyers in hopes of selling enough of the walkaway inventory at a blended price so that the construction loan can be repaid.

Once the construction lenders are satisfied, developers regain control of their projects and can ultimately decide what to do with the excess inventory, whether it be to rent out the product themselves for the next few years or sell it piecemeal to investors.

Peter Zalewski is a principal with the consulting company Condo Vultures® LLC and a licensed real estate broker with Condo Vultures® Realty LLC. Peter can be reached at 305-865-5629 or by email at peter@condovultures.com. Be sure to check out Peter’s blog at CondoDump.com. Don't forget to sign up for our weekly Market Intelligence Report.

Copyright © 2008, Condo Vultures® LLC

Rudy Giuliani, Like Spitzer, To Launch Opportunity Fund To Buy Distressed Properties

Rudy Giuliani, the former New York City mayor and presidential candidate, plans to launch an opportunity fund with as much of $750 million to buy distressed properties, according to the New York Times.

Giuliani of New York City is partnering up with Berman Enterprises from suburban Washington, D.C, to create the Berman Enterprises Opportunity Fund. The minimum investment will be $25 million for participants, who are expected to come from abroad with an emphasis on oil-exporting nations, according to the report.

The bulk of the purchasing is supposed to occur in New York and Washington. There is no word if the Giuliani-related fund will focus on distressed properties in Florida, where the former presidential candidate spent a significant amount of his time campaigning.

Giuliani isn’t the first former New York politician to affiliate with an opportunity fund.

Former New York Gov. Elliott Spitzer is trying to create an opportunity fund to buy such things as distressed condos in South Florida, single-family houses in Las Vegas, and land in California.

According to the New York Sun, Spitzer, 49, is reportedly courting private equity investors and pension fund managers in hopes of securing enough financial commitments to launch his own fund to purchase short sales, Real Estate Owned by the bank, foreclosures, and any other opportunities that exist on a bulk basis.

Spitzer, a former New York State Attorney General who capitalized on his aggressive prosecution of Wall Street lawbreakers into being elected governor, is the son of a successful Manhattan real estate investor.

Peter Zalewski is a principal with the consulting company Condo Vultures®LLC and a licensed real estate broker with Condo Vultures® Realty LLC. Peter can be reached at 305-865-5629 or by email at peter@condovultures.com. Be sure to check out Peter’s blog at CondoDump.com. Don't forget to sign up for our weekly Market Intelligence Report.

Copyright © 2008, Condo Vultures® LLC

Opportunity Fund Buys Oceanfront Condo Development At Deep Discount

A South Florida opportunity fund received a 31 percent discount in purchasing an undeveloped oceanfront commercial property that had been the site of a proposed ultra-luxury condominium tower in Sunny Isles Beach, which is located in Northeast Miami-Dade County.

The newly created R.K. Land Holdings LLC paid $9.6 million, or $300 per square foot, for the 32,000-square-foot lot that had been the site of the proposed Da Vinci on the Ocean condominium at 17141 Collins Avenue.

Mully SB LLC, a Virginia Beach, Va.-based entity with Nathan D. Benson as a member, was the seller. Waterbrook Developers with L. William Rudnick and Thomas N. Yianilos had proposed building a 69-unit ultra-luxury condominium on the site, according to the Da Vinci website.

It is unclear what the relationship was between Mully SB LLC and Waterbrook Developers.

Under the terms of the deal, the seller could receive as much as $2 million more for the land if the new buyer is successful in developing or selling the property.

“In the event the Grantee [R.K. Land Holdings LLC] obtains profits on its sale of the property (whether the property is improved and sold in units or sold in an unimproved state) in excess of $20,000,000, then the Grantor [Mully SB, LLC] shall be paid an additional $2,000,000 by Grantee [R.K. Land Holdings LLC] in excess of the purchase price under the purchase contract between Grantor and Grantee,” according to the deed.

The buying entity plans to build a 300-unit hotel on the property, according to the South Florida Business Journal.

The hotel would be constructed between the new Ocean 4 condominium to the north and the soon-to-be completed Jade Ocean condominium.

The buying entity is a combination of three limited liability corporations that include as members Raanan Katz of RK Associates which owns several retails centers in Miami-Dade and Broward counties, and Aventura residential developer Yizhak Toledano of Sky Development.

Toledano is involved in the Skyvest Real Estate Opportunity Fund 1 LLC, which is a joint venture between Sky Development and condo converter SunVest USA.

The seller Mully SB LLC paid a combined $13 million to assemble the land in April 2005 by purchasing each of the existing 55 units of the former condo-hotel that once stood on site, according to county records.

Upon buying out each of the condo-hotel unit owners, the seller terminated the condo association and proceeded to raze the previous structure in August 2005 in order to open a sales center of the proposed Da Vinci.

The developer spent nearly three years marketing the project extensively to high-end buyers but was never able to construct the tower.

The seller Mully SB LLC obtained a predevelopment loan for $11.7 million in July 2005 from LaSalle Bank in Chicago. In August 2007, the borrower modified the mortgage and reduced the amount to $8 million, according to county records.

The assessed value of the property for 2008 is not yet available however in 2007 the site was valued at $9.6 million, according to the Miami-Dade Property Appraiser. Industry watchers said that assessed value is often about 15 percent below market value.

Sunny Isles Beach is a 40-block long stretch of barrier island city that is home to six towers with featuring real estate magnate Donald Trump’s name. At least 12 oceanfront towers with more than 300 units each were constructed or completed in Sunny Isles Beach in the last five years. Prices for these units range from $400 to $900 per square foot.

Peter Zalewski is a principal with the consulting company Condo Vultures®LLC and a licensed real estate broker with Condo Vultures® Realty LLC. Peter can be reached at 305-865-5629 or by email at peter@condovultures.com. Be sure to check out Peter’s blog at CondoDump.com. Don't forget to sign up for our weekly Market Intelligence Report.

Copyright © 2008, Condo Vultures® LLC

South Florida Bank-Owned Properties Spike 228% In Second Quarter

As federal regulators attempt to sell off assets from the failed IndyMac Bank, the number of bank-owned properties in South Florida has spiked by 228 percent in the second quarter of 2008, according to a new report from Condo Vultures® LLC.

Nearly 7,100 South Florida properties were repossessed by banks - also known in the banking industry as Real Estate-Owned (REO) properties - between April and June of 2008, compared to 2,167 properties for the same period in 2007, according to the

The second quarter activity pushed the total number of court-ordered repossessions in South Florida for the year to 11,860 properties compared to 3,510 in the first half of 2007, representing a 238 percent increase.

On a county-by-county basis, the greatest concentration of REOs is located in Miami-Dade County where 5,370 properties were repossessed by banks in the first half of 2008. By comparison, 1,665 Miami-Dade properties were repossessed in 2007, which represents a 223 percent increase on a year-over-year basis.

In Broward County where Fort Lauderdale is located, lenders repossessed 4,746 properties in the first half of 2008, up 324 percent from the 1,119 REOs in the first half of 2007.

Palm Beach County is experiencing the smallest increase in REOs with the first half total increasing only 140 percent to 1,744 in 2008 compared to 726 for the same the number of months in 2007, according to the report.

Banks generally attempt to unload newly transferred REOs quickly as the institutions are responsible not only for the upkeep of the property but the monthly expenses, including homeowners association dues, special assessments, and property taxes. These expenses are in addition to the $40,000 to $80,000 that lenders spend during the six to eight month foreclosure process to repossess a property.

Peter Zalewski is a principal with the consulting company Condo Vultures®LLC and a licensed real estate broker with Condo Vultures® Realty LLC. Peter can be reached at 305-865-5629 or by email at peter@condovultures.com. Be sure to check out Peter’s blog at CondoDump.com. Don't forget to sign up for our weekly Market Intelligence Report.

Copyright © 2008, Condo Vultures® LLC

8,400 South Florida Condos Go Into Foreclosure in '08

Nearly 8,400 South Florida condominium units valued at $1.7 billion in loans entered into foreclosure proceedings in the first half of 2008, with more than half of the properties located in Greater Fort Lauderdale, according to a new report from Condo Vultures® LLC.

Broward County, where Fort Lauderdale is located, had 4,514 units valued at $840 million enter into foreclosure proceedings between January and June, representing 51 percent of the South Florida total, according to the data.

Palm Beach County, where West Palm Beach, Delray Beach, and Boca Raton are located, ranked second in total number of foreclosures with 2,072 units valued at $364 million.

Miami-Dade County, home to Miami Beach, Sunny Isles Beach, Aventura, and Coral Gables, had a reversal of fortunes of sorts, and now has the fewest number of condos in foreclosures in the region with 1,811 units valued at $458 million. In 2007, Miami-Dade County led the tri-county South Florida region in foreclosure actions.

“Miami-Dade County was ahead of the curve in terms of foreclosure actions filed in South Florida's real estate correction,” said Peter Zalewski, a principal with the Bal Harbour, Fla.-based consultancy Condo Vultures® LLC. “Now that many of the Miami-Dade foreclosures have been auctioned off or more likely repossessed by the banks, homeowners in the neighboring counties of Broward and Palm Beach are beginning to feel the same pain that was experienced in Miami in 2007.”

Condo Vultures® created this report by compiling data provided by the circuit courts in Miami-Dade, Broward, and Palm Beach counties. This data reflects notices of default or lis pendens filed between January 1 and June 30 of 2008.

As foreclosures spike in Broward and Palm Beach counties, the later stages of the repossession process where lenders are granted title to the troubled properties by the courts is surging in Miami-Dade County.

Court-ordered repossessions - also known in the banking industry as Real Estate-Owned (REO) properties - increased in Miami-Dade County in the first half of the year to nearly to 5,370, up 223 percent from the 1,665 properties in 2007, according to the report.

South Florida experienced 11,860 REOs in the first half of the year, with 4,746 court-ordered title transfers in Broward and 1,744 in Palm Beach. By comparison, South Florida had 3,510 REOs in the first half of 2007, representing a 238 percent increase in 2008 on a year-over-year basis. 

Banks generally attempt to unload newly transferred REOs quickly as the institutions are responsible not only for the upkeep of the property but the monthly expenses, including homeowners association dues, special assessments, and property taxes. These expenses are in addition to the $40,000 to $80,000 that lenders spend during the six to eight month foreclosure process to repossess a property.

“Lenders do not want to be landlords, nor do they have the personnel to handle the responsibilities,” Zalewski said. “This reality usually prompts lenders to dump their REO properties within a quarter or so after taking title. In a unpredictable market such as this, bankers realize that today’s foreclosure is tomorrow’s REO so it critical to move fast."

On a project basis, the Palm-Aire Country Club in the Broward County city of Pompano Beach has the highest number of foreclosure actions in South Florida with 71 proceedings valued at $9.6 million. Ponte Verde at Palm Beach Lakes in Palm Beach County ranks second with 58 actions totaling $11.1 million. The Edgewater Condominium in Coral Springs ranks third with 54 actions valued at $12.9 million.

A pair of Miami-Dade condo projects round out the top five rankings. The Parc Central Condominium in Aventura ranks fourth with 50 actions, and the Blue Lagoon Condominium in Miami ranks fifth with 47 actions, according to the report.

From a debt perspective, the biggest potential losses for creditors are in Miami-Dade County, where four of the top five projects are located.

The Club at Brickell Bay in Miami’s Brickell Avenue corridor has the largest amount of troubled debt at $20.6 million tied to 43 units. This is the same project that had the highest concentration of foreclosures for a single South Florida condo in 2007.

Parc Central in Aventura is second with $17.9 million, and the Vue at Brickell is third with 37 unit owners owing $17.8 million. The Beach Club in Hallandale Beach ranks fourth with 32 unit owners owing $17.7 million, and the Blue Lagoon on Northwest 7th Street in Miami ranks fifth with $14.7 million.

The CitySide Condominium in West Palm Beach has the largest amount of troubled debt in a single Palm Beach County complex with $12.3 million, according to the report.

Overall, there were 38,063 foreclosure actions valued at $9.8 billion filed in Miami-Dade, Broward, and Palm Beach counties in the first half of 2008, according to the data. Broward County had 16,778 foreclosure actions totaling $4.1 billion compared to 10,917 actions valued at $2.7 billion in Palm Beach, and 10,368 actions totaling $3.1 billion in Miami-Dade.

Peter Zalewski is a principal with the consulting company Condo Vultures®LLC and a licensed real estate broker with Condo Vultures® Realty LLC. Peter can be reached at 305-865-5629 or by email at peter@condovultures.com. Be sure to check out Peter’s blog at CondoDump.com. Don't forget to sign up for our weekly Market Intelligence Report.

Copyright © 2008, Condo Vultures® LLC

Federal Regulators Seize Third Bank in 60 Days, Fifth Institution in 2008

If three really is a trend, it looks like federal banking regulators are ready to clean up the U.S. mortgage mess after shutting down a third institution in two months.

Federal banking regulators seized the $32 billion in assets California-based IndyMac Bank on Friday afternoon and are working through the weekend to launch a suitor institution that is scheduled to open Monday morning, according to the Federal Deposit Insurance Corp.

IndyMac at one time had seven loan production offices in Florida, including one in Miami and another in Hollywood.

The FDIC, which insures deposits up to $100,000 per account, projects IndyMac’s failure will cost between $4 billion and $8 billion, ranking it as one of the largest bank failures in U.S. history.

Regulators intend to sell IndyMac’s assets within the 90 days to a single buyer at a deep discount.

This is the fifth U.S. bank this year shutdown by federal regulators, and the third in 60 days.

Regulators seized Minnesota-based First Integrity Bank with $54.7 million in total assets and $50.3 million in total deposits on May 30; Arkansas-based ANB Financial with $2.1 billion in total assets and $1.8 billion in total deposits on May 9; Missouri-based Hume Bank with total assets of $18.7 million and total deposits of $13.6 million on March 7; and Missouri-based Douglas National Bank with $58.5 million in total assets and $53.8 million in total deposits on January 25, according to the FDIC.

The last California institution to be shuttered by regulators was Southern Pacific Bank in Torrance on Feb. 7, 2003, according to the FDIC.

A Florida bank has not been seized since March 12, 2004, when regulators took over Guaranty National Bank of Tallahassee, which had assets of $74.1 million.

Based in Pasadena, Calif., IndyMac had total assets of $32.01 billion and total deposits of $19.06 billion as of March 31, 2008. In the last 11 days, depositors withdrew $1.3 billion from IndyMac, prompting the institution’s regulator, the Office of Thrift Supervision, to step in to avoid any more of a run on the bank, according to the BBC.

At the time of the seizure, IndyMac Bank, F.S.B. had about $1 billion of potentially uninsured deposits held by approximately 10,000 depositors. It is unclear what if anything these depositors will recoup.

“The FDIC will transfer insured deposits and substantially all the assets of IndyMac Bank, F.S.B., Pasadena, CA, to IndyMac Federal Bank, FSB,” according to the FDIC.

IndyMac was founded in 1985 by Angelo Mozilo, who went on to lead Countrywide Financial Corp. before its sale this month to Bank of America. IndyMac had 33 branches nationwide.

Peter Zalewski is a principal with the consulting company Condo Vultures®LLC and a licensed real estate broker with Condo Vultures® Realty LLC. Peter can be reached at 305-865-5629 or by email at peter@condovultures.com. Be sure to check out Peter’s blog at CondoDump.com. Don't forget to sign up for our weekly Market Intelligence Report

Copyright © 2008, Condo Vultures® LLC

Calling The Bottom Of The Florida Real Estate Market

This July not only marks the start of the third quarter of the year but an increasing debate amongst industry watchers about when the bottom of the Miami real estate market will be reached.

In Florida where residential sales peaked in November 2005, the real estate market has struggled ever since with a combination of weak demand and plummeting prices for 33 months and counting.

Optimists yearning for a recovery point to the fact that a typical real estate cycle lasts between seven to 10 years, meaning the chances of a gradual improvement in Florida could be near.

Pessimists respond that this real estate cycle in Florida is not like others given the widespread speculation that occurred unchecked between 2003 and 2006, and ultimately produced the excess inventory that now plagues the market.

Given the conflicting ideas, calling the bottom of the market with any accuracy in the overbuilt markets of Florida is unlikely to occur until months after prices have already leveled off.

Real estate isn’t tracked in a real time manner such as publicly traded stocks so it is only weeks or months after a deal has been negotiated and closed that the analysts can accurately gauge the market based on completed transactions. This lag time leads to the inefficiencies that make investors skittish.

Anxious buyers are concerned that the lengthy lead time in closing deals could work to disguise the most opportune time to buy at the deepest discounts. A fear shared amongst investors is that the bottom will only become known after the low watermark has been reached and the leveling off has already begun.

Adding to the uncertainty for investors is a concern that competitors are likely to learn of the bottom simultaneously, effectively eliminating any buying advantage given the depth of the pent up demand.

Investors searching for any kind of advantage are looking at a variety of factors to better understand how to recognize the bottom. For each buyer, the telltale signs are sure to be different.

“We don’t envision the bottom being reached until all of the new product is delivered, residential lending is restored to the market, and at least one small Florida bank is severely reprimanded related to lending on condo construction or conversions,” said Peter Zalewski, a principal with the Bal Harbour, Fla.-based consultancy Condo Vultures® LLC. “Once an institution – and it will be a small one so as not to trigger any panic - is reprimanded, we think the other lenders will understand the message and quickly move to unload their troubled loans out of fear of facing similar repercussions.

"At that point, the distance between buyers and sellers could be bridged.”

New Inventory Delivered

In vertical condo markets such as Miami and Sunny Isles Beach, the easiest way to assess the amount of undelivered inventory still left to be delivered is to count the number of construction cranes still standing at development projects.

In a place like Miami, the cranes are being removed at a steady pace as most of the new glass skyscrapers near completion.

Today, the Greater Downtown Miami area has only four construction cranes still standing from nearly 40 cranes less than 18 months ago. Of the 22,737 new units built in Greater Downtown Miami since 2003, only about 10 percent of the units are yet to be delivered, according to the Condo Vultures® Official Condo Buyers Guide.

Buildings that have functional floor plans, state-of-the-art amenities, and quality materials are closing at a rate greater than many in the industry imagined. (Condo Vultures® LLC is concluding a study to be issued in July that details the average closed sales ratio and price for every new condominium tower in Greater Downtown Miami.)

Towers with dysfunctional layouts, below-average finishes, and minimal amenities are proving to have a more difficult time with closings than the more desirable product. It is the inferior buildings where the greatest deals are expected to be negotiated, both by individual buyers but more likely bulk investors.

 Residential Lending Restored

 The return of credit to the housing markets in Florida should be a key indicator as to when the market is on its way toward stabilizing, and eventually recovering.

Many of today’s individual buyers who hope to purchase at deep discounts byway of short sales, foreclosures, and Real Estate Owned by banks aren’t currently able to obtain financing from traditional banks.

Today’s discount buyers who have hearty downpayments and above-average credit scores still have few financing options other than hard-money lenders that charge interest rates in excess of 10 percent plus expensive origination fees.

Some industry watchers predict the recovery to begin in earnest when well-qualified buyers are once again able to purchase residential properties using traditional financing with moderate underwriting requirements.

Once financing is again available, cash buyers would lose their current negotiating advantage of being the only viable purchasers in the market.

 Small Bank Reprimands

 Probably the most telling sign of the bottom will come when federal banking regulators reprimand a small bank or two in Florida that had been involved in financing residential construction or condominium conversions. The Wall Street Journal foreshadowed the coming troubles in a July 2 article.

The banks that are likely to feel the wrath of regulators will be those institutions that facilitated the condo construction and conversion booms in places such as Miami or Tampa.

In many cases, the amounts owed by developers are greater than the projects are actually worth today, yet some lenders are rumored to have not accurately characterized the loan valuations or status properly.

As regulators conduct regularly scheduled examinations of these small banks, expect some institutions to rapidly revise their characterizations of condo construction and conversion loans and shift capital into loan loss reserves as a precaution or a solution.

Until an institution has been reprimanded, local lenders are likely to continue to maintain an optimistic posture and dismiss credible offers from qualified buyers who want to purchase bank-owned assets or loan portfolios at prices that reflect current market conditions.

“Regulatory reprimands in the banking sector will be the clearest signal that the bottom of the real estate market is near,” Zalewski said. “The problem is most buyers are waiting for that action and are ready to strike.”

Peter Zalewski is a principal with the consulting company Condo Vultures®LLC and a licensed real estate broker with Condo Vultures® Realty LLC. Peter can be reached at 305-865-5629 or by email at peter@condovultures.com. Be sure to check out Peter’s blog at CondoDump.com. Don't forget to sign up for our weekly Market Intelligence Report

Copyright © 2008, Condo Vultures® LLC