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

MIAMI-As sales of South Florida apartment properties heat up, sellers are taking bigger hits from declining values. The latest seller to record a sizable loss is the multifamily arm of New York City investment firm BlackRock, which sold a 520-unit apartment complex in Riviera Beach for $11 million.

BlackRock Strategic Apartment Fund purchased the property for $33 million in June 2006. Miami-based investor Quality Management was the buyer of the 40-acre Seabreeze Harbor Apartments property at 2304 N. Congress Ave.

By selling Seabreeze Harbor at a 66% discount, Blackrock posted the biggest percentage drop on any major apartment property in South Florida since summer, according to Daily Business Review research. Haverhill Garden Apartments in West Palm Beach sold in July for nearly $4.3 million, a 74% percent discount off the $16.5-million sale price in 2003.

The decline in value for BlackRock “is a testament to the conditions of both the rental and credit markets,” says Michael Stein, principal of Pensam Capital in Miami. Stein, who recently left Aztec Group to launch Pensam, worked with Aztec associate Jonathan Cohen on the Seabreeze transaction. The brokers represented both sides of the deal.

Seabreeze Harbor, which was built in 1987, is in need of substantial renovation, Stein says. The complex is about 85% occupied.

Until recently, most apartment deals were financed by lenders working with Freddie Mac or Fannie Mae. Quality Management, however, obtained an $8.3-million mortgage loan from US Century Bank. With a 75% loan-to-value, US Century’s financing is on par with deals through government-sponsored lenders.

Quality Management’s long-term ownership of apartments made the bank comfortable with the loan, Stein says. “This is an experienced owner/operator that has a track record with these types of rental communities,” he says. “I think the bank saw this as a unique opportunity to finance a quality project with a hands-on operator.”

South Florida’s multifamily market was sluggish early in the year but has seen recent uptick in sales. The Seabreeze deal is the fifth apartment sale of 100 units or more since the beginning of July.

BlackRock bought the property at a bad time, says Robert Given, executive vice president of the investment properties and institutional group at CB Richard Ellis in Miami. BlackRock and other investors bought properties between 2006 and the middle of 2007, intending to make upgrades and boost rentals, Given says. He adds that the investors often did not factor in the condition of the properties when they made their purchases.

Seabreeze “is what I consider a C-class community,” Given says. “After the condo conversion market cooled down, a lot of properties were bought with value-add investment strategies. But there was no risk adjustment made for the age of the properties.”

Given expects more heavily discounted deals to come out of Palm Beach County. “Palm Beach got into the condo conversion cycle later than Miami-Dade and Broward,” he says. “As a result, a lot of the investors who made acquisitions in 2006 are overextended. We will see a lot more of these trades.”

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