Can a Bad Condo Conversion Kill You?

This story in the Tampa Bay Business Journal was primarily about the sale (at a $15-million loss no less) of a failed condo conversion project. What struck me is that people are blaming this lousy deal for killing the guy who bought it in the first place.

Tampa Bay Business Journal - by Janet Leiser Staff Writer

TAMPA — Village Oaks at Tampa, an apartment complex unsuccessfully converted to condominiums, has sold for $21.2 million — nearly $14.8 million less than a Boca Raton developer paid at the peak of the market nearly three years ago.

LaSalle Bank filed a foreclosure lawsuit against Tampa Oaks 52 LLC in April, two months after the death of the entity’s principal, Elie Berdugo.

In late August, court-appointed receiver Radco Management LLC sold 215 units in the complex to Mid-America Apartment Communities Inc. for about $98,837 a unit.

Mid-America, a Memphis, Tenn.-based real estate investment trust that owns and manages apartments, paid $11.2 million less than what Tampa Oaks 52 owed its lenders, including LaSalle.

“There was just a lot of over exuberance in the market a couple of years ago, and I think we’re seeing the result of that now,” said Jim Bobbitt, senior VP of capital markets at CB Richard Ellis Inc.

Still a good deal

Despite the difference in sale prices, Norman Radow, CEO of Radco, said the borrowers received more than expected from the sale.

Opus South Corp. and Florida Southeast Development Inc. built Village Oaks near Fletcher Avenue and Interstate 75. It was new and unoccupied in December 2005 when Berdugo paid $153,846 a unit — then a record unit price in east Tampa.

During 2007, Berdugo sold 19 condos for an average of $215,000, bringing in about $4 million, said Byron Moger, senior director for the capital markets group at Cushman & Wakefield of Florida.

Some buyers paid as much as $259,900 for units that include garages, records show. There were no sales this year.

While Berdugo clearly overpaid for the complex, Mid-America paid a fair price, said Moger, who brokered the deal. Moger contends the complex sold for less because of the 19 individually owned condos, which will create higher operating costs and more operational headaches for Mid-America.

“There are a whole host of issues with renters and owners occupying the same community,” Moger said.

One of the questions is whether Mid-America will try to buy the condos for what is owed, which is above market value, or wait for the units to go into foreclosure and pay less. Some are already in foreclosure.

In the meantime, Mid-America must operate the condominium association.

If all of the 234 units at Village Oaks were rentals, Moger said it would have likely sold for as much as $125,000 a unit, or $29.2 million.

CBRE’s Bobbitt agrees “fractured condos” sell for less.

Stress blamed for death

Last February in the midst of the condominium decline, Berdugo was visiting his homeland of Israel when he unexpectedly died of a heart attack at 55. The South Florida Business Journal reported the businessman had suffered high blood pressure compounded by stress from troubled commercial real estate investments.

Berdugo founded EB Developers in 1993. The company owned thousands of acres in South and Central Florida, as well as a landmark hotel site in Manhattan. It built luxury homes and garden-style condos, and, in recent years lined up $1.5 billion in projects.

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