The Real Deal Miami

Black listing plagues condo market

By Jennifer LeClaire | June 12, 2008 04:47PM

Whether you prefer to call it “non-permissible” projects or condo blacklisting, the practice of banks denying loans for some condominium buildings in South Florida is alive and well.

“Condo black listing is a reflection of banks’ concerns over what’s going to happen with the pricing,” said Lew Goodkin, principal of Miami-based Goodkin Research.

But are so-called black lists really a smart strategy for banks? Not necessarily, said Matthew Zifrony, director of Fort Lauderdale-based Tripp Scott’s real estate division.

The minute banks issue lists of projects they won’t lend to, Zifrony said, it opens them up to accusations of refusing loans based on the property’s characteristics, rather than its lending history. That’s especially true of brand new projects, experts say.

“Banks are understandably nervous when it comes to lending in general and condominiums in particular,” Zifrony said. “I suggest banks not create a list of projects they won’t lend to, but rather create a list of underwriting requirements.”

“If a project doesn’t meet the underwriting requirements, do not lend,” he added. “Look at the number of units in foreclosure and if that number exceeds a certain threshold it may make sense not refuse to touch that building.”

Bank United and Washington Mutual are among the banks that have created lists of non-permissible projects. Reasons include declining market value, high concentrations of investors, delinquent homeowners association dues and a high number of foreclosures.

WaMu did not return calls seeking comment.

BankUnited spokeswoman Melissa Gracey declined to comment specifically on the bank’s list or how it has helped loan losses in the first two quarters of the year. Instead, she explained that BankUnited has always been an “extremely conservative lender, even more so in the last few years.”

“We have purposely had very little exposure to the downtown luxury condominium sector during this time,” Gracey said. “Because we have always been so conservative, we cannot tie anything to recent activity.”

BankUnited’s blacklist includes several Miami projects: Midtown Miami, 900 Biscayne Bay, Four Ambassadors 1, Icon, Mary Brickell Village, Neo River Lofts, Neo Vertica and Ten Museum Park.

BankUnited Financial Corporation, parent company of BankUnited FSB, reported a loss of $65.8 million, or $1.88 per diluted share, for the first quarter. The company increased the provision for loan losses from $4 million for last year’s first quarter to $98 million for this year’s first quarter, in response to a weaker economy, deteriorating residential housing markets and increased foreclosures.

Could the black listing cause a ripple effect? It might, but it may not be all doom and gloom for brokers, buyers and sellers. Ultimately, Zifrony said, the market will shake itself out and come to terms on risk-worthy buildings.

“In the short-run, there is density and overreaction by everybody, banks included, and banks are quicker to refuse to loan,” Zifrony said. “But over the long run, the void created by banks not willing to lend to certain buildings will end up becoming an opportunity for more aggressive banks.”