Posted on Monday, December 13, 2010
How The Mighty Have Fallen
It was a hard fall for one of South Florida’s wealthiest law firm heads, who started the year with 1,200 employees and sold his back-office processing company to a publicly traded company for more than $100 million.
But David Stern of the Plantation-based Law Offices of David J. Stern and its processing arm, DJSP Enterprises, ended the year out of DJSP’s executive suite. More than three-quarters of his staff was laid off following consumer and defense bar accusations that shoddy paperwork was being submitted for foreclosures. Stern’s biggest clients, Fannie Mae and Freddie Mac, stopped doing business with the firm.
The Florida attorney general’s office opened an investigation of the law firm and several other foreclosure firms, which will continue into the new year.
Law Firm Subpoenas
The Florida attorney general and 49 other state AGs in August launched investigations into allegations of unfair and deceptive actions by law firms handling foreclosure cases on behalf of lenders and loan servicers. The Florida AG issued broad subpoenas to four state firms, including David Stern’s firm; Marshall Watson in Fort Lauderdale; Fishman & Shapiro, with offices in West Palm Beach and Boca Raton; and Florida Default Law Group in Tampa.
Stern Loses Two Huge Clients
Fannie Mae and Freddie Mac ended their business relationship with David J. Stern in November. The agencies removed their foreclosure files from Stern’s offices and transferred the cases to nine other Florida law firms.
Defense lawyers Go On Offense
Defense attorneys began fighting back and became more vocal after tens of thousands of foreclosures made Florida one of the three busiest states in the country for two years running. Homeowners’ defenders started finding creative ways of blocking residential foreclosures, sharing documents and talking strategy with each other.
They also found widespread irregularities, including "robo-signing" for affidavits attesting to the validity of the underlying papers. By year-end, the lawyers began making headway, citing cases of judges denying foreclosures.
Grassroots Effort Pays Off
For more than a year, Lisa Epstein, 44, and Michael Redman, 35, have been sending law enforcement agencies copies of foreclosure documents they claim have been fabricated or contain forged signatures.
They say their efforts paid off. In August, Florida Attorney General Bill McCollum launched a probe into whether Florida’s largest foreclosure law firms had submitted false affidavits and other documents in order to obtain final judgments against property owners whose properties were in foreclosure.
Allegations of fabricated documents and faulty court filings prompted financial giants Fannie Mae, GMAC, JPMorgan Chase and Bank of America to put on hold foreclosure sales, evictions and sales of bank-owned homes in September until they review their foreclosing process and correct possible errors. A hot issue was their use of robo-signers to sign affidavits testifying the amount owed by the borrower and the ownership of the note. In November, Fannie Mae and Freddie Mac resumed foreclosure and REO sales.
Title Insurance Worries
Amid concerns over questionable legal documentation used to seize homes, title companies suddenly pulled back and stopped insuring title on many lender-owned properties.
Some lenders reached deals with large title insurance companies in which the lenders agreed to accept liability for potential future title claims related to flaws in the foreclosure process.
The practice did not become as widespread as many in the industry expected. Most title insurers said they would not require lenders to sign such agreements.
Borrowers Fight Two Lenders
Lenders were having increasing trouble sorting out the web of paperwork, as Glazy and Jose Ruscalleda discovered when American Home Mortgage Servicing and HSBC Bank both sought to foreclose on their condo. HSBC obtained a final judgment to foreclose in March 2009. In April 2009, the couple appealed to the 3rd District Court of Appeal on the grounds that the twin foreclosure suits hurt their defense.
Last June, the state court reversed the final judgment and ordered the trial court to start the HSBC suit all over again.
Judge Wipes Out Mortgage
When HSBC Bank obtained a foreclosure judgment in December 2009 to sell Orlando Eslava’s Aventura condo, the lender couldn’t produce the $297,000 note.
Miami-Dade Circuit Court Judge Jennifer Bailey ordered HSBC to post a $414,000 bond to indemnify Eslava in case another lender filed a claim against the unit. The lender auctioned the condo without posting bond. Eslava objected and Bailey in May canceled the mortgage and ordered HSBC to return the condo to Eslava.
HSBC and the law firm are seeking a rehearing of the case.
Homeowners Fight Back
After reports that lenders were using flawed paper work to foreclose on homes, three major lenders — Deutsche Bank, U.S. Bank and Bank of America — were named in a proposed class action lawsuit filed by South Florida homeowners who claimed their homes were improperly seized through foreclosure.
The pending suit demands the banks return title to all Florida homeowners who lost their property "due to the [lenders] wrongful foreclosures."
Lenders Suffer Legal Setbacks
A state appeals court ruled that lenders can’t foreclose on a home without proving they own the original mortgage note.
In a separate opinion, the 4th District Court of Appeal said judges can’t give banks the go-ahead to foreclose until the lenders respond to defenses raised by homeowners.
Foreclosure defense lawyers in South Florida had been making that argument to judges since the foreclosure crisis began more than two years ago, but many on the bench were unmoved.
REAL ESTATE MELTDOWN
Property Values Plunge
Calling it a "sad time" in Miami-Dade County’s history, property appraiser Pedro Garcia announced in July that the county’s assessed values fell a total of $29 billion, or 13.4 percent. Garcia, who became Miami-Dade’s first elected property appraiser in December 2008, cited mounting foreclosure sales, increased vacancies and declining rental revenue as key reasons for this year’s lower values.
Broward County property values fared a little better but still took a hit. Total taxable values in Broward dropped 11.7 percent to $129.9 billion.
Palm Beach County values dropped about 10.9 percent to $125.8 billion.
Related Changes Strategy
Buying quality, bargain properties in South Florida was a lot tougher than Related Group of Florida expected when it created a $1 billion fund to buy distressed real estate. In September, Related gave up chasing distressed notes, condos and multifamily projects at deep discounts.
The company let go two prominent executives in charge of acquisitions — Jordan Paul and Jay Massirman. The Related Investment Fund now focuses on buying and operating multifamily projects and acquiring land for future development.
Icon Goes Back To Lender
The Related Group in May transferred partial ownership of the three-tower Icon Brickell condominium to its lender. It deeded the 715-unit Tower 1 and 561-unit Tower 2 to a syndicate of lenders led by HSBC Bank, after failing to pay back $351 million in a delinquent construction loan. The developer kept control of the 520-unit Tower 3.
Related remains a co-manager of the towers.
Lender Gets Las Olas Centre
After a nearly yearlong court battle over $220 million in loans, Los Angeles-based Bentley Forbes and Wachovia Bank reached an deal in which the lender took over Fort Lauderdale’s Las Olas Centre, and the investor was released from hefty guarantees.
Wachovia had sued to foreclose on the prominent two-tower office complex in downtown Fort Lauderdale. Bentley had guaranteed about $166 million worth of debt and threatened to file for bankruptcy if Wachovia attempted to take over the towers. After intense negotiations, Bentley gave up on the properties in May and was released from the liabilities.
Developers and lenders increasingly opted for so-called "friendly-foreclosures," a process in which the borrower agrees not to fight the foreclosure, normally in exchange for some type of liability release.
Jorge Perez’s Related Group was one of the developers that took advantage of the strategy. Related transferred ownership of the Icon Brickell in downtown Miami to a syndicate of lenders led by HSBC Bank in May.
In November, it handed back 175 unsold units at Trump Hollywood over to another group of lenders, also led by HSBC. The deal completed Related’s two-year effort to rid itself of more than $2 billion of distressed debt.
Jockey Club Parcel Auctioned
A substantial portion of North Miami’s Jockey Club remained in control of a group of lenders led by Seacoast National Bank following an August foreclosure auction.
An affiliate of the group, JC Property 2010 LLC, took title to more than 14 acres of the 30.7-acre Jockey Club property at 11111 Biscayne Blvd.
After an undisclosed bidder placed a $5 million offer in Miami-Dade’s online auction, JC Property topped it by $100 and won. The auction did not include the 411 condominiums in three buildings at the club.
Starwood Gets Tousa assets
Starwood Land Ventures in January said it was paying about $80 million for the Florida assets of bankrupt home-builder Tousa. The portfolio includes 5,450 lots and 36 finished model homes across the state.
Signs Of A Revival
After nearly a year in which few significant deals closed, South Florida commercial real estate brokers started to see large transactions again and the deals weren’t just for distressed properties.
Buyers became more confident that prices had stabilized and started returning to the market.
More than $1.1 billion worth of commercial real estate sales closed in South Florida in the first half of the year, according to Real Capital Analytics. That’s more than twice the volume of transactions closed in South Florida in the first six months 2009.
Despite the improvement, South Florida still has a long way to go before deal activity returns to levels of 2007 when more than $3 billion of commercial properties changed hands every quarter.
$193 Million Apartment Sale
In the most expensive multifamily sale in South Florida in three years, an investment fund affiliated with CB Richard Ellis Investors paid $193 million on Aug. 30 for the 1,520-unit Resort at Pembroke Pines.
CBRE Investors fund assumed a $120 million floating-rate mortgage from Fannie Mae. The seller was a partnership between the California State Teachers Retirement System and the real estate management and investment firm Heitman.
Top Office Deal
In the region’s largest office deal of 2010, an affiliate of USAA Real Estate bought the Las Olas Centre in Fort Lauderdale for $170 million.
The sale of the buildings at 350 and 450 Las Olas Blvd. came in September, a few months after Wachovia Bank settled a more than yearlong court battle to foreclose on the towers.
Wachovia, now owned by Wells Fargo, had sued an entity controlled by Los Angeles-based BentleyForbes over $220 million in defaulted loans.
Royal Palm Auctioned
Through an online foreclosure auction, Sunstone Collins, an affiliate of Sunstone Hotel Investors, a California real estate investment trust, paid $126.1 million for the Royal Palm Hotel in Miami Beach.
The 409-room hotel is located at 1545 Collins Ave.
The Aug. 16 auction came after Wachovia won a foreclosure suit against the building’s former owner, Royal Palm Hotel Property.
$120M for Bacardi Building
Amancio Ortega, whose $25 billion fortune ranks him ninth on Forbes’ 2010 list of the world’s richest people, bought the Bacardi office building in Coral Gables for about $120 million in December 2009.
Ortega closed on the 251,000-square-foot building shortly after Barcardi U.S.A. moved its headquarters to the 2701 LeJeune Road property. Ortega paid more than $451 per square foot for the building.
The seller was CM LeJeune, a partnership of Flagler Development and JP Morgan.
Trammel Crow sold Plantation’s Alexan Solero apartments for $104.4 million. Dallas-based Trammell received $217,000 per unit for the 481-unit complex at 13500 NW Third St. on Oct. 14. The buyer was Invesco Real Estate.
AMB Adds To Big Portfolio
Already a major player in South Florida’s industrial sector, AMB added to its regional holdings with the single most expensive industrial purchase of 2010.
AMB paid $66.75 million, or about $75 per square foot, for the four-building Palmetto Distribution Center and two vacant parcels at 7800 NW 80th St. in Medley on Aug. 13. AMB paid in cash and outbid 26 prospective buyers.
Seller TA Associates paid $41 million for the property in 1999.
Marriott Gains Seville
Seville Acquisition, an affiliate of Marriott International, paid $57.5 million for the shuttered Seville Beach Hotel at 2901 Collins Ave., Miami Beach.
The deal, which included the 400-room hotel and parking lots across the street from the oceanfront hotel, closed on June 30.
A partnership of Miami-based Fortune International and Miami-based Lionstone Group sold the hotel.
Marriott, which has partnered with hotelier Ian Schrager, plans to remodel the hotel and open it under the chain’s Edison brand.
PLANNING / LAND USE
Amendment 4 ShowDown
A proposed amendment to the Florida Constitution that would have drastically changed the state’s growth-management system was rejected by 67 percent of the voters. It required 60 percent passage for approval.
Amendment 4 drew heavy opposition from developers and business organizations who poured more than $12 million into a campaign to defeat the measure. Proponents, who spent years trying to get the amendment on the ballot and raised a mere $2 million for the campaign, said they were overwhelmed by their opponents’ bankroll. Some argued the amendment would have had better success if the measure’s wording had been more specific.
Lobbying A New Zoning Code
In May, Miami implemented a broad rewrite of its zoning code called Miami 21. Since then, neighborhood associations to owners of commercial properties have been lobbying the city to amend the new code.
Some of proposed changes: Permitting property owners to appeal disputed building permits and further restricting the height of buildings abutting residential areas.
The city also faces lawsuits from owners who claim the rezoning devalued their properties and who want to be exempt from the down zoining.
The Catholic Archdiocese of Miami alonge claims it lost nearly $138 million in property value from the passage of Miami 21.
Community Affairs Agency
The Department of Community Affairs, the agency that regulates development in Florida, remains in limbo after the Florida House failed to approve a routine bill that would have reauthorized the DCA for another 10 years.
The DCA had the funding to operate in the 2010 fiscal year but the agency could be abolished by June 2011.
The agency can continue to operate for years without reauthorization if lawmakers take no action, but the uncertainty of what may happen under new legislative leadership is making growth management advocates nervous about the agency’s future.
Quick OK On Big Billboards
Miami commissioners felt strongly enough about developer Mark Siffin’s vision for the Omni area of downtown Miami to end a long-standing city ban on new billboard construction.
The City Commission in July approved Siffin’s City Square, a mixed-use project to include two large electronic billboards atop a parking garage adjacent to the Miami Herald building. Commissioners voted in unusually speedy fashion, with a pair of votes in consecutive weekly meetings.
The focus now shifts to whether Siffin and his partners can close on a $230 million deal by January to purchase the project site from the Herald’s parent, McClatchy Co.
Rockwood buys Miami Tower
Real estate investor Rockwood Capital is the new owner of nearly 670 units at Everglades on the Bay, a downtown Miami condo tower built during the height of the condo boom. Rockwood took title to the unsold condos in November after acquiring the project’s $209 million note.
The private investment firm bought the note for about $141 million. Developer Cabi Downtown transferred title to Rockwood as part of a bankruptcy liquidation plan worked out with its lender, Bank of America. Cabi will continue to manage the 849-condo project.
The transactions ended one of the largest real estate bankruptcies in South Florida.
Icahn Gains Resort Stake
In the long-running Fontainebleau Las Vegas bankruptcy case, billionaire Carl Icahn assumed co-ownership of the financially troubled project in February with a $150 million bid.
The massive complex was backed by Fontainebleau Miami Beach owner Jeffrey Soffer.
In October, Icahn auctioned of furnishings intended for the project, which some observers saw as a signal that he might not complete the $3 billion project.
The complex is 70 percent complete and construction work has been dormant for months.
General growth Restructures
Mall giant General Growth Properties, the owner of Bayside Marketplace and the Village of Merrick Park, in November emerged from Chapter 11 bankruptcy protection.
Chicago-based General Growth (NYSE: GGP) split into two companies: GGP and Howard Hughes Corp. (NYSE: HHC), which consists of GGP’s master-planned communities. General Growth filed for Chapter 11 protection in April 2009 after accumulating $27 billion in debt.
Innkeepers Plan Rejected
Palm Beach-based Innkeepers USA Trust, a real estate investment trust with interest in 72 hotels nationwide, filed a pre-packaged Chapter 11 petition calling for a Lehman Brothers affiliate to take control of the company after the reorganization.
Creditors strongly opposed that and a Manhattan judge shot down the agreement. The company, which listed more than $1.2 billion in secured debt, has until Jan. 31 to file a bankruptcy plan.
Creditors Take On Tousa
On the third year of Tousa’s bankruptcy, the Hollywood homebuilder’s creditors launched a flurry of moves to recover hundreds of millions of dollars. They filed thousands of claims to recover more than $200 million from vendors who received payments months before the builder filed for bankruptcy. Many of the claims are still pending.
The creditors’ committee also spent much of 2010 fighting with lenders over about $500 million in loans that a judge had ordered the lenders to return. The appeal is still pending.
A $63.5 Million Rescue
Arch Aluminum & Glass was rescued from bankruptcy protection in January by Boca Raton-based private investment firm Sun Capital Partners.
Tamarac-based Arch Aluminum filed for Chapter 11 bankruptcy last November, but the case lasted only two months. Sun Capital acquired Arch for $63.5 million in a court-supervised auction.
Arch provides glass and aluminum products for commercial and residential construction.
The Texas Ratio Comeback
As investors and analysts sought to predict which banks would be the next fail, they dusted off an old metric from the 1980s savings and loan crisis.
Developed by veteran Wall Street analyst Gerard Cassidy and named for the state hit hardest by the S&L crisis, the Texas ratio is found by dividing the dollar value of a bank’s bad assets by it good ones.
The result is a score — the lower the number, the healthier the bank. Most analysts consider a Texas ratio of more than 100 as a red flag, with some troubled banks scoring in the 300s or even the 500s.
Bank Failures Mount
The Texas ratio was a reasonably accurate predictor of the year’s South Florida bank failures — Turnberry Bank and MetroBank of Dade County in Miami and Sterling Bank in Lantana, all of whom had among the highest ratios in the region. Turnberry and MetroBank operate today under new ownership and Sterling was acquired by Iberiabank, a Louisiana-based institution. Although Florida leads the nation in bank failures, South Florida was largely spared as only four local banks failed in 2010.
No Relief For Local Banks
Several local banks continued to struggle in 2010, including two of the regions’ largest. BankAtlantic in November reported its 13th consecutive quarterly loss and Ocean Bank posted its seventh consecutive quarterly loss the same month. A number of South Florida banks fell under regulatory guidance ordering them to clean up their balance sheets and raise capital.
Working Out Troubled Loans
The region’s region stepped up workouts of struggling loans to weather the weak economy and bolster their financial positions. Billions of dollars in loans have been restructured over the course of this year as local banks seek to keep those loans of its list of nonperforming assets.
Overall, the 72 South Florida-based community banks restructured $1.23 billion in loans during the June 30 quarter, compared with $824 million a year earlier.
Jury: Bank Investors Misled
In a rare securities fraud class action, a Miami federal jury ruled in November that BankAtlantic Bancorp intentionally misled investors about problems with loans to commercial developers. The jury found that investors who purchased shares from April 26 to Oct. 26, 2007, overpaid by $2.41 per share.
BankAtlantic Bancorp is appealing the verdict.
BankUnited To Go Public
A South Florida bank that made headlines in 2009 as one of the biggest bank failures of the financial crisis has turned its fortunes around so completely under its new ownership that it now plans to go public. BankUnited, now the region’s most profitable bank, is hoping to raise up to $300 million with its initial public offering and is expanding into new markets across the state.
Sharing The Blame I
As the Treasury Department investigates the reasons behind the failures of U.S. financial institutions, the much anticipated audit of BankUnited’s May 2009 failure surprised many observers by blaming regulators as well as the bank’s management for the collapse of the bank, which is estimated to cost the Federal Deposit Insurance Corp.’s Deposit Insurance Fund an estimated $5.7 billion.
Sharing The Blame II
A report by the National Credit Union Administration blamed the failure of Eastern Financial Florida Credit Union on executives’ inability to understand and manage their investments in complex financial instruments, exposing the credit union to "a significant amount of risk" with investments in collateralized debt obligations.
The report also criticized state and federal regulators overseeing the credit union, noting that Eastern’s holding of the controversial instruments should have singled it out for extra scrutiny.
Big Banks Come to Play
JPMorgan Chase, which significantly bolstered its presence in South Florida through its 2008 acquisition of failed Washington Mutual announced ambitious expansion plans for the region and emphasized its seriousness by appointing former U.S. Sen. Mel Martinez to head its Florida and Caribbean operations.
Chase said it plans to add at least 20 branches a year to its network of 240 branches in the state.
Foreign Banks Decry Sanctions
South Florida’s important international banking sector was watching with concern as the Office of Foreign Assets Control assessed record penalties to some of the world’s largest banks over
compliance violations as the regulator sought to cut off the flow of financing for terrorist groups and rogue regimes.
North Carolina Arrival
The departure of four South Florida banks placed into FDIC receivership opened the door for some new players who entered the arena by acquiring those institutions from regulators.
Most prominent: First Citizens Bank, which opened for business in March at the failed Sun American Bank’s 12 branches, joined its sister institution, IronStone Bank, which already has franchises here. Both are owned by Raleigh, N.C.-based bank holding company First Citizens BancShares.
Spanish Banks Still optimistic
International banks, particularly those from Spain, remained bullish about their South Florida expansion plans.
Banco de Sabadell’s chairman, Jose Oliu Creus, emphasized in November that his bank, which owns Miami-based Sabadell United Bank, sees beyond the immediate economic problems both here and in Spain to the long-term potential of the South Florida market.
BURGER KING TAKEOVER
Miami-based fast-food giant Burger King was taken private in October when it was purchased by 3G Capital, a firm backed by Brazilian investors. The deal was valued at about $4.3 billion, including the assumption of debt. The company quickly shook up the ranks of management and in early December laid off more than 400 workers, including 261 in South Florida.
Republicans Control Cabinet
Republicans swept the state’s three Cabinet posts with the election of Pam Bondi, the new attorney general; incoming chief financial officer Jeff Atwater and Adam Putnam, the next agriculture commissioner.
Political analysts expect the all-Republican Cabinet to focus on cutting regulation of various industries, including the insurance, in 2011.
Proxy Fight Ends Peacefully
Two of Benihana’s largest shareholder groups launched a proxy fight while harshly criticizing the company management.
The New York hedge fund Coliseum Capital Management and Benihana of Tokyo (BOT), which is controlled by the family of Benihana’s late founder, Rocky Aoki — won the right to seat their representatives on the board of directors.
Benihana elected Adam Gray, managing director of Coliseum Capital Management, and BOT’s Michael Kata to serve on the board through 2013.