Wednesday, March 26, 2008

Chapter 11

As Sky Falls, Condos Look For Protection

The Tampa Tribune
Published: March 25, 2008

TAMPA - When the foreclosure filing came last month, developer Fida Sirdar determined the only way to save The Place at Channelside condominium was to file for bankruptcy reorganization.

It was either that, he said, or hand the keys over to the bank and walk way.

"Generally, people think bankruptcy means the project is down the tubes," said Sirdar, of Key Developers Group LLC. "But if we didn't believe in this project's future, it would be stupid for us to get into this bankruptcy and waste everyone's time, including our own."

About a half-mile away, the developers of The Towers of Channelside are fighting for success, too. They also filed for Chapter 11 bankruptcy protection in January, after Wachovia cut off the company's credit.

Just last week, the developers of 472-unit Tampa Condo II filed to reorganize under bankruptcy. Announced in May 2006, the 51-story condominium project could have been among the city's tallest buildings, replacing a parking lot at Washington and Morgan streets in Tampa's downtown.

And the developers of Trump Tower Tampa say they too may soon be filing for bankruptcy, if they don't secure construction financing for the luxury tower this week.

All these projects have something else in common: vanishing buyers. Developers say buyers either wouldn't close because the market had changed or couldn't close because they no longer qualified for loans. Others were speculators or just lost hope in the projects.

The bankruptcies signal how tough the market is. They represent the beginning of the fallout from an overbuilt condominium market in Tampa, real estate experts say - but in the long run, the filings could actually save the buildings and make the market more affordable.

"Developers have been hanging in there and trying to make it work, but their cash flows are depleting," said real estate lawyer David Carter with Carter & Lyons. "There's going to be a lot of failures."

Some of the condominium projects in trouble are nearly complete, and buyers have already moved in. There are between 150 and 200 people living in the 257 units in the twin Towers, across the street from the Channelside Bay Plaza complex. Buyers at The Place at Channelside have closed on one third of its 245 units.

Watching Prices Drop Is Painful

The bankruptcy filings worry some buyers concerned about their own financial futures. They blame developers in lawsuits for not finishing their projects on time, leaving them with units that aren't worth what they agreed to pay a few years ago when the condominium market was red hot. Some have filed lawsuits seeking to get out of their contracts and to get their deposits back.

Bonnie Dealva, who purchased a unit in The Place, is not suing but said it's difficult to watch the units drop in value. If the contractors had finished the building on time, she said, more buyers would have closed before the market tanked, and the building would be better off.

Dealva said she loves her condominium but decided not to live there because the building feels empty. The Channel District didn't turn out to be the vibrant area she thought it was, she said. She's leasing out her place and renting an apartment near Rocky Point.

Another buyer at The Place, Gerald Confield, had contracts on two units. He said he was able to get 60 percent of his money back on one unit and went through with the purchase of another one. He said he hopes to lease out the unit until the market improves.

For buyers who have already moved in to their units, there are several problems they may encounter.

The main worry is whether condominium association fees, used to pay for maintaining and insuring the building, get paid by the developer, said Carter, the lawyer.

A project's bankruptcy doesn't directly affect a condominium owner, he said. But if the developer or lender subsequently stops paying association fees, he said, all the owners could wind up paying higher fees to cover the unsold units. Fewer fees could mean less money to pay for pool maintenance or common areas.

Other things to worry about include falling property values and high numbers of renters.

"If a condo gets too many renters, the building can deteriorate," Carter said, noting that renters don't always care for the building as owners do. Also, he said, there are so many units for rent that owners are cutting prices to compete, driving down values.

Carter's firm has represented downtown condominium buyers trying to get out of their contracts and said their quests have been successful because of "flaws" in contracts. For example, most of the developers' contracts promised completion by a certain date, and missed it.

Scott Newberger, who contracted to buy a condominium in Towers of Channelside, wants out. He said he was asked to close on his purchase in October but refused because the building was not finished. He said he was concerned the developer could run into trouble, file for bankruptcy and not finish it.

Newberger is trying to get his money back. The building is complete now, but he said he already had to make other housing arrangements and is no longer interested in it.

Credit Gone, Only 1 Option

Richard Sacchi, a partner in Towers of Channelside LLC, said his company at one point had contracts on every unit in the two buildings. Then the market soured and buyers, often investors who wanted to flip their units, started dropping out.

The lender, Wachovia, cut off the developer's credit and wouldn't extend the repayment structure of the loan, Sacchi said. The only option to turn the financial troubles around was to file for Chapter 11, he said.

There are 85 to 90 units left to sell, he said.

"We fully expect to come out of this on the other side," Sacchi said.

Buyers benefit somewhat from the bankruptcy filing, Sacchi said, because the developer has set aside enough money to pay association fees for four to five years.

Jack McCabe, owner of McCabe Research & Consulting in South Florida, follows Florida's condominium market and said he expects more lenders to cut off credit, as Wachovia did in Tampa.

"Wachovia seems to be taking a more rigid stance on payment due dates for condo developers," he said. "Others have been continually postponing due dates, as they want to see the developers close and make as much money as possible."

The bankruptcies, as bad as they sound, could end up helping the projects survive, McCabe said. "A lot of people think this is the kiss of death, but a lot of developers do this so they can reorganize debt and resurface."

McCabe thinks too many condominiums were built too quickly in downtown Tampa, but over time, he said, units will fill up, and downtown will be a better place.

Just two years ago, more than 30 condominium projects were planned for the city's core. Many of those developers have canceled plans because of the sluggish market. Others forge ahead.

A handful opened last year, and developers of SkyPoint on Ashley Drive are well under way on a second tower, Element. Even developers who ran into trouble still believe in downtown's future.

Take Sirdar, whose company built The Place. He plans to start construction on two more projects next year.

"I look at Tampa as a great opportunity," Sirdar said. "We are very hopeful that the market will start to stabilize later this year. Like the windfall didn't last, the doom and gloom won't either."

Researcher Michael Messano contributed to this report. Reporter Shannon Behnken can be reached at (813) 259-7804 or