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March 19, 2010 |
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Condo Meltdown
Failed Boca conversion project goes to auction
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| May 28, 2008 |
By: Polyana da Costa |
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he owners of Villa Mare, a failed residential condo conversion project in Boca Raton, have seen the property’s debt balloon from about $50 million to more than $70 million since last year.
Ocean Bank, which filed a foreclosure against the project in June 2007, later sold the loan to Laramar Group, a Chicago-based apartment investment company in December.
Now a foreclosure auction has been scheduled for June 26, according to court records. Laramar Group, which has been operating the property as rental apartments since acquiring the loan, is expected to keep control of the property after the auction, said sources familiar with the property.
NRW Development owed $49.7 million in principal plus nearly $20 million in accrued interest and fees to Laramar Group, according to a final judgment of foreclosure filed May 13.
The debt is growing at the rate of $21,000 per day because of interest charges.
The principals of condo converter NRW Development — Ricardo Djmal, Hernan Gleizer, Juan Pablo Lorenzino and Pablo Barreiro — are unlikely to rescue the 160-unit complex at 2519 N. Ocean Blvd., according to several sources.
Unless a buyer is willing to bid more than what is owed to Laramar — more than $70.1 million — Laramar will become the owner of Villa Mare Beach & Yacht Club.
The development, which NRW purchased in 2006, has two five-story buildings, boat slips and ocean access. It was expected to generate about $90 million in sales with units averaging more than $550,000.
When the conversion failed, the contracts on pre-sold units were canceled and NRW returned deposits, according to court documents.
Jeff Bast, a former Hunton & Williams attorney who is now a solo practitioner and represents NRW, declined to comment on the specific foreclosure case.
In cases where the developers don’t have the financial ability to rescue a property from foreclosure, they can opt to transfer the property to the lender or mortgage buyer through a deed in lieu of foreclosure.
In general, it’s not uncommon for the senior lender to opt for the foreclosure, Bast said.
“It’s a way to foreclose the junior creditors,” such as contractors who are owed money and any other parties who may have a claim or interest in the property, he said, noting he was not referring to the Villa Mare case.
He added that many condo developers with troubled projects are grappling with the issue of accumulating interest.
“Default interest can accumulate very quickly and dramatically increase the amount of the debt obligation,” he said.
But that only compounds the developer’s problems, he said.
“If they are under water to begin with, in some situations it may not matter,” he said.
Bast said investors are increasingly interested in acquiring the loans of troubled condo developers.
“A lender cannot convey title to a property, but they can sell the debt,” Bast said.
In some cases that may hurt a developer who is in default and is still trying to bring the loan current. Lenders generally don’t want to take back real estate, so they can be more willing to work with a developer than an investor that has acquired the troubled loan since the investor’s ultimate plan may be to gain ownership of the property.
Kiera Kelly, a spokeswoman for Laramar Group, declined comment until the foreclosure process has run its course.
Laramar entered South Florida in early 2007 with a $350 million fund to acquire distressed properties. Kelly confirmed the group has been operating Villa Mare as a rental property. The project has also been renamed Oceanview Apartments, its name before the NRW acquisition.
Ocean Bank, which originally provided the loan in 2006, is no longer involved with the project. However, the bank is still fighting a November 2007 federal lawsuit by mezzanine lender Meecorp Capital Markets. Meecorp, which is seeking $3.5 million, claims the bank forced the project into foreclosure by making “improper and unilateral” changes to the financing.
The Fort Lee, N.J.-based mezzanine lender also claimed in an amended complaint filed earlier this month, that Ocean Bank rebuffed Meecorp’s attempts to purchase the loan from the lender.
“Ocean Bank refused on several occasions to provide Meecorp such right,” the lawsuits claims, “thereby effectively eliminating Meecorp’s ability to recover any benefit from its mezzanine loan.”
Meecorp’s suit claims that in December 2007, “Ocean Bank sold its interest under the senior loan documents to Laramar Ocean View Partners LLC for an undisclosed amount believed to be substantial value.”
Frank P. Terzo of the law firm GrayRobinson, the attorney representing Meecorp, did not immediately return calls seeking comment.
Ocean Bank filed a response to the amended complaint last week denying the allegations.
The response claims Ocean Bank satisfied any legal agreements it had with Meecorp and said any damages Meecorp may have suffered as the mezzanine lender were caused by the “the acts of others” such as NRW, and not Ocean Bank.
A spokesman for Ocean Bank said the bank declined to comment on the pending Meecorp lawsuit.
Polyana da Costa can be reached at pdacosta@alm.com or at (561) 820-2065.
Villa Mare photo by Melanie Bell
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Reader's comments
Jack McCabe said:Here's an example of a condominium conversion recipe for disaster for the owner and lenders. Converter buys complex in April of 2006, after the pinnacle of the boom, and pays a reported $56.2 million for the 160 units (not mentioned in article), or app. $351,250, for each unit built way back in 1968. Converter acquires a reported $60 million in financing (not mentioned in article)from Ocean Bank, and another $3.5 million from the mezz lender. Yes, that's right! Converter announces "exterior" renovations and plans to sell units at an average of $550,000 each. A few had the foresight to question the potential for success of this project. May 28 at 5:20 a.m. | |
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