South of Fifth Readies for Auction Block

MIAMI-iStar FM Loans is getting closer to ownership status on the remaining 94% of space in the seven-story South Of Fifth Condominium in one of Miami Beach’s most exclusive neighborhoods. iStar obtained final summary judgment of foreclosure in the amount of $91 million against the developer, according to an order signed by Miami-Dade Court Judge Victoria Sigler.

Delaware-based BR Villa Luisa LLC developed the South Of Fifth project using a $73.5 million construction loan from iStar FM's predecessor, Fremont Investment & Loan. remaining 29 units of the 32-unit project are scheduled to be auctioned off in January 2011 on the Miami-Dade County foreclosure website. BR Villa Luisa could not be reached for comment.
 
"The biggest challenge for the developer has not been generating interest from ready, willing, and able buyers but achieving the pricing necessary to repay the outstanding principal loan amount of nearly $850 per square foot,” says Peter Zalewski, a principal with the Bal Harbour, Fla.-based real estate consultancy Condo Vultures. “We expect a number of groups will bid on the project at the auction but it is unclear if the offers will even come close to the judgment amount of more than $1,100 per square foot."
 
Zalewski notes the bad timing of the super luxury project. Construction started in December 2006 just as the South Florida real estate market was crashing and wasn’t finished until June 2009. The developer sold three units—two residential and one commercial—for $8.1 million, according to Miami-Dade County records. The last transaction was in September 2009.

Fremont filed a foreclosure suit in October 2009. The developer owes nearly $70 million in original loan principal, $13.5 million in unpaid interest, $7.1 million in late charges, and more than $630,000 in court-related expenses, according to Sigler’s judgment. iStar was not immediately available for comment.

Jack McCabe, principal of McCabe Research & Consulting, tells GlobeSt.com the acquisition price on South Of Fifth is not likely to come near the judgment. McCabe rather expects the auction price to come in at under $550 a foot.

“If you look at recent sales of other luxury condominiums in South Miami Beach, except for a couple of exceptional buildings, purchase prices have been considerably below the financed value on those projects,” McCabe says. “I think this will be desirable to international investors, but they are going to want to get this at a price where they can make a 20% or 25% profit.”