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

WEST PALM BEACH, FL-The Related Group will lose its local CityPlace South Tower, a major condominium development, through a “friendly foreclosure” by Toronto-based Scotia Capital. A lending consortium led by Scotia Capital filed a foreclosure suit against CityPlace South on Wednesday in Palm Beach Circuit Court.

The giant development company led by Miami real estate mogul Jorge Perez had borrowed $134 million from the consortium to build the condo tower in 2006, according to county records. When the loan came due this month, Related was unable to repay it because it has sold only 39 units in the 420-unit project, according to a company statement released after the foreclosure filing.

The company claims that 367 units were under contract for sale when the building was under construction, but the majority of the buyers walked away from the contracts before closing. Related, like many other South Florida developers, blames the recession and the housing crisis for the failure of the sales. A consortium that includes seven lenders will take title to all unsold units in the building and become the new owners.

Brad Scherer, president of Atlantic Western Asset Management in West Palm Beach, is acting as a consultant for the lenders in the foreclosure. He said Related will continue to manage the building and the sales efforts for the lenders.

“The banks’ intentions as part of the friendly foreclosure are to retain Related and affiliates to continue to manage the property in an orderly fashion,” Scherer says. “They have no intention to create a distressed or bulk sale.”

Scherer says the group will be “patient” as it seeks to recover money through the sale of units. “They are interested in recovering their investment, but they recognize the current market conditions,” he adds.

Perez, who was not available for comment, stated in a news release that the lenders “have proven to be superb financial partners over the course of the last few years, and we are grateful that they not only recognize the quality and potential of CityPlace South Tower, but that they are as committed as we are to its ultimate success, and to the West Palm Beach community.”

Units at CityPlace are priced from $160,000 to about $700,000. Related says the change in ownership satisfies the construction debt related to CityPlace South Tower LLC, the company’s affiliate that built the project.

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