Bloomberg: Troubled Miami Condo Sale Signals Real Estate Bottom?

Private equity in the game now. Looks like banks with troubled loans have some serious thinking to do. From Bloomberg.com.

Florida Real Estate Bottom Signaled by Sale of Distressed Condo

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.

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