Experts Read Tea Leaves As Starwood Capital Group Stays Mum On Big Takeover
Written by Yudislaidy Fernandez on March 18, 2010
By Yudislaidy Fernandez
Starwood Capital Group appears in no hurry to sell assets under its control after acquiring, along with other investment groups, failed Corus Bank’s $4.5 billion portfolio late last year, local realty professionals say.
Starwood Capital, a private investment firm, is an example of another emerging flipping market, says analyst Michael Y. Cannon.
Though not labeled a developer, he says the group has the capital to acquire distressed real estate, or real estate that became distressed because of possible overleveraging by banks, and flip the deal.
"You have investors like Starwood purchasing residential properties and doing the flip," said Mr. Cannon, executive director of Integra Realty Resources. "I find it amusing. We had flipping in the up market and now flipping in the down market is going up."
Mr. Cannon, who has experienced four real estate cycles in his years in business, says the market is likely to see more groups like Starwood orchestrating similar strategies.
Starwood Capital, along with TPG Capital, Perry Capital and WLR LeFrak, acquired last October the $4.5 billion portfolio of construction loans and real estate owned assets formerly owned by Corus Bank. They bought the portfolio from the Federal Deposit Insurance Corp., which seized the Chicago-based bank last September.
When Starwood Capital bought the portfolio it stepped into the shoes of Corus as lender, Mr. Cannon explained, and since then has been doing workouts with the developers who built the projects. But because the group is a private fund, he says, it is not subject to the same regulations as traditional Federal Deposit Insurance Corp.-insured institutions.
Though Starwood has been mum about its plans for the acquired construction loan portfolio, Mr. Cannon says the group is likely to either continue to arrange workouts or take back assets from less-experienced developers.
So far, the latter doesn’t seem to be the case, he says, as Starwood and borrowers appear to be reaching workouts.
Starwood did not return calls for comment.
The loan portfolio has 102 properties, including 79 condominium buildings, 14 multifamily complexes, eight office buildings and one land development project. Those properties are in Miami, New York, Chicago, Atlanta and Washington, DC. Among Starwood’s local condominiums are the recently-completed 56-story Infinity at Brickell, 55-floor Mint at Riverfront and 45-story Ivy at Riverfront.
Following the acquisition, Starwood Capital and the Related Group of Florida became the two entities to control almost 60% of the greater downtown Miami’s unsold condo inventory, realty consultancy Condo Vultures reports.
Peter Zalewski, a principal at Condo Vultures, says the investment group is staying firm in its pricing and is not interested in negotiating.
But the biggest hurdle for some brokers is the lack of communication between local Starwood officials and the parent company, which is affecting transactions, Mr. Zalewski said.
"Deals are not happening because of the lack of response," he said. "…I don’t think Starwood is aware that some brokers, us included, are getting a bad taste."
Interested buyers anxious to close on a deal may not want to wait a month or more to get a response, he explained.
"It’s not about the pricing. They can sell at whatever price," Mr. Zalewski said. "The frustrating thing is that prices are established locally but have to be approved up the food chain…"
The problem is not with Starwood’s local officials, he says, but they don’t have the authority to complete the deal, which is contributing to the delays.
The stall and frustration could not only hurt condo sales at its projects, Mr. Zalewski predicts, but also end up benefiting the competing three-tower Icon project nearby.
"Brokering deals is already tough enough in a market where financing is difficult to find," he said. "It’s creating havoc that they are being unresponsive or taking months to respond, as buyers don’t want to sit around waiting to hear back on an offer when they can be investing that money somewhere else."