Mark Zilbert's Blog

BY MATTHEW HAGGMAN – Miami Herald

At a time when banks and builders are struggling for survival, two developers are seeking government approval for Miami Worldcenter — a nine-block, 25-acre mixed-use project that would be Miami’s biggest urban development in years.The multibillion-dollar project between the Adrienne Arsht Center for the Performing Arts and the central business district calls for a mix of high-rise offices, hotels, shops, restaurants, entertainment and conference venues, schools, and eventually residences — all built around public plazas and broad sidewalks.

On Wednesday, the developers, Boca Raton-based Art Falcone, a one-time suburban home builder, and Marc Roberts, a former sports agent and real-estate investor who splits time between Jupiter and South Beach, are scheduled to go before Miami’s Planning Advisory Board, the first step in the approval process for their project.

City commissioners are expected to vote on the massive development this fall.

The proposal banks on a renewed desire for city living and would join the ongoing revitalization of downtown, but it also faces an economic downturn in which credit markets have tightened, lenders have gone under and developers are struggling.

”We certainly agree the current market presents challenges,” said Nitin Motwani, managing director and a principal of the project. “But we know real estate goes in cycles and will turn around, especially in a dynamic international gateway city like Miami.”

The developers have already spent $100 million on the project, and that will grow as they close on parcels currently under contract in the nine-block area.

Roberts and Falcone — who made more than $1 billion when he sold his home-building company, Transeastern, to TOUSA — began acquiring land in the Park West area four years ago.

Getting financing in the current economic environment will likely be difficult, but Motwani said the developers plan to seek investment partners soon and are looking abroad for funding.

”What this [difficult] market situation has allowed us to do is take our time and plan the right way,” Motwani said. “It has allowed us to . . . work more closely with the city and county, to understand what they want and what we want.”

DETAILS OF PLAN

The project, to be built in multiple phases over many years, eventually is supposed to comprise upwards of 12 million square feet of new construction — about the size of eight Dadeland Malls. For the first phase, plans call for three hotels and shopping, restaurant, and entertainment components.

But what will characterize the development, says architect Howard Elkus, is its pedestrian focus and emphasis on public spaces.

The plan includes a roughly half-acre park, a traffic circle like New York’s Columbus Circle and a walking strip similar to Miami Beach’s Lincoln Road. The developers envision that decaying Northeast First Avenue will achieve the ”urban role, presence, and spirit” of Paris’ Champs Elysées, according to plans filed with the city.

Today, the Park West area, largely parking lots and nightclubs, is one of the most run-down parts of downtown.

Falcone and Roberts are wagering that their development will be the missing piece in a downtown that includes the Brickell financial district and central business district as job centers, along with cultural and entertainment venues such as AmericanAirlines Arena, the performing arts center, and art and science museums proposed for the waterfront.

Three Metromover stops are within the development area, and a proposed streetcar line would bisect it.

”It’s hard to imagine a site that is more central or better served by a diversity of assets,” said architect Elkus. Based in Boston, he has designed many urban mixed-use projects, including West Palm Beach’s City Place and Victory Park in Dallas.

For nearly two years, Elkus and Michael Cohen, both of the firm Elkus Manfredi, quietly master-planned the site and met with politicians and planners, collectively making more than three dozen visits to South Florida since January 2007.

Cohen said it’s ”extremely rare” to find such a large assemblage of land within a major urban center.

Real-estate analyst Michael Cannon said developing such a large, multiyear project is a tricky balancing act. Each phase must be completed as a viable, stand-alone project but also be integrated with future phases and the downtown infrastructure. Another important factor, he said, is whether the master plan has the flexibility to adapt to changing market conditions.

SEEKING FLEXIBILITY

Worldcenter’s developers are asking for approval of a special zoning district that binds each of the nine blocks to strict development and design standards while allowing flexibility on how each building is used. It also seeks a contract that would cement the deal for 20 years.

The developers say such an arrangement gives assurances about what each building will look like while allowing latitude to adjust to market conditions such as whether shops and hotels would be more viable at a given time than condos.

”To make this type of commitment time-wise and financially, we need to feel comfortable we can execute the plan through its entirety,” said Motwani, who moved to Miami this year to oversee operations.

The Worldcenter project attempts to follow Miami 21, the proposed citywide rezoning that stipulates screening of garages so pedestrians don’t see pipes and other infrastructure, and that puts a premium on ground-floor windows and doors so passersby aren’t confronted with stark walls. Incentives are offered for using green building techniques and for constructing affordable housing within the nine blocks.

By ANDY WANG – NY Post
The Fontainebleau Miami Beach is undergoing a “$1 billion rebirth”.
Miami and Las Vegas aren’t just top tourist and second-home destinations. They’re also extensions of New York City, with the same developers, hotel brands, celebrity chefs and nightclub promoters that define Manhattan luxury.

So it’s really no surprise that Dubai, a United Arab Emirates city that’s buying and developing trophy real estate all over the world, wants a big piece of Miami and Las Vegas. Dubai is now propping up both of these markets – and New York, Miami and Las Vegas are getting even more connected in the process.

“As a developer in Dubai, you’re limited only by your imagination and the laws of physics,” says Donald Trump Jr. “Anything else is really doable.”

And that mentality translates to US properties in which Dubai has invested,

“They’re hindered a little in America,” Trump Jr. says. “But they want to do projects that they think are significant – that are big and grandiose.”

Nakheel, the company building Dubai’s 61-story Trump International Hotel & Tower (where the average price per square foot is nearly $3,000, and where a one-bedroom that sold for $2 million in April was resold for $2.5 million in June), now has its eyes on Miami. The development firm recently purchased half of the Fontainebleau Miami Beach resort for $375 million.

After what’s billed as a “$1 billion rebirth,” the 22-acre complex with two sold-out condo-hotel towers is slated to reopen in November with a 40,000-square-foot spa, a nightclub and restaurants from New York chefs Scott Conant and Alfred Portale.

Available resale units in the Fontainebleau’s Sorrento tower range from a 575-square-foot studio for $469,000 to a combined four-bedroom, 3,400-square-foot penthouse for $7.9 million. While Miami broker Mark Zilbert of Zilbert Realty Group points out that Fontainebleau faces serious competition from even pricier hotel-condo developments in prime South Beach such as the Setai and W South Beach, “the bottom line is I think it will be an amazing boon for the area.”

Given the recently struggling Miami market and Fontainebleau’s location north of South Beach, at 44th Street and Collins Avenue, Zilbert sees the renovation “as a turning point for the area, which hasn’t seen much activity until now. I think a relaunched hotel and the promise of new amazing nightlife is really coming at a time when people are hungry for something new.”

And while the Miami market is certainly troubled, with numerous buildings struggling to sell condos or being shuttered altogether, Zilbert and other brokers are seeing more demand this year than last year.

Rodrigo Nino, president of Prodigy International, which is selling projects such as South Beach’s Gansevoort South residences (with a Philippe restaurant and David Barton Gym), notes that “Miami just suffered from a speculative bubble, but it’s always going to be the beach for the eastern United States.”

Nino, not incidentally, recently relocated from Miami to New York City, where he’s marketing projects including Trump SoHo and William Beaver House. And the experiences he’s had with international buyers in Miami is paying off in NYC.

“There’s a lot of interest from Middle Easterners for properties in New York,” says Nino, who notes that he’s met with members of royal families about projects he’s selling this summer.

“There’s always been interest from Europe, but the biggest surprise has been the UAE.”

Over in Las Vegas (where a Fontainebleau resort with Conant and Portale restaurants is also in the works), the massive $9.2 billion, 67-acre CityCenter casino/hotel/residential/entertainment/dining/shopping complex is creating a new level of Vegas high-rise luxury despite an extremely shaky market.

A joint venture between MGM Mirage and the Dubai World investment company, CityCenter has racked up $1.75 billion in sales at its four residential offerings – including a Mandarin Oriental development that sold $600 million of units in two weeks and still has available penthouses ranging from $3.7 million to $9.1 million.

The sales volume at CityCenter, scheduled to open late next year, is notable in a market in which numerous high-profile residential projects (including Icon Las Vegas and Las Ramblas) have been canceled.

“Vegas ain’t a cakewalk anymore, where you can just walk in and make millions,” says Andrew Sasson, CEO of the nightlife/restaurant company turned developer Light Group, which is responsible for CityCenter’s 50-story Harmon Hotel, Spa and Residences. “You better know hospitality.”

Sasson, who cut his teeth in the Miami and New York nightclub worlds before making his name and fortune in Las Vegas, apparently has convinced Dubai that he knows hospitality. He recently sold half of his company to Dubai-based Zabeel Investments and is now creating a 400-room hotel with a residential component on the Dubai waterfront.

Meanwhile, Sasson’s Harmon development, which will have 400 hotel rooms, roughly 200 residences and a Mr. Chow restaurant, is about 55 percent sold at prices ranging from around $1,100 to $1,400 a square foot.

These are market-defying sales numbers. In fact, CityCenter, the largest privately financed development in the history of North America, claims responsibility for 100 percent of the Vegas high-rise residential units sold in the second quarter of 2008.

But Dubai is accustomed to seeing opportunity where others don’t have the resources to take a big chance.

Dubai is “where you really have the access to the capital to do amazing things,” Trump Jr. says. “They don’t believe that anything is impossible.”

By JUNE FLETCHER – Wall Street Journal

Andre LeBel knew he had come home when he walked into a bar in St. Petersburg, Fla., ordered a Bloody Caesar and the bartender made it without cocking an eyebrow.

The spicy drink — a blend of vodka, Tabasco, Worcestershire sauce and tomato and clam juices — is popular in his native Canada, but until recently it was virtually unknown elsewhere. That was before Canadians started to snap up property in the U.S., drawn by the buying power of the newly strong Canadian dollar and the depressed prices of American real estate. The largest proportion of foreign buyers of U.S. homes from May 2007 to May 2008 — 24% — were Canadian, double the percentage a year earlier, according to a recent report by the National Association of Realtors. (See today’s House Talk column for tips on how to attract Canadian buyers.1)

Most Canadian buyers head for the Sunbelt, with Florida accounting for a third of all of their purchases, the report said. The Realtor group estimates there were 7,200 Canadian buyers of Florida homes in the period covered by the report, more than double the 3,500 a year earlier. In some Florida resort communities, so many Quebec residents have bought second homes that French is now commonly spoken.
Wellington Alves
Csaba Horvath of Montreal bought a vacation condo last winter in this Hollywood, Fla., complex called Quadomain. When he greeted a fellow resident in the elevator he got the reply ‘Bonjour.’
Mr. LeBel says there are about two dozen fellow Canadians at the Pasadena Yacht and Country Club in the St. Petersburg suburb of Gulfport, where he bought a $360,000 penthouse condo in December. He golfs regularly with Toronto friends who jet down to their second homes on weekends, and he has no trouble finding Canadians to join him at Tampa hockey games to root for visiting Canadian teams. “We’re making the area more cosmopolitan,” jokes Mr. LeBel, chief executive of SOCAN, a Canadian copyright collective.

The Canadian dollar hit a high of US$1.10 in July 2007 and is now worth about 94 cents; it was worth only 80 cents three years ago. Unlike many Americans, Canadians also feel flush from a continued strong housing market and escalating home equity. According to the Canadian Real Estate Association, overall home prices grew 11% in 2007 from the year before, to an average of $307,265, and they are expected to rise an additional 5.3% in 2008. The group says home sales have been boosted by growth in after-tax income, strong employment and short-term interest-rate cuts in Canada.

Florida has long been a popular vacation destination for Canadians. Yet they had chiefly been renters, since many were priced out of buying. Now, their tendency to buy in clusters is starting to change the character of some resort communities.

In the four years since they bought a two-bedroom condo in Hawaiian Gardens in Lauderdale Lakes, Fla., Rachel and Pierre Valois say the number of fellow French Canadians in their six-building section of the community has grown from a handful to the point where they now exceed the Americans. Mrs. Valois says community parties now include traditional foods from Quebec like homemade baguettes, pâtés and crudités, and the homeowners’ association newsletter and all community announcements are written in both French and English. “A lot of residents seldom speak English,” says Mrs. Valois, a retired supervisor for a hydroelectric company. “Some don’t speak English at all.”

That bothers Ethelreda Farnsworth, a retired fashion coordinator from Pittsburgh who has spent winters at Hawaiian Gardens since 1985. She says she no longer attends events like the annual New Year’s Eve celebration because she doesn’t speak French and doesn’t know what her neighbors are talking about. Instead, she and the remaining American residents gather for a party in her two-bedroom condo. “We feel like outsiders,” she says.
Dan Picasso
Csaba Horvath, a 45-year-old Montreal computer engineer, bought a $220,000 vacation condo in Hollywood, Fla., last winter at the urging of a French Canadian friend, who had already purchased a home in the same high-rise complex called Quadomain. After he closed on his one-bedroom unit in July and was on his first vacation there, Mr. Horvath was surprised when he got on an elevator, nodded to a fellow resident and got the reply: “Bonjour.” Mr. Horvath has since bought a second condo in the complex that he plans to rent out. “Everybody loves Canadians because we pay in cash,” he says.

Financial firms are helping drive the move. HiFX PLC, a San Francisco division of a British asset-transfer firm, held two seminars in Canada this year on how to buy U.S. houses — and drew 400 people in Calgary and 200 in Toronto. Canadians sometimes have trouble getting American loans, and U.S. banks often require them to make down payments of up to 50%. Sensing a market, RBC Bank, a U.S. division of Royal Bank Financial Group in Toronto, set up a program that allows Canadians to buy U.S. property worth up to $2 million with a down payment of less than 25%. RBC has doubled the amount of such loans it has issued over the last year, says Alain Forget, a company vice president.

After Florida, the second most popular U.S. destination for home-buying Canadians is Arizona, the Realtor report says. In Phoenix, 752 Canadians bought homes in 2007, almost double the number of the year before, according to Information Market, a data firm. For real-estate agents who have seen home prices drop for more than 15 straight months, the Canadians are a godsend. Arizona’s priciest home sale this year was a $14 million mansion in Paradise Valley purchased by an Ontario attorney, Jeffrey Slopen. But Canadians of more modest means also are buying.

Agent Mark Carvalho changed his business approach last year to focus on Canadians. He launched a Web site called Canadians2Arizona.com2, which includes testimonials from Canadian buyers and schedules of the Phoenix Coyote hockey team. His proportion of Canadian clients jumped to 90% from 10%, he says. Agent Mark Dziedzic calls his Web site — which shows a cactus-filled landscape under a banner of maple leaves — ArizonaforCanadians.com3, and his agents are called Team Canada. The Phoenix broker, who used to be a Toronto financial planner, estimates that about half of current home shoppers in the region are Canadians.

Scott Robinson, an Ontario sales manager, just closed on a stone-and-stucco house in North Phoenix with a three-car garage, saltwater pool and sports court. He plans to use the house, which is less than two years old, as a vacation home. The owners originally asked $622,000, but it was being offered for $525,000 in a “short sale,” or below the level of the mortgage. He got it for $386,000. “For that, you’d get a fixer-upper” in a Canadian resort area, Mr. Robinson says.

Lenora Hanwell, a Calgary schoolteacher, has never been to Arizona. But she says she has spent hundreds of hours trolling the Internet for “smoking deals” on Phoenix duplexes. She plans to make an offer soon, sight unseen. “The market’s so low, you have to get in,” she says.

Write to By at george.melloan@wsj.com4 and June Fletcher at june.fletcher@wsj.com5
 

Write to By at george.melloan@wsj.com4 and June Fletcher at june.fletcher@wsj.com5   http://online.wsj.com/article/SB122058387982602759.html 

By Helen Chernikoff

NEW YORK (Reuters) – New York home foreclosures rose in August from July, signaling a potential drop in prices, but the Los Angeles and Miami markets showed a slight improvement, real estate research website PropertyShark.com said on Wednesday.

The number of newly scheduled auctions of foreclosed properties in New York grew 13 percent to 383 from July and 53 percent from last year, PropertyShark.com said in a report.

While New York’s numbers were relatively low, with 254 in the borough of Queens, they indicate future price declines of as much as 20 percent, PropertyShark.com Chief Executive Bill Staniford said.

Foreign investment in New York real estate will fall off as the European economy softens, and cuts to bonuses and staffing on Wall Street will also sap demand, he said.

“It’s not a crisis. New York is a desirable place to live. But transactions are down,” Staniford said. “We are going to see a decrease in housing values in New York City. We’re going to see that even in Manhattan.”

In Los Angeles County, the number of newly scheduled auctions of foreclosed properties fell by 18 percent to 4,907 from July. This was up 159 percent from August 2007 but the increase was far less than the 249 percent spike in July from a year ago, PropertyShark.com said.

The situation in Miami was similar, with August auctions rising 72 percent year over year compared with a 137 percent in July from a year ago. August auctions fell 10 percent from July.

The Los Angeles and Miami markets are in the process of bottoming out because property owners have finally lowered prices enough to attract buyers in the default period that precedes a foreclosure auction, Staniford said.

“If you’re able to lower the prices to the right level, investors will come in,” Staniford said.

In Los Angeles, prices had to fall by half before buyers would bite. Owners in zip code 93535, for example, paid on average $303,088 and sold for an average of $152,614.

(Reporting by Helen Chernikoff, editing by Richard Chang)

By Bob Ivry

Sept. 4 (Bloomberg) — Sales of distressed Miami properties have begun, signaling a bottom for south Florida’s real estate market and the end of waiting for vulture funds armed with about $30 billion to spend.

The sale of 120 condominiums last month to a Philadelphia private equity firm and Related Group of Florida, a development company led by Jorge Perez, “broke the logjam” for investors targeting the oversupply of condos in downtown Miami, said Peter Zalewski, owner of the Condo Vultures LLC consulting firm in Bal Harbour, Florida.

Regional and community lenders are starting to market properties in Miami, where the median condo price in July fell 19 percent from a year earlier, according to the Florida Association of Realtors in Orlando. Banks that were reluctant to take real estate-related writedowns may be forced by regulators to sell homes that sit empty and mortgage notes that aren’t being paid, said Jack McCabe, founder of McCabe Research & Consulting LLC in Deerfield Beach, Florida.

“There’s a purging going on,” McCabe said. “It’s my belief that the vulture buyers would form the bottom of the real estate market, and we’re almost there. That bottom may last for three years as foreclosure sales go on.”

McCabe estimates that at least $30 billion has been earmarked by funds to buy distressed Florida real estate. Some investors have been waiting almost three years to buy, he said.

Non-Performing Loans

Wachovia Corp., based in Charlotte, North Carolina, and Birmingham, Alabama-based Regions Financial Corp. have sold real estate loans that were non-performing, or stopped paying, McCabe said.

At BankUnited Financial Corp., Florida’s largest bank, non- performing real estate loans jumped to 8.3 percent in the second quarter from 1.5 percent in the third quarter of 2007, according to a filing with the U.S. Securities and Exchange Commission.

Regulators told the Coral Gables, Florida-based bank it may lose its “well-capitalized” designation unless it attracts at least $400 million, the company said last week.

“Banks may be reluctant to make a deal because they want to preserve cash,” said Kenneth Thomas, an independent bank consultant and economist in Miami. “If they don’t make the deal they don’t have to write down their capital.”

BankUnited spokeswoman Melissa Gracey declined to comment.

Fifteen percent of the real estate loans written by closely held, Miami-based Ocean Bank weren’t being paid in the second quarter of 2008, compared with 2.4 percent a year earlier, according to the bank’s filings with the Federal Deposit Insurance Corp.

Selling Bad Loans

Ocean Bank started selling bad loans and foreclosed properties in the last three months of 2007, according to spokesman Ray Casas.

“We took a very hard look at our portfolio and, as appropriate, sold notes and foreclosed properties,” Casas said. “The bank has been very aggressive in doing that.”

Bad real estate loans increased five-fold at BankAtlantic Bancorp Inc., based in Fort Lauderdale, Florida, according to the bank’s FDIC filings. In the second quarter, 1.5 percent of the loans weren’t paying, compared with 0.3 percent in the second quarter of 2007.

Calls seeking comment from BankAtlantic were not returned.

“Banks are at the point where they have to take a hit,” said Michael Klinger, managing member of Saber Real Estate Advisors LLC in Aventura, Florida, a developer and opportunity fund. “A lot of them were avoiding the problem because they don’t know what to do with the real estate and they don’t want to admit and deal with their problems. They figured time would make things better.”

Banks have begun circulating lists of real estate loans for sale, Klinger said.

Inventory

With 11,551 condo units in the 1,040-acre downtown Miami area expected to be completed this year, it would take five years to sell them off at the current sales pace, according to Brad Hunter, regional director at the MetroStudy real estate research firm in West Palm Beach.

In July, one in every 186 homeowners in Florida either had their home repossessed by a lender bank, received a notice of default or were issued a warning that their house was going on the auction block for failure to make monthly mortgage payments, according to RealtyTrac Inc., an Irvine, California-based seller of real estate data. That foreclosure rate, a 139 percent increase from July 2007, ranked the state third in the country behind Nevada and California.

Lewis Goodkin, president of Miami-based Goodkin Consulting Corp., who has been advising investors on South Florida real estate for 30 years, said a gulf still exists between the banks’ offering prices and what the vulture funds want to pay.

`Dam Will Break’

“The investors are not going to buy unless they get a bargain of 40 to 50 cents on the dollar,” Goodkin said. “In some cases, if you bought land for nothing it still might not work. The market is not going back to what it was in 2005.”

Even so, Goodkin said “the dam will break” and distressed sales will pick up in the first quarter of 2009 when loan delinquencies pile up.

“There’s no way for a bank to avoid these problems,” he said.

Perez made the bulk purchase, the largest in condo-glutted downtown Miami, in the 50 Biscayne Blvd. tower with Lubert-Adler Partners LP, a private equity firm headed by Dean Adler. The two firms raised $1 billion to buy condos, mortgages and land in Florida, according to a Feb. 13 news release. The price was $30.3 million, about half the cost of individually sold units.

Bulk Purchase

Perez’s partnership bought the condos from his own development company and a partner, Atlanta-based Cousins Properties Inc., which built the 54-story tower.

In an earlier bulk purchase at 50 Biscayne, Perez and Cousins sold 26 units in May to 50 Biscayne Suites LLC for $6.1 million. Perez and Cousins paid off their construction loan with LaSalle Bank with the proceeds, according to Zalewski of Condo Vultures.

Paying off the loan allowed Perez to do the recent 120-unit bulk transaction at below-market prices, said Bruce B. Baldwin, a partner with the Miami-based Mase & Lara PA law firm who was not involved in the deal.

Construction lenders require developers to sell condos at a minimum price, he said. Once the developer’s debt to the bank is paid, the developer can discount the units, he said.

Perez may follow a similar strategy at the Plaza on Brickell development, two downtown towers with a total of 1,000 units, and other developers may too, Zalewski said.

Cost to Build

Perez and Lupert-Adler paid about $235 a square foot for the 120 units in 50 Biscayne, Zalewski said. That’s about half the $454 a square foot paid when three individual units in the building were sold in the fourth quarter of 2007, said MetroStudy’s Hunter.

It’s also comparable to the $175 to $240 a square foot it costs to build a new condo in downtown Miami, according to Ashley Bosch, president of Miami-based Block Urban Development LLC and president-elect of the Builders Association of South Florida.

Leah Witherspoon, a spokeswoman for Related Group in Miami, said Perez was traveling and couldn’t be reached for comment. Calls to Stuart Margulies, director of asset management for Lubert-Adler, were not returned.

Zalewski said he expects two bulk sales of new condos in the next few weeks, one of them for $190 a square foot and the other for $250 to $300 a square foot.

Buying condos in bulk could present legal problems, said Baldwin, the Miami attorney.

Florida law treats anyone who sells more than seven condos of a project with more than 70 units as the developer, making them responsible for construction defects or any lawsuits against the builder, Baldwin said.

“Bulk purchasers need to be wary,” Baldwin said. “They can really get spanked.”

To contact the reporter on this story: Bob Ivry in New York at bivry@bloomberg.net.