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

MIAMI-Lehman Brothers, the bankrupt Wall Street firm, is pouring millions into the troubled Canyon Ranch Living project in Miami Beach to boost sales and protect its investment from massive losses. Rather than foreclosing on construction loans on the project, the lender is working with developers Eric Sheppard and Philip Wolman to turn around the ultra-luxurious oceanfront condominium.

Lehman plans to help fund up to $200 million worth of individual condo loans for buyers of the 580-unit condominium. About 223 units have sold in the three-tower project. Condo prices range from $300,000 to $5 million.

To gain some control over Canyon Ranch, Lehman paid $142 million to pay off a loan that it took to lend money to the developers. It also shed a mezzanine loan in a deal with another lender.

“Lehman Brothers is reinvesting [in the project],” says Sheppard, owner and managing member of WSG Development. “On top of that, they are putting capital into the project to make sure that it’s stabilized for a very long time.”

US Bankruptcy Judge James Peck recently approved Lehman’s plan to finance condos at Canyon Ranch. The company filed the largest bankruptcy in US history in September 2008.

Since the real estate and financial markets crashed, the project’s developers have struggled to sell units despite its affiliation with Canyon Ranch, a well-known spa and resort operator. The lender’s financial commitment could help lure back buyers, who may be leery about the future of the troubled development.

“The instability of the project or the uncertainty of the viability of the project is definitely what is keeping people away,” Esslinger Wooten Maxwell broker Kevin Tomlinson says. He is trying to sell five units at the Canyon Ranch project on behalf of individual owners.

When the project was announced in 2003, buyers rushed to sign purchase contracts, enticed by Canyon Ranch’s global reputation. Many of those deals never closed because buyers bailed out after the housing and financial markets collapsed. Some buyers are suing the developer to recover their deposits.

With slow sales, Sheppard and Wolman couldn’t pay off Lehman loans used to build Canyon Ranch. The loans, which initially totaled $522 million, came due in April.

The lender and the developers haven’t signed new loan documents, “but we have a set plan and forged a relationship that has been very effective,” Sheppard says. “The project is stable and a lot better than it was when Lehman went bankrupt. Obviously, that was a very trying time.”

Sheppard says he has paid down the construction loan with proceeds from unit sales but does not know the total of the remaining debt. “I know we paid down hundreds of millions of dollars in these tough economic times,” he says, adding that he still owns the project and is in daily contact with Lehman representatives over its direction.

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