The detritus of Florida’s commercial foreclosures, stalled condominium projects and mortgage defaults requires plenty of cleaning up, and that’s created a surge in receivership work, with more to come soon. The spate of condo associations going belly up in the wake of unit owners who’ve failed to pay their dues is on the rise, and experts say this is just the beginning.
Once the legal lines are drawn, receivers work to get some relief for creditors and sell distressed properties.
KW Property Management & Consulting, a real estate investment management firm in Coral Gables, has served as a court-appointed receiver for more than 15 distressed properties — and expects to get busier in the months ahead.
The Real Deal caught up with Robert White, co-founder of KW Property, to discuss the receivership trend, condo association bankruptcies and how developers and private equity groups are responding to market challenges.
Are you seeing corporate bankruptcies circling into receivership?
Yes. Now that the market has turned downward, the banks are taking these assets back from the developers in default. These assets often go into foreclosure, in which case the bank gets the court to appoint a receiver. We have been appointed receivers on these assets many times and we manage the fragmented asset to try to maximize value for the bank. Usually, the developer has sold some units, so there’s a condominium association component. There are also unsold units components, so there’s a rental component. It can get complicated.
Are you seeing a lot of condo association bankruptcies? What types of unusual situations are you seeing out there?
Yes. We are working with one association that is in bankruptcy now. But it’s a little bit of a different twist. The developer had developed the building back in the 1970s and they left a pool and decking in the back of the building. It’s right on the ocean. The association leases the pool from the developer. Well, it’s a 99-year lease. They have 61 years left on the lease — and they’re paying $112,000 a month. So, the association went into bankruptcy to try to get the bankruptcy judge to dismiss this debt.
Are developers doing anything to help the condo associations?
Many times the developers are funding the association’s deficit. Let’s say the association’s expenses are a $100,000 a month and they’re collecting $50,000 a month. Sometimes the developer will pay the $50,000 difference every month for the shortage. Other times the developers come in and buy units, so effectively it causes a turnover at the association. They buy enough of the units to get control of the board so they can control the association. This way, they don’t have to pay the shortage and the expenses. They just pay their fair share and adjust the budget accordingly.
Are private equity groups scooping up these distressed assets?
Yes. The investors coming in and cherry-picking the assets get a good price because it’s a troubled asset. Usually the bank doesn’t have the manpower or the willingness to manage these assets. There’s also the fact that, as long as the asset is on the bank’s books, the bank has to keep writing down the loans. That impacts the asset base on which they loan, and they don’t want to do that. So the banks try to get rid of the asset as quickly as possible and there are some opportunities for investors to come in and cherry-pick these assets.