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February 9, 2010 |
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| June 03, 2009 |
By: Paola Iuspa-Abbott |
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year after taking over a struggling condo project from Boca Developers, mezzanine lender Momentis Property Group is walking away from The Oaks I at Biscayne Landing in North Miami.
Momentis, which seized the 373-unit property from Boca Developers in July after the developer defaulted on a construction loan, has agreed to hand the project over to iStar Financial, the senior lender.
Momentis, an affiliate of New York based Madeleine LLC and Cerberus Capital Management, said the project had become “uneconomical” for it to own.
iStar became the project’s primary lender after acquiring Fremont Investment & Loan in 2007. Fremont had provided a $123 million construction loan to Boca Developers in October 2005. iStar didn’t return a request for comment.
Madeleine lent Boca Developers $275 million in equity financing to cover Phase 1 of Biscayne Landing and other projects.
During its ownership of The Oaks, Momentis focused on trying to acquire additional land to build a pool and other amenities for the property. It failed despite lobbying the city, which owns the land, and Boca Developers, which has a lease to develop the land surrounding the project.
“Although recent progress has been made … a deal could not be reached; and iStar has indicated its intention to take over the project,” Momentis said in a statement Monday. “[Momentis] is working diligently to effect a smooth transition of ownership to iStar or its designee.”
Momentis' agenda
Some real estate insiders said they were surprised at Momentis’ decision to go public with its problems. Mezzanine and senior lenders are notoriously private about their dealings with borrowers, especially those involving failed projects.
“These are extremely challenging times, and Cerberus has lost a tremendous amount of money with the failure of Boca Developers,” real estate consultant Steven Beauchamp said.
“Unless a senior lender is willing to take a cut on its loan, there is a good chance the mezzanine lender will walk. In this case, iStar will be stuck with the construction liabilities associated with the project for an extended period of time.”
Beauchamp’s Mangrove Advisory Group in Fort Lauderdale helps distressed developers negotiate with lenders. He is not involved in this project.
Momentis didn’t fight iStar’s effort to take over the The Oaks, company executives said in a statement.
“Momentis is committed to a consensual and orderly transition of the property to iStar in an effort to minimize any adverse effect on residents,” the statement said.
The Oaks has 213 condo owners and a condominium association that is operated by Boca Developers.
The Oaks is the first phase of Biscayne Landing, one of South Florida’s most ambitious mixed-use projects. It was approved by the city in 2007 at the height of the housing boom. The 193-acre community was to include nearly 6,000 residential units, 180,000 square feet of office space, a 200-room hotel, 300,000 square feet of retail space and an Olympic training facility.
The complex was planned for the former Munisport landfill site off Biscayne Boulevard.
Boca Developers only managed to build two towers with 373 condos before the housing market collapsed.
Looking ahead
iStar will take over 160 unsold condos at The Oaks. It will also have to build the long-promised pool and other amenities. But the lender will first need to work out a deal with the city and Boca Developers to acquire more space for those facilities.
“Momentis has been working diligently … to restructure various agreements, including those that were made between the original developer and the city of North Miami relating to obligations that have rendered the project uneconomic for Momentis in the current environment,” according to the lender’s statement.
North Miami City Attorney Lynn Whitfield was out of town and could not be reached for comment. North Miami Deputy City Attorney Roland Galdos said he wasn’t aware that Momentis planned to give up the project. Galdos said the North Miami City Council is to discuss the status of Biscayne Landing at a June 23 council meeting.
Lender challenges
Mezzanine lenders that take over projects are encountering the same challenges that developers faced before losing the projects to the equity lenders.
Mezzanine lenders that take over projects are responsible for paying down the construction loan and paying condo assessments, taxes and insurance on the unsold units.
“That is a big issue right now,” said real estate consultant David Hirschfeld. “Most of those mezzanine lenders don’t have the cash flow or capital to continue to fund projects in hopes that in a year or two they will end up selling and getting some of their money back. A lot of these mezz lenders are just giving up because even if they want to protect their capital, they don’t have the liquidity.”
Those lenders are also realizing the value of their properties is less than the senior lender’s debt on it, said Hirschfeld, president of Hirschfeld Investment in Boca Raton. And because senior lenders have priority, mezzanine lenders have little hope of any recovery in that situation.
The lack of capital in the nation’s credit-frozen economy is making it harder for mezzanine lenders to cut a deal with senior lenders.
“Even if the bank came to them and said, ‘We will give you a discount on the note,’ mezz lenders don’t have the money to do that,” he said.
Paola Iuspa-Abbott can be reached at (305) 347-6657. |
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