South Florida’s top distressed properties

Miami /
Apr.April 15, 2010 02:00 PM
From left: The Gallery at Cocowalk on Grand Avenue in Coconut Grove; Palm Beach Gardens Marriott on RCA Boulevard in Palm Beach Gardens; the Shore Club on Collins Avenue in Miami Beach

It’s not just the South Florida residential market feeling the pain.

Some of the region’s most high-profile developments, from office buildings to hotels and shopping malls, are 60 or 90 days past due on their mortgages, putting them in the same sinking boat as scores of underwater South Florida homeowners. The Real Deal ranked the top 10 properties with the greatest amount of distressed CMBS debt (see chart below).

As of March 31, the Shore Club on Collins Avenue in Miami Beach was three months behind on its $111 million mortgage. Also 90 days late were: The Gallery at Cocowalk on Grand Avenue in Coconut Grove, which owes $79 million; Palm Beach Gardens Marriott on RCA Boulevard in Palm Beach Gardens, $50 million; Shoppes of Wellington Green at 10500 Forest Hill Boulevard in Wellington, $31 million; Southpark Centre on South Dixie Highway in Pinecrest, $18 million.

A spokesperson for the Morgans Hotel Group, which manages the Shore Club, called the delinquency an issue between the owner and loan servicer that doesn’t impact the hotel’s operation. The Shore Club is owned by the New York-based Philips International, which also owns the Bryant Park Hotel, and could not be reached for comment.

The owner of CocoWalk, PMAT CocoWalk, has reached an agreement to modify the loan on the property, said Naomi Evans, a company spokesperson. This will allow CocoWalk to reposition itself as a premier South Florida outdoor shopping and entertainment center, she said.

Officials for the other properties could not be reached for comment, although data from the commercial loan tracking firm Trepp indicates some could also be seeking modifications.

“Over the next two or three years we’re going to see failures that rival or exceed the dollar volume of the foreclosures and collapse of the residential market,” said Jack McCabe, a Deerfield Beach-based real estate analyst.

Investors who bought securities backed by South Florida commercial mortgages have seen $1.2 billion worth of them go into delinquency, according to the most recent data from Trepp.

That number is expected to grow. And that’s what has many South Florida real estate experts bracing for years of pain in the commercial real estate market as some of those property owners struggle to make debt payments or turn the keys over to lenders.

Many of the distressed buildings were bought or refinanced during the boom years using commercial mortgage-backed securities, or CMBS, that are now hitting their five- to seven-year terms, McCabe said. The owners can’t refinance since the capital markets are frozen and many of the properties are valued at much less than what’s owed on them, some by 50 percent, he said.

But the CMBS numbers do not give a complete picture of the market, only showing about 25 to 30 percent of all commercial real estate investments, said Paul Mancuso, vice president at Trepp.

There’s no public data available to track what’s happening with private investors who didn’t buy CMBS from Wall Street. However, CMBS data gives a glimpse into the trouble facing the commercial real estate market.

South Florida commercial properties have $15.3 billion in outstanding CMBS, Mancuso said. The Miami metro area ranks 10th in the country in delinquency loan volume but its delinquency rate, at about 7.75 percent, is virtually the same as the national CMBS delinquency rate of 7.6 percent, he said.

The data shows a spike in the number of March CMBS delinquencies. Mancuso expects to see a continued rise throughout this year with delinquencies possibly leveling off in 2011.

In South Florida, Trepp data shows 46 commercial properties that are either 60 or 90 days behind, or whose CMBS debt has matured but hasn’t been paid. The 60-day delinquency is an important marker.

“Generally speaking, there’s no turning back from that,” Mancuso said.

Still, there are many others current on payments, but on the brink of delinquency.

For example, Trepp data shows the five-building, 465,000-square-foot Douglas Entrance on South Douglas Road in Coral Gables lost a major tenant at the end of last year, dropping its vacancy rate to 77 percent. The resulting revenue loss has left Transwestern Douglas Entrance, which borrowed $103 million in 2007 to buy the building, with a debt service coverage ratio of 1.08. In other words, it brings in $1.08 of revenue for every $1 of debt, leaving it little wiggle room on a loan that matures in 2012. 

Worse off is the 35-story, 780,000-square-foot Miami Center with a debt coverage ratio of .82 to meet its payments on a $170 million loan made in 2007, according to Trepp. A March report shows that the borrower, Crescent Miami Center, “has expressed concern over continuing cash flows at the property.” Officials for the Miami Center and Douglas Entrance could not be reached for comment.

Bob Orban, senior vice president and branch manager at Studley in Miami, represents commercial tenants and keep tabs on those properties that are on the edge of delinquency.

Sometimes that means he goes directly to lenders to include a non-disturbance clause to protect his clients’ leases if there is a foreclosure. Other times, Orban said, he has had clients who want to move out because landlords stop paying for regular maintenance.

In this market, Orban said, his biggest challenge often is gauging the financial wherewithal of the property owners.
“We want to paint a very clear picture for our clients on how these numbers can impact tenancy in a property,” he said.


Related Articles

arrow_forward_ios
From left: Miami Beach mayor Dan Gelber, real estate developer Stephen Ross, and the Deauville Beach Resort in Miami Beach (Getty Images, Google Maps, iStock)
Stephen Ross wants to redevelop the Deauville Miami Beach with architect Frank Gehry
Stephen Ross wants to redevelop the Deauville Miami Beach with architect Frank Gehry
Worth Capital’s Charles “Rusty” Holzer and 13501 South Shore Boulevard in Wellington (Getty, Google Maps)
Wellington real estate investor pays $16M for shopping center in own backyard
Wellington real estate investor pays $16M for shopping center in own backyard
The Villa Paradiso at 1415 Collins Avenue and The Orchid House Hotel at 1350 Collins Avenue with Randall Smith of Alden Global Capital and Joe Nakash (Getty, Wikipedia)
Boutique South Beach hotels trade amid heightened demand
Boutique South Beach hotels trade amid heightened demand
Michael Krymchantowski and a rendering of the Krymwood Hotel at 176 Northwest 28th Street (MKDA, Krymwood, iStock)
Brazilian investor gets Miami board’s OK to build Wynwood hotel
Brazilian investor gets Miami board’s OK to build Wynwood hotel
renderings of the proposed three-tower development on the site of an existing Hyatt and the James L. Knight Center on the Miami River at 400 Southeast Second Avenue, Miami (Arquitectonica, Gencom, LinkedIn)
Third time’s a charm? Hyatt and Gencom unveil new plan for hotel, apartments on James Knight Miami River site
Third time’s a charm? Hyatt and Gencom unveil new plan for hotel, apartments on James Knight Miami River site
Sunstone's Bryan Giglia and Douglas Pasquale with 4041 Collins Avenue (Sunstone Hotel Investors, Google Maps)
Sunstone puts The Confidante Miami Beach under contract for $232M
Sunstone puts The Confidante Miami Beach under contract for $232M
From left: Sonia Cheng, CEO at Rosewood Hotel Group; Peter Marino, principal of Peter Marino Architect; Michael Shvo, founder, chairman and CEO of SHVO; a rendering of the Raleigh development in Miami Beach (LinkedIn/Sonia Cheng, Getty Images, SHVO, iStock)
Rosewood Hotels to brand Michael Shvo’s Raleigh development in Miami Beach
Rosewood Hotels to brand Michael Shvo’s Raleigh development in Miami Beach
Chesterfield at 363 Cocoanut Row with Simon and David Reuben (Google Maps, Getty)
Reuben Brothers buys Chesterfield Hotel in Palm Beach
Reuben Brothers buys Chesterfield Hotel in Palm Beach
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...