While a residential condo deal is not something I would normally report on, the Tao Condo sale represents a variety of positive economic indicators, specifically for the South Florida market. Large multi-family distressed fracture condo deals are a sign that the bottom has been reached and investors are taking advantage of the opportunity. Read on and let me know your thoughts:
A substantial portion of Tao, Sunrise’s first condominium high-rise has been sold for more than $50 million to a Miami investor.
About 60 percent of the condominium complex near Sawgrass Mills is now owned by an affiliate of Miami-based Crescent
Heights of America, according to Broward County records. W/K Sawgrass, an affiliate of public-private partnership ST Residential, which took control of several prominent South Florida condo buildings following the 2009 failure of Chicago-based Corus Bank sold about 240 units of the 396-unit complex at 2641 N. Flamingo Road on Tuesday.
The condos were sold for about $210,250 per unit, which represents a steep discount from advertised pre-construction prices between $500,000 and $800,000. The sale was recorded by Broward County on May 18th.
An ST Residential spokeswoman declined comment but provided a statement about the transaction on behalf of the company:
“Though ST’s general strategy is to sell unit by unit to the public rather than bulk sales, the disposition price it reached on Tao made sense for the company and its investors, and is consistent with the company’s overall goal of maximizing the value of each asset. ST remains very confident in the strength and momentum of the South Florida market and is continuing to execute its strategy for each of its respective properties in the region, as well as looking for new investment opportunities for the future.”
The Crescent affiliate has obtained a $31.27 million loan from Citibank for the acquisition, records show.
Most recent bulk condominium acquisitions were made with cash, so Crescent’s ability to obtain a loan that covers about 62 percent of the sale price is a “very positive sign” for South Florida’s residential market, according to real estate attorney Mark Grant, a shareholder at Ruden McClosky in Fort Lauderdale. Grant was not involved in the Tao transaction.
Crescent “still had a lot of skin in the game, with about $20 million of equity put in themselves,” Grant said. But “it’s a good sign that banks are seeing these bulk sales as good [investment] vehicles.”
Corus took over the 26-story, two-tower project from the original developer, Weitzer/Kislak Sawgrass, in November 2008. The project was nearly complete at the time, and outside builders were brought in to finish construction. The bank was owed a combined $158.6 million in construction and mezzanine loans secured by the project plus interest.
ST Residential, an investment firm led by Starwood Capital Group and private equity firm TPG, took control of eight local projects in October 2009 by acquiring construction loans from Corus. The loan acquisitions were part of a larger portfolio of performing and nonperforming construction loans nationwide worth about $4.5 billion that Starwood acquired jointly in a public private partnership with the Federal Deposit Insurance Corp.
Aventura-based International Sales Group had been handling marketing at Tao since the ST acquisition.
Crescent, which historically has specialized in condo conversion projects, has been unafraid to buy South Florida residential sites since the real estate collapse. In January, the company took over a stalled hotel project in Miami Beach from New York-based Morgans Hotel Group. In that deal, Crescent assumed $10.5 million in debt secured by properties, which currently house shuttered buildings, at 1960 Collins Ave. and 1865 James Ave.
In February 2010, the company bought two condominium development sites for about $13 million, from Africa Israel Investments, one of the hardest hit companies from the downturn. In that transaction, Crescent bought the site of the proposed 288-condo project, Soleil, an existing office building at 3050 Biscayne Blvd. and a property at 500 Alton Road in Miami Beach that was planned to be the site of a 66-condo tower called Vitri.
Africa Israel paid a combined $29.6 million for the properties in 2004.
With Tao, Crescent inherits the challenge of making condominiums located in a suburban area west of Florida’s Turnpike attractive to investors who are focusing on buildings on the east coast of South Florida, according to Peter Zalewski, a principal with Condo Vultures, a Bal Harbour-based real estate consulting firm.
But Crescent executives are among “the smartest, well-informed and aggressive buyers in the region, Zalewski said. “Because of their local track record, I have a feeling they will be able to accomplish something that ST couldn’t do coming in from the outside,” he said. “The product is so unique that they have to get on the street and grind it out to convince people why having view of the Everglades is worth a lot of money.”
At the price Crescent paid for the Tao units, the company has the flexibility to sell individual condos to end-users or rent the units out in the short-term, said Grant, who was involved in drafting the Distressed Condo Relief Act, a bill adopted by the Florida Legislature in July 2010. The measure protects bulk condo buyers from inheriting potent liabilities from the original developer.
While Crescent was not necessarily motivated to make the Tao acquisition by the bill becoming state law, the company benefits from making the purchase in the midst of a two year window before the bill sunsets in June 2012, Grant said.
“With the change in law [Crescent] is exposed to things including warranty obligations of the improper running of the condominium association” by the developer, he said.
“It also benefits the people who bought into the project originally. The project is on much sounder footing” following Crescent’s acquisition.