The Related Group and Lubert-Adler Partners sweep up 120 units at a discount at 50 Biscayne; move heralds arrival of vulture firms locally
By Marilyn Bowden
In an unusual deal, The Related Group partnered with private equity firm Lubert-Adler Partners in a bulk purchase of 120 condo units at 50 Biscayne, a project Related co-developed with Atlanta-based Cousins Properties.
The price of $30.3 million, or an average price of $250,000-$300,000 for units that have been trading at about $400,000, represents a sharp discount, said Peter Zalewski, principal of consulting company Condo Vultures, and heralds the arrival of vulture firms on the local scene.
The Cousins-Related partnership will retain joint ownership of seven units in the 54-story, 528-unit project. Cousins estimated its share of the pre-tax profit on the project to date at about $18 million before minority interest.
Mr. Zalewski said shortly after selling off 26 units in bulk to 50 Biscayne Suites LLC in May, the development partners paid off the construction loan to LaSalle National Bank.
"That meant they no longer had to sell at whatever price the bank says is necessary," he said.
The partnership between Related and Lupert Adler is unusual, Mr. Zalewski said, and the implication is that Related "is throwing in the discount they should have made with the idea that ultimately they will be able to realize it when the market changes."
A spokesperson said Related had nothing to add to Cousins' announcement of the deal.
While other condo developers will be looking at bulk sales of units to investment funds as an exit strategy, Mr. Zalewski said, "the possibility that they would have the opportunity to joint venture is relatively thin. They don't have the clout or contacts that Related has."
Although the first bulk deal of the current cycle is not in itself a major transaction, Mr. Zalewski said it converges with a number of other factors that will attract more funds in search of bulk deals.
"The bankruptcy of WCI Communities earlier this week has had a psychological effect on fund buyers," he said. "Last Friday, regulators shut down First Priority Bank in Bradenton, which indicates that discounting of construction loans is going to begin at Florida banks. It says to funds that now is the time to deal, because the day of the banks trying to work things out with the developer is over. Banks need to start writing off loans.
"Another sign is that 80% of the 23,000 new condo units in downtown, Brickell and Biscayne Boulevard have been delivered."
In today's market, Mr. Zalewski said, sales totaling 70% of units get the lender out of the picture — and several projects, including Related's The Plaza, are nearing that point.
Lucas Lechuga, a Realtor with Miami Condo Investments, said it's hard to say if and when the vulture fund's action will affect prices.
"Right now it doesn't do anything until we see what happens," he said. "If the buyer puts them back on the market at a discount it will affect the price and make it very difficult for people trying to sell individual units. Most Realtors won't take it into account because it won't show up as closed sales in the MLS — though more astute Realtors may eventually consider it. But it will take some time for them to realize that this sale was made."
In an interview last year, attorney Robert Barron, a shareholder at Berger Singerman, said creation of vulture funds is a logical outcome of the credit crunch, but the funds could bring unforeseen repercussions all around.
"One problem is that whatever the discounted units sell at will become the comparable sales price for the project," he said, "and that will indirectly affect other buyers who have to get financing. So unless they are cash buyers, the developer is messing up their ability to close."