May 13, 2009 - Corus Bankshares, Chicago IL

Corus Has Buyers for Its Condos: Vultures

Prime Properties Have Investors Interested and Circling if Lender Fails

Corus Has Buyers for Its Condos: Vultures

Corus Bankshares Inc.'s recent warning that it could be placed into receivership by federal regulators has set off a scramble among real-estate investors who hope to pick up the lender's nonperforming loans.

The Chicago-based firm, which became one of the leading lenders to high-end condominium towers from Miami to Los Angeles, faces a mid-June deadline to sell itself or raise at least $390 million in capital. If Corus, which had $7.7 billion in assets as of March 31, can't survive, it would rank as the largest bank failure this year by assets and the fourth largest of the current downturn. [The Corus Bankshares-financed Paramount Bay development in Miami is set to open in July.] RPC Holdings

The Corus Bankshares-financed Paramount Bay development in Miami is set to open in July.

While it is possible that Corus will find the capital it needs or a buyer, many analysts believe the deck is stacked against the bank because its problems are so complex. "Just given the environment that we're in and given the condition of their balance sheets, those tasks would prove to be rather difficult," said Daniel Cardenas, senior vice president at Chicago brokerage Howe Barnes Hoefer & Arnett Inc.

Corus didn't respond to requests for comment.

Condos have been one of the hardest-hit segments of the real-estate market. Buyers have been walking away from their deposits on units, leaving developers with mostly empty buildings. The delinquency rate on condo-construction loans hit 32.2% in the first quarter of 2008, from 13.4% a year ago, according to Foresight Analytics.

While many lenders are being hurt by the condo crash, Corus is particularly vulnerable. Condo-construction loans accounted for nearly 75% of the lender's commercial real-estate loans. Some 41 of the bank's 85 condo-construction loans were in default at the end of 2008, and an additional 23 condo loans were considered "potential problem loans" at risk of default. In Florida, all but three of 20 condo loans were in nonaccrual, the company said last month.

The prospect of Corus's empire being sold off in pieces has attracted interest from a diverse group of buyers: private-equity funds, individual investors, and multifamily-rental operators, according to brokers familiar with the company's assets. "There's lots of capital out there looking at the product, but it's one thing to look and another to get to a price that makes sense," said Lewis Goodkin, a real-estate analyst based in Miami who says he is working with two funds interested in buying some of Corus's assets.

One more group of interested buyers includes condo developers. Related Group, the biggest condo developer in south Florida, is looking at individual Corus assets, said Matthew Allen, the company's operating chief.

Another developer frequently mentioned as a possible buyer of assets is New York-based Related Cos., the closely held real-estate developer that is behind numerous condo and office complexes including New York's Time Warner Center. Related Group of Florida and Related Cos. of New York are separate companies, although the Related Cos. has a small stake in the Related Group and occasionally they enter joint-venture projects together. A spokeswoman for Related Cos. wouldn't confirm or deny that the company is looking at Corus properties.

Analysts say that Corus's loans could be attractive because they weren't syndicated or sliced up into securities. As a result, foreclosures on the properties wouldn't be subject to lawsuits from other lenders. In addition, many developments financed by Corus are high-quality properties in major metropolitan markets.

"Corus made loans on many of the most important properties in Florida, and control of those assets could translate into a very significant windfall" over the long term, said Robert Kaplan, chief executive of Olympian Capital Group, a real-estate investment firm.

Any potential buyer would need deep pockets and a long-term view, converting mostly empty condo buildings into rentals until the market recovers. Some 577,000 condo and cooperative apartments were on the market in March, a nearly 15-month supply, according to the National Association of Realtors.

Corus shares rallied on Monday, more than doubling to 96 cents on news that troubled Florida lender BankUnited Financial Corp. had become the target of a bidding war by private-equity firms. Corus shares fell 5% to 91 cents on Tuesday.

An agreement between Corus and its regulators, meanwhile, has made life more complicated for its developers, since the bank must receive federal approval for most loan extensions. "It's brought Corus to a standstill in terms of what they can try to do to renegotiate loans," said Peter Zalewski of Condo Vultures Realty LLC in Bal Harbour, Fla.

On Monday, Corus's operating chief announced his resignation, effective next month, following other senior departures. The company's chief executive of 25 years resigned in April and the finance chief took a leave of absence in March.

Original Story - Wall Street Journal