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(This story, in slightly different form, originally appeared in Incisive Media’s Daily Business Review.)

WEST PALM BEACH, FL-In further evidence that the wave of foreclosures against large residential projects in South Florida is far from over, lenders have moved to foreclose on two prominent projects in Palm Beach County. Country Lake at Palm Beach, a local rental complex, has been hit with a $19.5-million suit, while a condo and marina development in Delray Beach is facing a $17.8 million action.

The 192-unit Country Lake property is owned by a fund managed by Atherton-Newport, an Irvine, Calif.-based real estate investment company that bet big on South Florida’s apartment market in 2006 and lost. Atherton, which manages funds backed by investors that include several professional sports figures, acquired a number of multifamily properties across the country before filing last year in California for Chapter 11 bankruptcy protection from creditors.

Atherton is in talks with an equity investor interested in acquiring the company, according to Atherton’s bankruptcy attorney, Joseph A. Eisenberg in Los Angeles. He would not disclose the name of the possible investor.

Many of Atherton’s properties are owned by limited liability companies not involved in the bankruptcy of the parent company, and lenders are moving to foreclose on those properties.

In 2006, Atherton borrowed $18 million from NRFC WA Holdings II LLC, a fund led by Northstar Realty Finance of New York, to buy the West Palm Beach property. Atherton acquired the apartments for $16.5 million, or $86,000 per unit. NRFC sold the loan to PA Country Lake, which filed the foreclosure suit this week. PA Country Lake is affiliated with real estate investment fund DCD America, which is based in New York.

The apartment complex was 21 years old at the time of the purchase and had been damaged by Hurricane Wilma. Atherton renovated the property and renamed it Lakeshore Landing Apartments. But the renovations took too long and the market started to collapse, said Nicholas Lizotte, Atherton’s former acquisition manager and a creditor in the bankruptcy.

“They didn’t execute on the business plan,” Lizotte says, noting that Atherton’s strategy was to buy older apartments, upgrade them, then charge higher rents than the previous owner. Atherton bought more than 1,000 units in South Florida under that strategy in 2006. Some projects were successful, according to Lizotte. Others, such as Country Lake, went into foreclosure.

David Meadows, a Los Angeles attorney representing Atherton in the bankruptcies of several affiliated funds, says most of the cases he has been involved with were dismissed, and lenders were moving to foreclose on the funds’ properties. He is not involved in any case involving the West Palm Beach property.

Robert Given, a multifamily broker at CB Richard Ellis, blames much of Atherton’s problems on bad timing. “They had a very aggressive value-add program that was just improperly timed in the market cycle,” Given says. “They scheduled improvements, and they were not going to be able to deliver them in time to get the rent improvements to match that [investment].”

The Yacht Club at Delray Beach has also been hit with foreclosure. A limited liability partnership led by Kentucky-based David Hocker and Associates, a real estate and development company that focused mostly on the retail market, paid $25 million in January 2006 for the three-acre site. The property at 110 Macfarlane Drive had deep-water dockage for 46 boats and was approved for the construction of condominiums.

Orion Bank funded the purchase with an $18.75 million loan that came due in August 2007. Orion Bank extended the maturity date on the loan three times and granted further extensions after it came due in November 2008.

Hocker, the guarantor on the loan, owns the property in partnership with Palm Beach Gardens-based Capex Properties LLC, led by Josh McAlees. Capex’s phone is disconnected, and its Web site no longer operates. Hocker could not be reached, and an attorney representing Orion Bank declined comment.

Given says time ran out on this project, too. “That, combined with the fact that financing for marina slips dried up severely at the end of 2006, was key,” he says, estimating that the property is worth less than half of what it was purchased for in 2006.

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