South Florida Business Journal – by Darcie Lunsford
The bankruptcy of Lehman Bros. Holdings (NYSE: LEH) is sending shockwaves through South Florida real estate circles.
The investment firm bankrolled close to $2 billion in South Florida real estate projects.
The Chapter 11 filing comes at a time when finding capital to bankroll commercial real estate transactions can be like looking for a needle in a haystack.
“Lehman provided a lot of liquidity,” said Paul Jones, president of Pyramid Realty Group, a Coral Gables-based real estate advisor, debt placement, restructuring and disposition firm. “The big fear is that they are going to dump their assets and devalue the rest of the market.”
While the investment bank’s financial problems have largely sidelined Lehman from funding deals in recent months, it still has stakes in many of South Florida’s priciest and highest profile projects.
According to published reports and press releases, Lehman backed $226.5 million for construction of Donald Trump’s condo tower in Hollywood, $47 million for the new Canyon Ranch Miami Beach resort, and was part of the private consortium that infused $565 million into the Fontainebleau in Miami Beach.
What will happen to Lehman’s interests in these assets and others will ultimately be up to the bankruptcy court. But, some expect most to be liquidated to pay off Lehman’s $613 billion in debts and more than 100,000 creditors.
“I think that paper is going to get sold at whatever number buyers will pay,” said Phil Bloom, chief lending officer at CCR Cos. In Miami. “The residential side is basically nonperforming at this time.”
Bloom said the loss of Lehman signals the end an era of the big investment house’s risky real estate roulette.
“It is going to go back to the days when deposit banks and deposit institutions are doing most of the lending,” he said.
Lehman has been a financing force in the region for more than a decade, having backed a legacy of aggressive, highly entrepreneurial deals. Among them: upstart Americas Capital Partners’ $323.2 million grab of Highwoods Properties’ entire South Florida portfolio in 1999 and Boca Raton-based T-Rex Capital‘s $138.6 million acquisition of former IBM campus in Boca Raton the following year.
“None of those deals would have gotten done today,” said Tom Mulroy, CEO of T-Rex Capital, which since has sold off the former IBM campus and land holdings.
He said would-be investors are still sitting on the sidelines waiting for the bottom of the market, which further restrains needed capital infusions into real estate.
And, available capital to buy commercial real estate is likely to remain at a trickle until next year, said Charles Foschini, vice chairman of South Florida markets at CB Richard Ellis.
“It is a difficult market to get deals done,” he said, but he noted that South Florida is well positioned for a speedy rebound once money starts to flow.
“While the financial markets may be in decline, the fundamentals are very strong.”
Bill Frogameni and Oscar Pedro Musibay contributed to this report.