condo developer that helped reshape the skyline of downtown Miami — and contributed to the area’s condo glut — has filed for bankruptcy.
Cabi Downtown filed for Chapter 11 protection from its creditors the same day its lender moved to foreclose on Everglades on the Bay to recover a delinquent construction loan of about $209 million.
Cabi completed the project at 244 Biscayne Blvd. earlier this year.
The Tuesday bankruptcy filing puts on hold the foreclosure suit filed by Bank of America. Bankruptcy filings take priority.
Cabi Downtown is an affiliate of Cabi Developers, which has not filed for bankruptcy.
The project’s 849 condos came on the market amid the worst recession in 70 years. Property values have plummeted and a challenging financial market is making it tough for condo buyers to get mortgages and developers to refinance construction loans.
According to Miami-Dade County property records, Cabi Downtown has closed on the sale of 81 units at Everglades on the Bay, less than 10 percent of its inventory. It has rented the ground floor to CVS Pharmacy.
On Aug. 18, Bank of America asked Miami-Dade Circuit Judge Michael A. Genden to appoint a receiver to collect rents from the retail space and some residential units or to have rent payments sent the court.
Cabi Downtown listed more than $100 million in liabilities and more than $100 million in assets. The bankruptcy filing named 20 creditors owed from $15,000 to $912,272, including Gryphon Construction, the law firm Siegfried Rivera Lerner De La Torre & Sobel and Fullerton-Diaz Architects.
The 2005 construction loan from Bank of America and HSBC, originally for $256 million, came due in December 2008 but was extended to February 2009, according to public documents.
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Cabi Downtown stopped paying the loan in March and owes the bank about $209 million, Bank of America spokeswoman Shirley Norton said Thursday.
“We’ve been working with them since last year to try to resolve this [issue], and we’ve talked several times about restructuring but nothing has worked,” she said.
“The project has a lot of problems. … It’s got some mechanic’s liens against it [totaling] about $15 million. They were caught in the economic downturn. They haven’t been able to sell many of the condos, so the cash flow is not there.”
Marc Kasowitz, a New York lawyer representing Cabi Downtown, said the developer asked the lenders to permit the sale of condos for less than the release price, which is the minimum unit price set by the bank when the loan is granted. The lender refused, even though condo prices have declined below the release price.
“Unfortunately, repeatedly and consistently, these lenders have absolutely, for reasons that aren’t clear at all, refused to make these reasonable agreements,” said Kasowitz, a partner with Kasowitz Benson Torres & Friedman.
He would not say if Cabi Downtown would ask a bankruptcy judge to authorize sales below the release price.
Cabi Downtown is also facing lawsuits from buyers trying to recover their condo deposits.
Several real estate experts noted that it is common for developers to file for bankruptcy after a lender moves to foreclose on a property. Often it is a strategy developers use to pressure the lender to work out a solution.
“It is a tool in their arsenal when negotiating with banks,” said Adam Cappel, president of CondoReports.com, a Miami research firm.
“What usually prompts [developers to] rush to the bankruptcy court is the pressure they are receiving from their lenders,” added attorney Craig Rasile, co-chair of the bankruptcy, restructuring and creditors’ rights practice group for Hunton & Williams in Miami.
Kasowitz denied Cabi Downtown filed for bankruptcy to delay the foreclosure action.
Rasile, who is not involved in the case, said more troubled developers are likely to follow Cabi Downtown’s lead as they struggle with a sluggish condo market and scarce financing.
The strategy is viable if there is sufficient equity in the property, Rasile said. Otherwise, the lender or any secured creditor can move to convert the case to Chapter 7 to sell the assets, he said.
A lender could also ask a bankruptcy judge to let the foreclosure proceed if the equity has vanished, he said.
In light of the stress financial markets, Rasile said bankruptcy judges are more willing to be flexible.
“Nowadays, it is more common for the courts to give debtors some time to analyze their options and ascertain whether or not they can sell the property in a bankruptcy setting and get some equity for the creditors,” he said.
Paola Iuspa-Abbott can be reached at (305) 347-6657.
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