AMERICAN LAWYER MEDIA
Most Effective Lawyers: Real Estate Finalists
$16 million judgment for deal gone sour

December 07, 2009
By: Review staff

According to the editors of the Daily Business Review, lawyers recognized in this special project handled the largest SEC receivership in Florida history, fought for the rights of mentally ill prison inmates, got restitution for the victims of the bombing of the USS Cole, secured the reversal of 15 death row convictions, got public financing to move forward for the Florida Marlins’ new home, took on the cause of gay adoption, successfully defended a giant fruit producer from a massive class action and uncovered prosecutorial misconduct.

Abbey Kaplan, Kluger Kaplan Silverman Katzen & Levine

Attorney Abbey Kaplan took his client from defense to offense in a long-running dispute over a failed real estate deal.

Kaplan, a partner at Kluger Kaplan Silverman Katzen & Levine in Miami, represented Downtown Associates in its suit against New Jersey investor Eli Weinstein and his related companies.

In May, Miami-Dade Circuit Judge Mark King Leban ordered Weinstein to pay $16.2 million in lost profits, interest and attorneys’ fees — a complete turnaround from the case’s start as a suit seeking damages from Downtown Associates.

The win for Kaplan’s clients closes one chapter in the case. But the next step for Kaplan is to collect the judgment from Weinstein, an elusive adversary who has not disclosed his holdings or appeared for depositions.

“I’m guardedly optimistic there’s going to be money at the end of the day, even if it’s not 100 cents on the dollar,” Kaplan said.

Kaplan said he has reviewed financial statements Weinstein submitted to banks showing a “very significant net worth.”

“My gamble is that even if values on his holdings have gone down, they are still significant,” Kaplan said. “If he’s transferred any of his assets, I’ll get them.”

The case opens a window on the frenzied final days of South Florida’s real estate bubble.

In May 2004, Downtown Associates, led by Miami real estate broker Rodrigo Niño, acquired a contract to buy a parking lot in downtown Miami for $22.25 million. Plans for the property included a complex of residential condos, hotel rooms, office space and retail stores.

In August 2005, Downtown Associates agreed to flip the purchase contract on the lot for $46.5 million to Weinstein’s Nexus Development Group — at the time a prominent player in South Florida’s booming market. But Weinstein never came up with the full deposit. By January 2006, the closing date had been delayed three times. Downtown Associates terminated the deal, and Weinstein sued to enforce the contract.

Rather than fight the suit, Kaplan decided to play chicken. He went to court and insisted his clients would live up to their end of the deal if Weinstein would pay the deposit.

“Our position was we had done nothing wrong and that Weinstein was playing games,” Kaplan said. “As soon as Downtown made the decision to consent to specific performance, Weinstein backs off and is left with an empty gun.”

Weinstein and his companies dropped all claims in 2008, and Downtown Associates sued, arguing the speculator’s waffling had caused the firm to lose a possible $11 million in profits.

On May 1, Leban granted a final judgment in favor of Downtown Associates for lost profits of $11 million, accrued interest of $4.5 million, and attorneys’ fees of $618,554.

Weinstein recently hired Aventura attorney Larry Metsch to fight the ruling. Metsch said the case should be decided on the merits.

“It was a frenzy of people signing contracts, and nobody had any money to close these deals,” he said. “We couldn’t close. Downtown couldn’t close. They were in the same business of flipping property as everybody else.”
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According to the editors of the Daily Business Review, lawyers recognized in this special project handled the largest SEC receivership in Florida history, fought for the rights of mentally ill prison inmates, got restitution for the victims of the bombing of the USS Cole, secured the reversal of 15 death row convictions, got public financing to move forward for the Florida Marlins’ new home, took on the cause of gay adoption, successfully defended a giant fruit producer from a massive class action and uncovered prosecutorial misconduct.

The attorneys were measured on one critical benchmark: results for the client.

Most Effective Lawyers has quickly become the recognition that distinguishes the top attorneys in South Florida.

MOST EFFECTIVE LAWYERS: Alan Kluger and Todd Levine, Kluger Kaplan Silverman Katzen & Levine

Prominent Miami real estate broker Edie Laquer has been called “the queen of real estate in Miami.”

That would make Alan Kluger and Todd Levine of Kluger Kaplan Silverman Katzen & Levine in Miami her knights in shining armor.

In July, Kluger and Levine won a $3.4 million judgment for Laquer who claimed she had been cheated out of her commission in a downtown Miami land deal.

Laquer Corporate Realty Group sued Leviev Boymelgreen Developers and Africa Israel Properties in April 2008 for breach of contract, claiming the defendants acted in bad faith to avoid paying her commission.

The sellers denied that Laquer had earned her fee, but Levine prevailed on a motion for summary judgment. Miami-Dade Circuit Judge Ronald Dresnick ruled for Laquer in July, awarding her $3 million plus interest.

Kluger and Levine declined to comment at Laquer’s request. Levine, a commercial litigator specializing in real estate cases, previously told the Daily Business Review the judge had considered that the corporate defendants accepted and spent a $6 million deposit.

Attorney Normal Segall, a partner at Ruden McClosky in Miami, represents the defendants in the lawsuit. An appeal is pending before the 3rd District Court of Appeal.

The lawsuit stems from a 2006 sales contract between Leviev Boymelgreen and Africa-Israel and 150 NE 7th LLC, a company controlled by Boca Raton developer Arthur Falcone and Palm Beach Gardens developer Marc Roberts.

The defendants hired Laquer, a top dealmaker in Miami-Dade County, to find a buyer for several land parcels near the American Airlines Arena.

Laquer arranged a sale of the properties for $88.7 million to Falcone and Roberts, who were assembling land for their ambitious Miami Worldcenter project, a nine-block mixed-use development. Under the terms of her contract, Laquer was entitled to collect 3.5 percent of the purchase price.

The deal foundered in late 2006, and Laquer claimed she was wrongly excluded from a second contract signed in March 2007 for the same purchase price.

In the event the buyer backed out and forfeited deposits, the contract stated Laquer would receive her commission or one-half the deposit, according to the suit.

Kluger and Levine argued the original deposit had been forfeited, which the defendants denied.

Segall said the case should wait for resolution of a separate lawsuit filed by 150 NE 7th LLC against his clients. That case settled with a sale moving forward at a reduced price of $39 million.

Laquer played no role in the ultimate deal, Segall said.

“Our position then and still is that her claim for commission was premature at best,” Segall said. “We expect this issue will be back before the trial court.”

Malpractice suits grow as Ponzi schemes unravel

Deep-pocket defendants often become targets because they have so much malpractice insurance, experts say.
‘Ponzi’ losses stun S. Fla. clients

BY JULIE KAY
SPECIAL TO THE MIAMI HERALD

A $50 million malpractice lawsuit filed against Holland & Knight earlier this month and one filed against mega New York law firm Proskauer Rose just days earlier are raising questions about just how much due diligence law firms must perform on clients.
The legal industry expects more malpractice, conspiracy and aiding and abetting lawsuits to be leveled against law firms as the economy falters and more financial frauds and Ponzi schemes unravel.

“The perpetrator of the fraud has no money, so of course plaintiffs look for any deep pockets around,” said Bruce Katzen, a partner at Kluger Kaplan Silverman Katzen and Levine in Miami and a former CPA. “The accountants and the lawyers or brokerage firms, those deep-pocket defendants become the targets because they have so much malpractice insurance.”

Both the suit against Holland and the one against Proskauer Rose were filed by investors and receivers victimized by Ponzi schemes.
In the case of Holland & Knight, a 1,000-lawyer Florida-based firm, the plaintiff was the receiver in a $347 million Ponzi scheme in Sarasota Circuit Court. The suit followed a similar one against the firm filed in March by wronged investors.
INCOMPLETE RESEARCH
The suit in Sarasota alleges Holland & Knight and partner Scott MacLeod prepared disclosure documents for investors that failed to mention Arthur Nadel, who headed the Scoop Management hedge fund, was a disbarred New York attorney who had drained a client’s escrow account. The firm and MacLeod are also accused of conflicts of interest by simultaneously representing Nadel and his investment funds.
The receiver’s suit seeks $50 million in punitive damages.
Karen McBride, a spokeswoman for Holland & Knight, denied any wrongdoing by the firm. “We’ve done nothing wrong, and we intend to vigorously defend the case,” she said.
Securities work, or representing financial firms or hedge funds in public offerings, is considered the riskiest area of law. For that reason, typically only large law firms with dedicated conflicts departments and plenty of malpractice insurance take such cases. Legal malpractice insurers specifically ask law firms in applications whether they handle securities cases, and then charge a considerable extra sum if they do. The deductibles are as high as $1 million.
But the work can be highly lucrative. For example, the lawsuit against Holland & Knight alleges the firm took hundreds of thousands of dollars in legal fees from Nadel.
“You definitely want to check out who your client is before you take a case, but with securities cases, the bar is higher, obligations are higher,” said Glen Waldman, a partner with HellerWaldman in Coconut Grove. “I wouldn’t do any securities cases because it’s a highly specialized area, and that’s how you can get yourself in trouble.”
Several lawyers said they believed Holland & Knight should have done the research necessary to unearth the fact that Nadel had been disbarred in New York.
SIMPLE GOOGLE SEARCH
Large law firms routinely do extensive background checks on clients, particularly in the financial arena. In this case, some lawyers wondered whether a simple Google search would have picked up the Nadel disbarment, and they questioned whether someone below MacLeod dropped the ball. In smaller firms, paralegals and librarians do the checks. In large firms, sophisticated conflicts departments undertake them.
“If they did their due diligence on him, they would have caught this,” said Waldman. “With the Web these days and the sites available, you don’t even have to be in a big firm to do a comprehensive check. But you are only as good as the people doing the checks for you. Either they have a faulty system or the person doing the check erred.”
A managing partner of another large Miami firm who did not want to be identified agreed, saying, “it looks like they have a problem.”
But Carl Schuster, managing partner of Ruden McClosky in Fort Lauderdale, said it’s easy to make a mistake about a client. Ruden itself was sued 15 years ago after it later came out that a client for whom they had written a prospectus had a criminal record.
“You get them to sign a statement that they have never been criminally charged, but I don’t know what more you can do,” said Schuster. “If Madoff had come to us five years ago — and we had a number of clients who used him — I don’t know if we would have done much due diligence on him.”
Steve Hagen, a former 10-year partner at Holland & Knight who now practices at Harper Meyer in Miami, said firms are under increasing pressure from clients to cut costs. Full background investigations can cost clients extra — perhaps $10,000 to $15,000 more, he said.
“There is a tension between wanting to do the complete amount of diligence you want to do and what the client is willing to pay,” Hagen said, adding that his firm has turned down cases when the client refuses to payfor background checks. “That’s why if you don’t feel comfortable with the background investigation they want, you walk away.”
Hagen defended MacLeod, whom he knows well and to whom he refers clients. “The clients love him,” he said.
FAITH IN SYSTEM
Bowman Brown, managing partner of Shutts & Bowen’s Miami office, which does considerable representation of financial firms and banks and oversees public offerings, said he is confident his background checks are sufficient.
“You need to be careful, especially on disclosure statements and initial public offerings, where there is not a lot of information out there,” Brown said. “We bend over backwards to be careful with our background checks. That’s not an area where you want to save money. The cost of a mistake can be so great.”
Still, Brown added, “you never know. You can miss something.”
Will there be any residual damage to Holland & Knight’s reputation as a result of the lawsuit? Probably not, said the lawyers interviewed.
“The fact that this has been filed against a prestigious firm suggests that no one is immune, and my belief is most professionals are very well-intentioned,” said Katzen. “It’s a sign of the times. People are looking to go after professionals.”

September 28, 2009

“Banks used this delaying tactic with residential assets for the nearly three years after the residential market started to decline. Only recently have they begun to accept the losses and sell the bad loans and troubled assets at deep discounts, said Steve Silverman, a member with Kluger Kaplan Silverman Katzen & Levine who represents owners of distressed properties trying to workout loans with lenders.”

The commercial real estate market is a ticking bomb waiting to go off.

It’s a bubble ready to burst.

It’s a … well, pick a cliche. No matter how they say it, industry experts have been making catastrophic predictions about the commercial market for months now.

But why hasn’t the market collapsed yet? Loans on commercial properties continue to come due and many borrowers have repeatedly reported they can’t refinance their debt. You would expect that by now the market would be flooded with foreclosures.

But it’s not.

There are about $9.4 billion worth of distressed commercial loans in South Florida and only about 13 percent of that, or $1.3 billion worth, has been taken back by lenders, according to Real Capital Analytics.

The reason is that commercial banks have been flexible — too flexible, some critics say — in extending maturity dates and giving borrowers forbearance as loans come due.

Some extensions are as a short as three to six months; others allow borrowers up to two years to repay the debt. The most common is a year extension with an additional six months extension once that expires.

The strategy allows lenders to avoid having to seize properties that have lost value and then write off their losses.

But critics say this simply puts off the problem because the credit and commercial real estate markets, especially retail and office sectors, will not have recovered by the time these loans again come due.

It could take a generation for the commercial real estate market to return to the kind of deals seen during the boom years of 2005 to 2007, according to a recent report by Jones Lang LaSalle.

“I think many lenders are delaying the inevitable,” said Tom Godart, a broker-associate at Boca Raton-based PMA Sales Group. “They are stalling.”

Godart represents user-buyers who want to acquire discounted properties and mortgage notes backed by commercial properties from banks.

He said lenders are doing whatever is necessary to avoid having to foreclose or to write off the value of a bad loan or asset, including converting loans in default into interest-free loans for a buyer willing to assume the full debt.

Some lenders also are waiting months, sometimes even a year, to file a foreclosure after a loan goes into default.

“If they admit to the real value of those assets, the FDIC would be looking at them as insolvent,” Godart said.

Troubles at Capmark Financial Group, which posted a $1.6 billion quarterly loss on Sept. 2 and said it might go bankrupt, are an alarming sign for many local and national lenders who realize that big losses in the real estate market will be inevitable.

U.S. banks hold about half of the more than $3.5 trillion of loans that are backed by commercial properties. The commercial mortgage-backed securities (CMBS) market holds another 25 percent, and insurance companies and government sponsored agencies such as Fannie Mae and Freddie Mac account for the rest. Nearly $1 trillion in commercial loans are to mature by the end of 2010, analysts estimate.

“It’s a snowball,” said real estate attorney Dale Bergman, a partner in Arnstein & Lehr in Fort Lauderdale. “Loans are coming due, we still have a tight credit market, vacancy rates are increasing, many borrowers no longer have the cash flow to support the financing and borrowers [who bought in the peak] are extremely under water.”

Bergman said he represents a potential buyer of a Miami office building with $30 million-plus loan that is in default.

The lender, who Bergman would not identify, waited a year after the loan went into default to file a foreclosure action. Last year, he said, the bank wasn’t even willing to talk about selling the note at discount. This year, the bank said it would sell the loan for about $12 million to $14 million, but buyers now say the property now may not even be worth that.

“There is going to be a lot of pressure on these banks,” Bergman said.

And as much as lenders try to avoid recognizing their losses the will reach at dead end at some point.

Take Las Olas Centre in Fort Lauderdale, for example. Wachovia Bank extended the maturity date several times on the approximately $219 million in loans on that property. The lender filed a foreclosure lawsuit in Broward Circuit Court in August after BF Las Olas — a subsidiary of BentleyForbes, a Los Angeles-based commercial real estate investment company — was unable to repay the loan. According to the Broward County property appraiser, the taxable value of the two buildings is $153.89 million, much less than the debt on it.

HOTEL, RETAIL WOES

In South Florida, hotel and retail properties are the two areas of biggest concern in the commercial sector.

Amid the decline in tourism there is $1.2 billion worth of distressed hotel loans in South Florida, according to Real Capital.

The recession, job losses and slow sales have contributed to about $1 billion in distressed loans backed by retail properties and about $829 million troubled loans backed by office properties.

Many of these borrowers, ranging from owners of small properties to investors in major commercial complexes, think that if they are given extensions to try to weather the recession, they will be able to refinance in a year or so.

Hines, the giant real estate investment trust, is one of the many companies that shares that belief.

Hines bought the 45-acre Airport Corporate Center in 2006, at the peak of the market, for about $157 million, but commercial real estate values have tanked since then.

Earlier this year, Hines received an extension on a $91 million loan that matured in March. The loan is part of a CMBS package with Bank of America acting as trustee.

Hines received a one-year extension to pay off the loan. After March 2010 Hines has the option to extend the payoff another six months, according to county records.

Michael Harrison, senior vice president for Hines Southeast Region, said he is confident the company will be able to refinance by then.

“We are already starting to see some signs of improvement [in the credit market], and we continue to explore our longer-term options,” he said.

Harrison said the property is 93 percent leased and is not overleveraged.

Before they agree to refinancing or loan extensions, lenders are requiring many borrowers to invest more money in properties to cover the difference between what is owed and what the property is now worth.

Harrison would not disclose if Hines had to provide additional cash to the lender.

CATALFUMO LOAN

When it comes to CMBS loans, not all borrowers may be able to obtain extensions or concessions.

Palm Beach Gardens-based Catalfumo Co. has been trying for months to renegotiate a $30 million CMBS loan that is backed by a 145,000-square-foot retail center in Palm Beach Gardens.

Jim Jacoby, Catalfumo’s attorney, said the center’s tenants, three furniture stores, have been hurt by slow sales and have asked Catalfumo to reduce the rent by about 20 percent. Jacoby wouldn’t disclose the rents but said the loan agreement does not allow reductions without the lender’s approval.

He was told that only “special servicers,” the representatives that negotiate with borrowers in default, could approve lower rents.

Jacoby said Catalfumo had to stop paying the mortgage and fall into default in order to be able to negotiate.

In July, 90 days after Catalfumo defaulted, Bank of America, acting as trustee, filed to foreclose.

“We are still working on it,” Jacoby said. “The special servicers have their hands full. They have a lot of these. It’s not like you can walk into your neighborhood bank and talk to someone about your loan. That would be much easier.”

Being forced into default in order to be able to negotiate with CMBS servicers has become common. But new rules adopted by the U.S. Treasury Department this month are expected to encourage CBMS servicers to negotiate loans prior to default, said Jim Shindell, a partner with Bilzin Sumberg Baena Price & Axelrod.

The Treasury Department said Sept. 16 that it would allow CMBS lenders to refinance some loans without paying tax penalties.

“One of the things servicers were concerned about is that their tax status could be challenged by the IRS [if a loan was modified prior to default],” Shindell said. “It’s too early to tell what will be the impact of the new regulations but it’s definitely a step in the right direction.”

Jacoby said Catalfumo has been successful in renegotiating loan terms with banks on its other projects and properties.

Howard Taft of the Aztec Group, a Miami-based real estate investment banking firm, agrees CMBS lenders have been more aggressive in pursuing foreclosures and less lenient with borrowers. Taft said he was working on a deal involving a retail center and an apartment complex in Miami with CMBS financing. The lenders decided to file foreclosure, take back the properties and manage them until they can sell in three or five years.

Banks, he said, have an option to delay — a strategy that he does not criticize.

“I don’t think we need to have all these commercial properties in foreclosure,” he said. “Extending is the best thing now until we get out of this phase in the economy.”

Taft recognizes that banks are “kicking the can down the street a little bit” when they extend loans on properties that are often under water and have high vacancies.

Still, a lender that takes over a commercial property now risks a substantial loss if it sells in the current distressed market, Taft said. Lenders that do end up foreclosing on the properties will have to hire management companies to lease the property and manage it for a couple of years until they are able to sell it.

“So, why not let the owner keep the property and manage it?” he asked.

But critics of this tactic say the risk is a prolonging of the commercial real estate market downturn.

CUT OUT THE CANCER

Gustaf Arnoldsson, managing member of Stonemason Partners in Miami Beach, which manages several bank-owned properties, said lenders have told him they are avoiding taking back the assets even if the property owner isn’t paying the mortgage because they don’t want to have to manage it. Arnoldsson said that is simply adding to the problem.

“Instead of letting the cancer spread, they should just amputate the leg and move on,” Arnoldsson said.

“They think it’s better to force the owner to manage the property even when he is not paying, but the owner knows he will lose the property so he is poorly managing it and the asset becomes more distressed and loses more value.”

Banks used this delaying tactic with residential assets for the nearly three years after the residential market started to decline. Only recently have they begun to accept the losses and sell the bad loans and troubled assets at deep discounts, said Steve Silverman, a lawyer who represents owners of distressed properties trying to workout loans with lenders.

“We’ve seen that in residential, and we are going to see that with the commercial sector,” said Silverman, a partner with Kluger Kaplan Silverman Katzen & Levine. “Banks are not set up to take property back. The one way to avoid that is to provide forbearance agreements or provide a modification, which can take all sorts of different forms.”

Godart said it could be a year before banks see the enormity of the problem and are forced to take over commercial assets and sell at a loss.

He said the problem will get worse before it improves. Godart expects another wave of retail property owners to default on loans — even those who are fully leased and now have enough cash flow.

“Forget about the rents tenants are paying today,” he said. “As soon as their lease is up, or even before, they are going to ask for much lower rents or they will move somewhere else because the center next door is half vacant and the owner is willing to lease space for less. The values of those retail centers will tank.”

As with the residential market, banks will be forced to take over the assets and try to sell, he said. And again mirroring the residential market, lenders will try to get the most value for their properties and vulture buyers and investors will hunt for bargains as they try to acquire distressed commercial properties.

Companies and investors have already started several acquisition funds in preparation for the discounted commercial property purchases, including Hines.

Arnoldsson said his company recently formed a fund that is planning to acquire $100 million in commercial real estate when distressed owners decide to accept the losses and sell.

When will that happen? Arnoldsson predicts the day will come when banks will employ more special asset managers than lending officers.

“Then they will take the losses,” he said.

Polyana da Costa can be reached at (561) 820-2065.

Commercial Real Estate Annual
Hotels selling at 20-year-old prices

It’s back to the ’90s for a growing number of troubled hotel properties.

Sale prices for some South Florida hotels have declined to levels not seen in 10 years.

Judging by two recent hotel deals, the hospitality industry could be the hardest hit of all commercial real estate sectors, experts say. A former Holiday Inn in Fort Lauderdale and the Doubletree Hotel Coconut Grove sold earlier this month at prices lower than their values in the 1990s.

With hotel property owners drowning in debt and a recession that has discouraged Americans from traveling, the hospitality industry will struggle for years, said real estate litigator Steve Silverman, a partner in Kluger Kaplan Silverman Katzen & Levine in Miami.

“The hotel sector is driven by disposable income,” Silverman said. “Given the problems in the general economy, hotel stays are going to be considered a luxury item for several years. Business travel is down and will continue to be depressed for several years.”

Knowing some hotel owners basically have to sell off their properties, investors are becoming increasingly “vulturistic” in the hunt for bargains, said broker Jeff Cohen, head of the commercial real estate division of Esslinger Wooten Maxwell’s Miami Beach office.

“Those who are suffering need to dispose of their assets,” he said. “With the pressure on the whole industry on the liquidity side, buyers are scrutinizing every possible deal to get it as cheap as they can.”

INSITE’S BARGAIN

Insite Development Group of Weston is one investor that found a bargain. Insite affiliate Insite Sunrise Beach bought the former Holiday Inn hotel at 999 N. Fort Lauderdale Beach Blvd. for about $500,000 less than it sold for in 1998, according to Broward County records.

Insite closed on the purchase of the 240-unit hotel and two parking lots for $13.75 million on Sept. 15.

Representatives of Insite could not be reached for comment.

The seller of the hotel was the real estate arm of Blackstone Group, a New York-based private equity firm. Blackstone Real Estate Advisors took title to the hotel in January 2006 after its parent company acquired Bethesda, Md.-based MeriStar for $2.6 billion. MeriStar paid $14.04 million for the hotel and parking lots totaling 1.22 acres in 1998.

Glenn Alba, vice president of Blackstone Real Estate Advisors, did not return calls for comment.

The condition of the Fort Lauderdale hotel most likely reduced the sale price to pre-1998 levels, said Guy Trusty, president of Lodging & Hospitality Realty in Coral Gables. Trusty had looked into the development potential of the property in 2005 but was not involved in the Insite purchase.
“Most properties that are coming to market need a considerable amount of work,” Trusty said. “Any hotel that hits the market in the next two years will be similar. The prices reflect a discount for the work that needs to be done.”

If the hotel has been closed for a substantial amount of time, the lower sale price is justified, said attorney Suzanne Amaducci-Adams, a partner at Bilzin Sumberg Baena Price & Axelrod. Amaducci-Adams heads the firm’s hospitality industry practice group.

“A closure ruins the value of a hotel,” Amaducci-Adams said. “It is an ongoing business. To get it going again you have to get new employees, buy new inventory and start marketing efforts all over again.”

DOUBLETREE DEAL

While the Doubletree Hotel Coconut Grove has remained open since 1972, the need for significant renovation depressed the sale price of the property.

Coconut Grove PT Ltd., an affiliate of General Electric Pension Trust, sold the 196-room hotel on Sept. 4 for about $13 million, according to Holliday Fenoglio Fowler, which brokered the deal. Coconut Grove PT acquired the hotel for $13.85 million 14 years ago, according to Miami-Dade County property records.

The sale price was recorded at $11.4 million in Miami-Dade County property.

The hotel needs between $5 million and $8 million in improvements, Trusty said.

Coconut Grove PT “didn’t put any money into it,” Trusty said. “They did just enough to keep the doors open.”

Bay Harbor Islands-based Robert Finvarb Cos., headed by Robert Finvarb, bought the property to convert it to a Courtyard by Marriott. Finvarb told the Daily Business Review earlier this month that he plans extensive renovations for the hotel but for now will work on improving the public areas such as the lobby, the pool deck and the meeting space.

Investors such as Finvarb must know going in that they could spend millions of dollars just to stay in business, Amaducci-Adams said.

“These are very expensive to own and maintain,” she said. “Every three-to-five years a hotel needs a face-lift. You need to freshen the linens, the lobby. Every seven-to-10 years a full makeover is needed.”

SETTING PRICES

Since the maintenance and improvement needs of each hotel are unique, property appraisers are struggling to value these assets, Amaducci-Adams said. That could hurt future sales.

“There are so few trades out there and a lack of liquidity,” she said. “Appraisers are having trouble figuring out the real value.”

While the Fort Lauderdale and Coconut Grove deals show some buyers and sellers are coming to terms on prices, a sizable gap still exists, Silverman said. Unlike the residential real estate market, investors and property owners are unsure if the bottom has been reached.

“We will not see major activity until the market does flatten and there is a general consensus that we are starting to rebound,” he said.

But South Florida should see an increase in sales as loans come due, Amaducci-Adams predicted. Some hotel owners with mortgages set to mature in the next few years are under such pressure from lenders that they must try to sell their properties.

“First you have the monetary defaults because properties are not able to meet their debt service requirements,” she said. “More broadly, there is the issue of maturity defaults. If the [borrower] has no prior default but is unable to refinance due to tightness in the capital markets or not demonstrating enough cash flow, the only choice is to sell and get out.”

Eric Kalis can be reached at (305) 347-6651.

999 N. Fort Lauderdale Beach Blvd. photo by Melanie Bell

The road to recovery for South Florida’s housing market will be longer — and bumpier — than that of the rest of the nation.

Positive signs are emerging in the housing industry elsewhere, but local builders say the region is lagging the rest of the country. Too many homes are sitting unsold, and the future of thousands of distressed properties must be determined by lenders, borrowers and the courts before the local market shows any signs of a turnaround.

Gains in national building permits, an indicator of future construction, have not yet emerged in South Florida.

Residential building permits issued throughout the nation increased by 2.7 percent, from 564,000 in July to 579,000 in August, Census Bureau said Thursday. August’s figures were 32.4 percent below the 857,000 permits issued in August 2008.

The Census Bureau will release August building permit data for Miami-Dade, Broward and Palm Beach counties on Sept. 25. But based on July’s figures, South Florida is moving in a different direction.

Miami-Dade County issued permits for 42 residential buildings in July, a substantial drop from July 2008 when 104 building permits were issued. The July figures were down slightly from the 51 permits issued in June.

Residential permitting in Broward County slipped nearly 50 percent in July, to 46 from 87 in July 2008. In June, 47 permits were issued.

Palm Beach County’s July permitting figures were slightly down from the same month last year. Permits were issued for 103 buildings in July, a drop from 117 buildings in July 2008. In June, 134 buildings were given permits in Palm Beach.

“It is clear that our situation in South Florida is very different from the national situation,” said builder Venny Torre, principal of TorreMackle Group of Coral Gables. With new home construction virtually dead in the region, TorreMackle is focusing on completing distressed residential projects.

“Getting out of the problems we have will take longer here,” Torre said. “South Florida was so overbuilt. Until we sell more existing homes and sort out the troubled assets, we will be behind the national average.”

The industry — whether nationally or locally — has a long way to go, said commercial litigator and workout specialist Steve Silverman, a member with Kluger Kaplan Silverman Katzen & Levine in Miami.

Despite the national gains announced Thursday, permitting is still down significantly from a year ago and will have to maintain or improve on the current level for there to be a long-term impact.

“I would certainly not call these numbers a turnaround,” Silverman said. “If we see a steady month-to-month increase in housing starts and building permits, that might tell us something on a national level.”

National housing starts increased 1.5 percent, from 589,000 starts in July to 598,000 in August, according to the Census Bureau. The August figure is 29.6 percent below the August 2008 rate of 849,000.

That follows quarterly gains in Broward and Palm Beach counties. New-home starts in Broward jumped from 17 in the first quarter of 2009 to 78 in the second quarter, according to Metrostudy, a national real-estate research firm. Palm Beach home starts rose from 139 to 213 in the same period.

But Miami-Dade County housing starts dropped precipitously in the same period, from 43 in the first three months of the year to seven in the second quarter.

South Florida is in step with the rest of the nation in one regard: Single-family homes dominate residential construction — what little there is.

About 80 percent of the national housing starts in August were for single-family homes. Only 64 percent of the projects completed last month were for single-family homes.

If local building permit figures are any indication, future construction in South Florida will be centered on single-family homes. All but seven permits issued in the tri-county area in July were for single-family projects.

Single-family homes in the region are likely being built by individual property owners with the resources to take advantage of lower-than-normal construction costs, Torre said. Major homebuilding companies are not currently getting involved.

“Speculative construction is not happening,” Torre said. “What is left are people who want to build themselves a home. But you can still buy an [existing] home way cheaper than the cost of building a new home.”

The oversupply problem in South Florida might dampen new-home construction until late 2010, said Ashley Bosch, president of the Builder’s Association of South Florida. Bosch is also managing director of Miami-based Blok Development Group.

Many more homes are expected to end up in the hands of lenders as the cost of adjustable-rate mortgages soars in the next few months, Bosch said. Home buyers who obtained adjustable-rate mortgages between 2004 and 2006 are starting to see the higher rates kick in.

“What we’re expecting now is quite a few people defaulting and a greater influx of foreclosures,” he said. “When you have that much product on the plate, it is difficult to get starts and permits going. It is not a good business decision to be starting new homes right now.”

Another key sign of the industry’s potential rebound is rising confidence among homebuilders throughout the country.

The housing market index of the National Association of Home Builders, a Washington-based trade organization, rose to its highest level since May 2008, the group said Wednesday. The index increased this month to 19 from 18 in August. A reading below 50 means most builders think conditions are poor, but sentiment is well above January’s record-low reading of 8.

The stock of Miami-based home-builder Lennar jumped of about 6 percent after the confidence numbers were announced. Lennar’s stock (NYSE: LEN) closed at $16.60 per share on Thursday.

Lennar chief executive Stuart Miller declined to comment on the latest housing figures or the company’s stock gains.

Despite the national confidence figures, most South Florida homebuilders have little to cheer about, Torre said.

“There is still a pretty low feeling people have in terms of what is out there for new construction,” he said. “It is really hard for anyone to start new projects. Even if builders are awarded a new project, the lack of funds available for financing are making them unsure if they will actually get started.”

The builders’ trade group is pushing Congress to extend a federal tax credit that covers 10 percent of a home price for first-time buyers up to $8,000. The program is scheduled to expire in November.

Eric Kalis can be reached at (305) 347-6651.

Commercial Real Estate: Brickell Financial Centre plays a waiting game

September 08, 2009, By: Eric Kalis

Already trailing two rival projects in a soon-to-be crowded Brickell office market, the developer of Brickell Financial Centre is adjusting tactics to better compete for tenants down the road.

Unencumbered by existing debt, Brickell Financial developer Foram Group is trying to position itself to stay in the race long-term. Not having a lender forcing Foram to rush to finish the 40-story office tower allows the company to sit back, if it so chooses, and let some of the nearly 2 million square feet of office space in the Brickell pipeline fill up, executives say.

And with 1450 Brickell and Met 2 scheduled to be completed in the first two quarters of 2010, Foram has backed off placing a timetable on when Brickell Financial will be completed.

Foram President John Breistol said the company has enough cash in place to complete the major office project at 680 Brickell Ave. even without obtaining financing, which is only being offered at extremely high interest rates. Foram founder Loretta Cockrum turned over day-to-day control of the project to Breistol about a year ago.

The Foram entity funding the project, Brickell Financial Centre LLC, has pumped about $160 million into the 600,000-square-foot project, which executives say is about 70 percent complete. The remaining stages of construction — building a glass curtain wall, the interiors and landscaped plaza — would cost about $140 million. Curtain-wall installation should be completed by June 2010.

But Foram is no longer targeting a specific completion date, Breistol said. With 1450 Brickell and Met 2 far ahead of Brickell Financial Centre in construction, Foram is backing off earlier pronouncements that the project would be completed in the third quarter of 2010. The two other projects will add nearly 1.3 million square feet of office space to the Brickell area.

Foram plans to let market demand dictate when Brickell Financial Centre should be completed, Breistol said. Not having construction debt allows the company to maintain a flexible timetable. Without pressure from lenders to fill the tower, it can also be more aggressive in pricing rents.

“We do not have someone looking over our shoulder saying ‘you must do this,’ ” Breistol said. “We’re not just developing this property to sell it. This is a long-term hold for our portfolio, and we will be a tenant in this building.”

Breistol would not rule out obtaining financing when the capital markets open up.

“If there is reasonably priced debt at the right term, we would entertain it,” Breistol said.

Backing off a target completion date is a sound strategy given the glut of office space under construction in Brickell, said one observer, real-estate attorney Steve Silverman, a shareholder at Kluger, Kaplan, Silverman, Katzen & Levine in Miami.

“If [Foram] was my client, I would counsel them not to put a date on it,” Silverman said. “Putting out timetables that will not be met for any reason will diminish their ability to attract the type of tenants they want. There will be a glut of office space in the downtown Miami and Brickell markets for up to five years,” he added.

A major benefit to moving ahead with remaining construction, if Foram has the cash in place, is significantly lower material and labor costs, said real-estate attorney Eric Neuman, a partner in Boca Raton’s Buckingham Doolittle & Burroughs. Construction expenses are down as much as 25 percent, he said, but will not stay at that level much longer.

“If [Foram] waits too long, the occupancy levels might be on the upswing but so will the cost of construction,” Neuman said. “Those who have the option can build on the cheap now.”

Rival Luis Palenta, principal of Met 2 developer MDM Development, declined to comment.

Alan Ojeda, CEO of 1450 Brickell developer Rilea Group, also declined to comment on Brickell Financial Centre.

Not having existing debt on Brickell Financial Centre offers both advantages and disadvantages for Foram, Silverman said.

In a difficult commercial real-estate market where “cash is king,” having enough cash in hand to finish without additional help puts Foram in a rare position within the development community, he said. But falling behind the other two major office projects negates that advantage.

“They do not have anchor tenants and do not have a demonstrable cash flow in an oversaturated commercial market,” Silverman said. “There’s always a downside when you pump so much cash into an asset that is not generating any returns.”

The lack of a completion date does not mean work on the project has stalled, Breistol said.

Rumors circulated throughout the commercial market that construction had ceased after January’s topping-off ceremony, when cranes were brought down.

Those rumors intensified in February, when the law firm of Bilzin Sumberg Baena Price & Axelrod, a would-be anchor tenant, backed out of a deal to occupy 115,000 square feet for 10 years.

But work on the Leadership in Energy and Environmental Design (or LEED) pre-certified tower — in the form of installing the exterior skin of the building and windows — continued throughout the year, Breistol said.

And between 30 and 50 workers have been on site in recent months installing, glazing and testing the windows, he said.

Brickell Financial Centre topped off on the same day, Jan. 30, as 1450 Brickell. But Foram’s project has not kept pace with 1450 Brickell, which is scheduled to be completed in the first quarter of 2010.

The curtain wall, which Foram has yet to install, was topped off at 1450 Brickell in August.

Meanwhile, Met 2 is on target for an April 2010 completion and has already landed three major tenants: Greenberg Traurig, Deloitte and Business Centers International.
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MIAMI, FL – August 2009 – Alan Kluger, Philippe Lieberman and Steve Silverman of the Miami-based law firm Kluger, Kaplan, Silverman, Katzen & Levine, P.L., have been selected as top legal practitioners by Chambers USA. Since its inception, Chambers has been recognized internationally as one of the most respected surveys of attorneys worldwide. Entries are selected following a rigorous process in which thousands of the nation’s top lawyers confidentially evaluate their peers.

Chambers USA ranks the leading law firms and lawyers across the U.S. based on technical legal ability, professional conduct, client service, commercial astuteness, diligence, commitment, and other qualities most valued by the client.

Name member of Kluger Kaplan, Alan Kluger is a veteran courtroom lawyer who represents some of the nation’s largest financial institutions, Fortune 500 corporations, emerging entrepreneurs, major commercial real estate developers and national private equity groups in their most challenging litigation matters. Kluger has also served as lead counsel in national consumer class action lawsuits and is a trusted legal advisor to a number of celebrities and other high-profile individuals on matrimonial and family law issues. According to Chambers USA, “many of his current clients came to him after first facing him as an adversary.”

Kluger is admitted to the Florida Bar; the District of Columbia; New York; the U.S. Supreme Court; the U.S. District Court for the Middle and Southern District of Florida; the U.S. Court of Appeals for the Second, Third, Fifth, Ninth, Tenth, and Eleventh Circuits; and the U.S. Tax Court.

Steve Silverman, also a name member of the firm, has over 25 years of experience representing businesses and individuals in complex disputes and litigation. Silverman is primarily engaged in complex business disputes and litigation, including issues relating to business torts, breach of fiduciary duty, unfair competition, corporate governance, financial fraud, as well as issues relating to the disposition and acquisition of distressed assets and foreclosure, adversary litigation in bankruptcy courts, professional liability, and class actions. Silverman also has extensive appellate experience, having handled dozens of appeals in both state and federal courts, including crafting briefs and delivering oral arguments.

Silverman is admitted to the Florida Bar; the U.S. District Court for the Southern District of Florida; U.S. Bankruptcy Court for the Southern District of Florida; and the U.S. Court of Appeals for the Third, Ninth, and Eleventh Circuits.

Philippe Lieberman, member of Kluger Kaplan, represents and counsels domestic and international entities and individuals in complex business disputes involving issues such as real estate transactions, foreclosures, lender liability, financial fraud, partnership and shareholder agreements, fiduciary obligations, corporate governance, and breach of contract. Fluent in French and a native of Europe, he has significant experience handling multi-country and multi-jurisdictional disputes. Additionally, Lieberman frequently tries cases in courts throughout the U.S. and in arbitrations before the American Arbitration Association (AAA) and National Association of Securities Dealers (NASD).

Lieberman is admitted to the Florida Bar; the U.S. District Court for the Southern District of Florida; and the U.S. District Court for the Middle District of Florida.

About Kluger, Kaplan, Silverman, Katzen & Levine, P.L.
Miami-based Kluger, Kaplan, Silverman, Katzen & Levine, P.L. specializes in complex, high-stakes disputes across a range of disciplines and industries, including all aspects of business and corporate litigation; real estate related litigation; securities and financial fraud; corporate governance; bankruptcy related litigation and debtor and creditor’s rights; appeals in state and federal courts, professional liability; intellectual property disputes; class actions; and complex matrimonial litigation. The firm’s veteran litigators often serve as lead class counsel in federal multi-district litigation and trials in federal and state courts throughout the country. For more information, please visit www.klugerkaplan.com.

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MIAMI, FL – August 27, 2009 – Miami attorney Michael Perse, a member of Kluger, Kaplan, Silverman, Katzen, & Levine, P.L., addressed attendees of the Lorman Education Services’ continuing education seminar on judgment enforcement and collections on August 26, 2009. The seminar was geared specifically towards attorneys and legal professionals to help them navigate the complexities of judgment enforcement and collection, such as how to collect out-of-state judgments and how to deal with a bankrupt debtor. At the seminar, Mr. Perse focused on the intricacies of recording and enforcing foreign judgments in Florida courts.

In his Miami-based practice, Mr. Perse handles commercial disputes at both the trial and appellate levels, and has significant experience resolving insurance disputes and insurance coverage issues. His primary areas of practice include adversary proceedings, bankruptcy, avoidance actions, creditor’s litigation, fraud, legal malpractice, and professional liability. Additionally, he frequently counsels attorneys on the issues of judgment enforcement and collection.

Admitted to practice in Florida and before the U.S. District Courts for the Southern and Middle Districts of Florida, Mr. Perse is an active member of the American Bar Association, The Florida Bar, The Dade County Bar Association, and the University of Miami Law Alumni Association.

Mr. Perse received his B.A. and Juris Doctor from the University Of Miami.

About Kluger, Kaplan, Silverman, Katzen & Levine, P.L.
Miami-based Kluger, Kaplan, Silverman, Katzen & Levine, P.L. specializes in complex, high-stakes disputes across a range of disciplines and industries, including all aspects of business and corporate litigation; real estate related litigation; securities and financial fraud; corporate governance; bankruptcy related litigation and debtor and creditor’s rights; appeals in state and federal courts, professional liability; intellectual property disputes; class actions; and complex matrimonial litigation. The firm’s veteran litigators often serve as lead class counsel in federal multi-district litigation and trials in federal and state courts throughout the country. For more information, please visit www.klugerkaplan.com.

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