Corus Bankshares, the Chicago-based bank that helped back Concerto, Solair, Evo, and other recently completed LA projects, was taken over by the FDIC last week. With the FDIC now said to be looking to sell off the construction notes on the projects, what does the bank's failure mean to you, local downtown condo buyer looking for a decent floor plan? “The long and short of it is that the loans will be sold at a discount,” says Robert P. Goe, a Newport Beach-based lawyer who specializes in real estate. With the loans sold at a discount, here's one scenario: The new owners of these notes/assets (Related Cos is one that's being mentioned) may offer the buildings' units for sale at a discount, according to Goe. The FDIC takeover likely takes the pressure off developers--someone like Concerto's Sonny Astani-- given that the new owners will likely be more willing (than ailing Corus) to re-work the loan. The Miami Herald also has been covering the post-Corus environment in Miami: "Much like a death after a long and painful illness, Corus' failure was met with a sense of closure and relief from some local real estate analysts and developers, who said now the condo market could hit the reset switch and begin moving forward." The paper also quotes experts who believe the new owners of the assets may be "likely to slash prices to quickly sell inventory. 'That will be good for pre-sale buyers and new buyers,' one developer tells the paper." But that's the good-for-buyers scenario: The new lender could also do whatever they wanted--foreclose on the building if the loan isn't being repaid or raise prices. Looking specifically at Evo and Concerto, we turn to a local commercial real estate broker who had been working with Corus.
The broker, who asked to remain anonymous, believes that of all of the Corus-backed buildings that could be affected, either in the short-term or long-term, the one that won't be impacted is Evo, which is now, according to his sources, 55% sold. Evo, he believes, has more than one lender, and all the lenders are being repaid. "Nothing should change with this deal unless sales slow or prices erode," he believes. What will happen with Solair, that new Koreatown development, and Concerto isn't clear yet.
Like Goe, he believes that the loans will be sold at a significant discount. "Presumably this is how it will work. A venture firm (like Related) will determine the price of the loan based on the value of underlying collateral, which in turn is based on today’s condo values (versus the values Corus originally underwrote). This updated value might also factor in additional costs to complete the project and/or get sales going. Maybe this new assessment of the real estate means that the venture firm pays 40 cents on the dollar. What a buy for the venture firm! At this price they’ll be buying real estate or notes on real estate for a fraction of the cost to build."
He also points out that the new owner could eventually foreclose on the building (if a developer start missing payments*)-- in the same way Corus did with Glencoe Lofts, that Marina Del Rey development. " Corus foreclosed on this then went to sell it like a good bank should do (although they demanded an extremely high price). Corus was known for trying to retain possession and wait for brighter days. Those days will have no memory of Corus now."
And taking the macro view, let's remember: There's no such thing as a free lunch. So there may be the possibility of cheap condos now, but of course, a loss has to be taken somewhere. And that loss is translated to the FDIC and the tax payers. (But now we're weighing inflation versus saving the banking industry, as he points out.)
· Corus Bankshares' failure may lubricate South Florida's condo market [Miami Herald]