TheMiamiHerald.com

Posted on Thu, Oct. 15, 2009

Biscayne Landing has turned into land of broken promises for stuck residents

BY ELAINE WALKER AND CARLI TEPROFF
ewalker@MiamiHerald.com

The largest undeveloped chunk of bayfront land east of U.S. 1 has long been North Miami's field of dreams.

In the 1960s, plans called for a futuristic theme park of the Americas. A decade later, the vision was a huge sports and recreation complex. Instead, it ended up as a dump.

Now, Biscayne Landing -- a $2.5 billion redevelopment project that was supposed to transform the former 193-acre Superfund site with a checkered past into a luxury community overlooking Biscayne Bay -- has turned into a nightmare.

For North Miami, Biscayne Landing promised to generate millions in tax revenues and help fund affordable housing while creating a mini-city with 6,000 residences.

Instead, two half-empty condominium towers sit among the mangroves and rock-strewn fields while the project is mired in foreclosure. It's a sad reminder of one of the largest single projects in South Florida to fall victim to the collapse of the real-estate and financial markets.

Caught in the middle are condo owners who bought into the latest dream but now find themselves trapped in a web of broken promises.

Two lenders launched foreclosure actions this summer against the project, after Boca Developers -- the Deerfield Beach company in charge of the project -- defaulted on its loans. Now the banks and the courts must sort out the mess left behind.

Finding another developer to take over the project isn't likely to happen anytime soon. Given the weak real-estate market, some industry analysts say the best-case scenario is five to 10 years for any new development at the site. Others believe even that's too optimistic.

``The smartest thing they could do is not put more good money after bad,'' said Lew Goodkin, a veteran South Florida real-estate analyst. ``Almost every option has one common thread: They'll lose money. My recommendation: `Our Father who art in heaven . . .' ''

But praying isn't likely to help owners such as Sylvia Londono. When she spent more than $400,000 on her two-bedroom condo in The Oaks at Biscayne Landing, Londono thought she had ``struck it rich.''

Now, as she stands on her balcony overlooking mangroves and barren land, Londono said she made a big mistake believing Boca Developers would deliver the luxurious lifestyle she saw in the sales brochures.

Instead of a bustling new community, there are just the two towers with 373 condominiums. Where the retail town center was planned, weeds have sprouted amid mountains of dirt. Forget the promised pool and the spa. Only a hole was dug, and now it's filled with mucky water. Plus, there's the smell from the old landfill and the Miami-Dade sewage treatment plant next door.

``Had I known then what I know now, I never, ever would have bought here,'' said Londono, who expected to move her family from Weston but doesn't feel the area is safe for children. ``I feel like I threw my hard-earned money away.''

The problem for Londono and others is that they paid an average of $250 per square foot on condos that today are worth only between $100 and $150 per square foot. That's if they could find buyers -- most owners are stuck trying to rent their units.

The difficulties don't surprise South Florida real-estate analyst Michael Cannon. He worked as a consultant for the city of North Miami in the late 1990s, analyzing what to do with the property. His recommendation: a mixed-use business park, featuring industrial, office, hotel and retail uses.

Cannon opposed any kind of residential construction because of the site's contamination problems dating back to its use as a dump in the 1970s.

``I didn't think the [residential] project was marketable from the get-go,'' said Cannon, executive director of Integra Realty Resources in Miami. ``Everyone can blame someone else. But even if we didn't have a financial crisis, it would not have been marketable.''

Real-estate experts say that wasn't the only problem. Several factors work against the site.

``It isn't exactly in the heart of Miami,'' said Peter Hoelzle, vice president with Trimont Real Estate Advisors, which is working for an advisor to Wells Fargo, acting as trustee for the property's main mortgage holder.

``Leased land is less attractive to a developer. The environmental situation is quite expensive. It's definitely a challenged property,'' Hoelzle said.

Add to that a lease with the city that requires the developer to pay $28 million to cover off-site city improvements; $10 million for an Olympic Training Facility; $10 million for the library; and $1 million a year for eight years for the Museum of Contemporary Art.

``It significantly burdened this site beyond the normal things happening in the market,'' Hoelzle said.

Those improvements were all part of the original deal North Miami made with developer Michael Swerdlow. He brought in Boca Developers as his partner in 2003, but then turned it all over to the company in 2006 before the real-estate market collapsed.

In hindsight, Swerdlow acknowledges, ``I was lucky and they were victims of the market.''

Boca Developers President Brian Street said at the time of the sale that he bought Swerdlow out of all their joint condo deals for an unspecified ``nine-figure'' amount. Street also said he disagreed with Swerdlow, who wanted to switch some of Biscayne Landing from high-rise condos to low-rise development.

Boca Developers declined to comment for this story.

North Miami's former Mayor Josaphat ``Joe'' Celestin thinks Swerdlow's sale marked a turning point for Biscayne Landing.

``If I knew that he was going to walk away and Boca Developers were going to take over, I would have never let that happen,'' said Celestin, who was not on the council at the time. ``Boca Developers didn't have the drive to get this done. I never believed in Boca Developers.''

Boca Developers' growth followed the trajectory of the condo boom. In the late 1990s, the company was a small player working in the Boca Raton area. But by 2006, it had mushroomed into one of the five largest private condo developers in the state. In addition to Biscayne Landing, Boca Developers had at least 10 other projects in various stages of development across the state.

Biscayne Landing wasn't the only project where Boca Developers ran into trouble. The company turned over to lenders or suffered foreclosure actions on most of its portfolio, including Las Olas Riverfront in Fort Lauderdale and Marina Grande in North Miami Beach.

``Their lack of experience with the down cycle spooked them, so they shut down,'' said Craig Studnicky, president of International Sales Group, which handled the condo sales for all of Boca Developers' projects. ``They were maxed out. They couldn't borrow any more. Even the lenders were starting to pull back.''

Going forward, the lenders who provided financing for the project will determine the future of Biscayne Landing.

iStar Financial is in the process of taking control of the 161 unsold units in the two existing towers at the northeast corner of the property. The condos are the security on the $29.9 million in debt, plus at least another $1.6 million in fees.

But industry analysts say finding a market for the Biscayne Landing condos won't be easy, considering Brickell condos now sell for what the North Miami units sold for at their peak.

``Unless the lender wants to be a property manager for the next decade, it's going to require a deep, deep discount to get these off their books,'' said Peter Zalewski, founder of Condo Vultures and an industry analyst. ``These two towers are in a downward spiral, and I don't see any way the pilot is going to be able to pull the rip cord and get out unharmed.''

Wells Fargo, trustee for the holders of commercial mortgage-backed securities, has slightly more flexibility because it controls about 190 acres of undeveloped land at the site. Its goal is to hold a foreclosure auction in the first quarter of next year.

Biscayne Landing owed the Wells Fargo group $196.3 million, but the foreclosure action only includes a $35 million junior loan. That leaves $161.3 million in debt that can be assumed by a future purchaser at the foreclosure, Hoelzle said.

Credit rating agency Realpoint says the entire site was originally appraised at $475 million, but dropped in November 2008 to $124 million. Now, after discounting that value by 20 percent because of ``poor sub-market conditions,'' the agency estimates the property's value at about $99.2 million, with a loss of between $55 million and $65 million.

``I still think it's a fabulous piece of land,'' Swerdlow said. ``It depends on the vision of the people that take it over and the time that they have. You need to bring in a developer that has a long-term vision.''

Chuck DeSanti, the court-appointed receiver on the project, will make a recommendation on the type of development for which the property is best suited. He's also in charge of ensuring that environmental remediation permits remain current.

Chuck Taylor, a Madison Marquette retail broker who worked for Boca Developers, said there is still interest in the site, particularly from big-box retailers.

Industry sources say potential tenants could include Kohl's, Dick's Sporting Goods and a movie theater. There also have been preliminary discussions about the potential for relocating the nearby Costco or Target stores to the site.

In order to make any deal work, industry sources say it's likely to take some willingness by the city to renegotiate the deal, particularly the $28 million in offsite improvements.

But that may not go over well at City Hall, where politicians would rather wait things out than give up their cash cow. ``It would be absolutely foolish as a city council to take the offsite improvements off the table without gaining some major concessions,'' said Councilman Scott Galvin, who represents the district that includes Biscayne Landing. ``On paper, it was a great game plan. In time, it can play itself out; we just have to wait and see.''

That idea doesn't sit well with the property owners at Biscayne Landing.

``We are caught between the devil and the deep blue sea,'' said Marcia O'Connor, another owner and local real-estate broker. ``Boca Developers being the devil, and Biscayne Bay is the sea.''

Attorney Gary Poliakoff argues that his clients were sold a lifestyle that will never become a reality.

While lenders have offered the possibility of finishing the swimming pool and adding a guard gate, Poliakoff says that's not enough. He wants the lenders to offer residents the chance to get all of their money back and walk away.

``The problems can't be fixed,'' Poliakoff said. ``They have units that are never going to be valued at what they cost. I don't think they'll ever eliminate the smell.

``There is slim to no possibility that anytime in our lifetime this development is going to be built out the way they were promised.''