04/17/2009

HSBC Mulls Way to Rescue Big Condo Loan

An HSBC syndicate is weighing an idea that could stave off the foreclosure of a high-profile Miami condominium complex and minimize losses on the $502 million loan that funded its construction.

The proposal is aimed at spurring condo sales at Icon Brickell, an 1,800-unit luxury complex on Biscayne Bay developed by Jorge Perez. If it works, the idea might be applied to three other struggling condo projects operated by Perez. His company, Related Group of Miami, owes $1.9 billion to 45 banks on various condo developments.

While many buyers put down deposits before construction started, sales have closed on fewer than two dozen units at Icon Brickell so far, according to market sources. In addition to the sagging economy, a major holdup is the fact that condo buyers are unable to line up financing because of the credit crunch.

Under the proposal, HSBC would make loans to condo buyers, with the eight other syndicate members sharing in the risk. The availability of loans should enable more transactions to close, in turn permitting Perez to pay down the construction loan.

But the strategy wouldn't be a cure-all. Given the glut of condos on the market in South Florida, buyers will certainly drive hard bargains on the units, which, according to some reports, were once expected to sell for $500,000 to $2 million. "No doubt there are going to be big discounts," said one banker familiar with the situation. "But you can live with a 20% discount when the alternative is to lose 50% - if you're lucky."

The construction loan matures in June, and Perez is negotiating for an extension until December. A Related Group spokesperson declined to comment, and an HSBC spokesman didn't return a call.

HSBC would write the condo loans via its residential-lending operation. Most or all of the other syndicate members are foreign banks that don't normally write condo loans in Florida. But each syndicate member would hold shares in the condo loans that are proportionate to their interest in the construction loan.

The Icon Brickell loan, originated in 2006, funded the construction of two of the complex's three towers. Another HSBC syndicate holds a $176.5 million construction loan on the third Icon Brickell tower. That loan matures in November.

Icon Brickell, at 495 Brickell Avenue, is one of four Related projects coming on line after the Florida condo market crashed. The other properties, which were either recently completed or are nearly completed, are 500 Brickell Avenue, Trump Towers in Sunny Isles Beach and City Place South Tower. Only a fraction of their 3,124 units have been sold.

Related also has two construction loans totaling $499.2 million from a syndicate led by Wachovia (which was acquired by Wells Fargo at yearend) on Trump Towers in Sunny Isles Beach; a $177 million construction loan from an HSBC syndicate on 500 Brickell; and a $135 million construction loan from a Bank of Nova Scotia syndicate on City Place South Tower.

Other members of Related's lending syndicates include HBOS, Helaba Bank, ING, LBBW and Swedbank. Swedbank assumed its participation interests from Lehman Brothers, which had pledged them as collateral for a bridge loan shortly before failing in September. Though the real estate downturn is the source of Perez's troubles, it has also given him an advantage in negotiating loan extensions. South Florida is glutted with unsold condos, and Perez has thus far been able to argue that foreclosing on him and liquidating a few thousand more units would only guarantee a bigger loss for the banks.

In recent interviews with The New York Times and Miami Herald, Perez said his lenders were "part of the problem" and would have to work with him on a solution by being flexible on loan terms and extensions.

It appears that most of Perez's creditors think he has a point - at least for the moment. "Right now, it looks like we're going to have to sit tight and try to ride things out," one banker said. "In a couple of years, we'll have to decide if we want to go on hurting or put an end to everything once and for all."

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