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

MIAMI-When Gustaf Arnoldsson began courting potential investors to form a real estate investment fund, he felt like a high school student worried about arriving late to the dance. But the managing member of Miami Beach-based Stonemason Partners discovered in mid-2008 that he was alone on the dance floor. Few investors in South Florida expected the crisis ahead, he says.

“I started seeing the signs everywhere that the market was going to head down,” Arnoldsson says. “Most people buying real estate were turning it into a financial play rather than a real estate play. Like the tech bubble early this decade, people were buying based on potential future earnings.”

Now Arnoldsson and Stonemason are no longer alone. Other moderately sized companies, some formed by longtime players in the region, are raising money to acquire commercial real estate in South Florida.

Stonemason has a $35-million bankroll and a goal of buying $100 million worth of multi-tenant commercial properties in the next five years. Funds like Stonemason’s are comprised mostly of high-net-worth private investors instead of large public institutions.

“There are no institutional investors at this point in time,” Arnoldsson says. Stonemason reached out to investors from Florida, New York and northern California.

For now, acquisitions remain difficult to complete, Arnoldsson says. Since launching the fund, Stonemason’s only purchase has been a seven-unit apartment complex in North Bay Village for $823,000.

“Today, people are trickling into the party, but it still has not gotten started,” he says. “The deals being presented to me are not worth buying at any price.”

Like Stonemason, veteran South Florida investment company Foxcode Real Estate is raising money to take advantage of significant property discounts. Miami-based Foxcode announced earlier this month the launch of a fund that plans to raise $50 million to invest in Florida and other East Coast markets.

One investor, Dizengoff Trading Group, has arrived all the way from Israel. Dizengoff, a real estate development and commodities firm, chose South Florida for its first US branch because of the abundant opportunities, said Ronen Saban, regional manager in Dizengoff’s new Boca Raton office.

“We have been learning this market since 2005,” Saban says. “No one knows exactly when this market will turn around, but from a long-term investment perspective, this is a perfectly good time to buy.”

Dizengoff has made two purchases in the region since July. The company bought the fully leased Shoppes at Monarch Lakes in Miramar for $8.3 million. It also acquired the fractured condominium project Portofino in Jensen Beach, which is being operated as a 118-unit rental complex, for nearly $6.8 million.

More than $130 billion of commercial mortgages are in default, foreclosure or bankruptcy nationwide, according to Real Capital Analytics. The investment market has opened up for smaller funds because large vulture funds are struggling to complete deals.

Despite the abundance of distressed properties, major vulture funds are finding resistance from banks that are working out deals with many borrowers instead of foreclosing. A $5-billion vulture fund formed in August by the Canadian company Brookfield, which planned to invest heavily in the US, has yet to make a purchase, according to the Wall Street Journal.

While there has been a flurry of note sales recently, many banks are not willing to take a major haircut by selling off notes for South Florida properties at discount rates, Arnoldsson says. “Nobody in the lending world is ready to take the hit yet,” he says. “They are just looking to kick the rock down the street. Banks are not moving anything and the inventory is building up on the books.”

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