A troubled Hollywood Beach condo-hotel may be heading to auction, where its lender could acquire the property for $43 million.
The Costa Hollywood Beach Resort filed for Chapter 11 bankruptcy protection in September, five months after its lender, Madison Realty Capital, sought to foreclose on the property. The development group, led by Moses Bensusan, is now seeking court approval to liquidate the 326-unit property at 777 North Ocean Drive in an auction.
New York-based Madison Realty loaned the development group $70 million in 2016. In April, the lender filed a foreclosure suit against the development group and its principal Bensusan, alleging the group was in default of $41 million. The property’s assets are valued at $50.5 million, according to the liquidation plan.
Madison Realty claims that it owns 52 unsold units along with the condo association, according to the liquidation filing last week. The lender could end up owning the building, since it has a secured claim of $47 million on the property, according to the liquidation plan.
If the plan is approved, the lender will open bidding with a $43 million “stalking horse bid,” which would allow Madison Realty to use money it is owed from the development group to bid on the property. The auction will be open to other bidders as well after the $43 million opening bid. The court has yet to approve the auction plan no auction date has yet been set.
Adam Stein-Sapir of New York-based Pioneer Funding Group, a bankruptcy expert who analyzed the Costa Hollywood case, said Madison Realty will most likely end up owning the development.
“The value of assets is pretty darn close to the value of the senior debt. I wouldn’t expect any other bidder to come and top the current lender,” Stein-Sapir said.
Construction at the condo-hotel started in 2013, and the developer began marketing the condos to investors in South America and Argentina. It opened in October 2018.
Peter Russin, an attorney who represents the development group in the bankruptcy, did not immediately respond to a request for comment.
Madison Realty declined to comment through a spokesperson.
The auction would come as the hotel sector is reeling from the impacts of coronavirus and people are canceling hotel reservations.
Condo-hotels, which allow investors to own individual hotel units, are growing out of favor with investors. Some planned condo-hotels, such as the Palm House and the 550 Seabreeze Hotel project in Fort Lauderdale Beach, have run into trouble.
Madison Realty has completed more than $12 billion in debt and equity transactions since it was founded in 2004, and is active in construction lending. Over the past year, the group has increased its presence in South Florida. It provided a $225 million construction loan for The Residences at Mandarin Oriental in Boca Raton in July.
The foreclosure filing could signal growing indicators of distress in South Florida’s real estate market. Such indicators include an increase in residential home foreclosures and in vulture funds raising money.