September 10, 2009
By ERIC DASH, New York Times
On the corner of Flamingo Road and Pink Flamingo Lane, beyond the putting green, the crystalline lagoon and the Sawgrass Mills mall, a soaring monument to the great condominium bust bakes under the Florida sun.
The Tao Sawgrass, as the twin-towered complex is known, was built on the western fringes of Fort Lauderdale with easy money from the now tottering condo king of American finance: Corus Bancshares of Chicago. Only about 50 of the 396 units have been sold.
The 26-story Tao — begun in 2006, just as the Florida real estate market imploded — is one of the many troubled condominium projects that have mired Corus in red ink and now threaten its survival. Federal authorities are racing to broker a sale of Corus to avert yet another costly banking collapse.
After failing to find a buyer for the entire company, regulators are moving to cleave the bank in two and sell its banking operations and condominium loans separately. The hope is to clinch a deal by the end of the month.
Some big-time real estate investors are circling, among them Thomas J. Barrack, who first made his fortune in the aftermath of the savings and loan crisis; Barry S. Sternlicht, the man behind the Starwood empire; Jay Sugarman of iStar Financial, the public real estate giant; and New York developer Stephen M. Ross, sometimes called the King of Columbus Circle, in league with Lubert-Adler, a big property investor in Philadelphia.
Whatever the outcome, Corus will go down as the great enabler of condo madness, and its travails are a harbinger of the pain yet to come in the troubled world of commercial real estate. More than any other condo lender, Corus epitomized the easy lending and lax oversight of the go-go years — and the pain of the ensuing bust. Its share price, which was nearly $13 in February of 2008, has plummeted into the land of penny stocks, closing at 25 cents Wednesday.
Corus barreled into hot markets like California, Florida and Nevada and then kept lending as those markets boiled over. Rather than diversify, it concentrated its lending bets by financing only a handful of big, risky projects. And it poured its idle cash into a small group of other banks and financial companies that were upended when the crisis struck.
The primary regulator of Corus, the Office of the Comptroller of the Currency, failed to sound the alarm until Corus was deeply troubled.
“They are the perfect analogy of a boom-bust bank,” said Jack McCabe, the head of a real estate research and consulting firm in South Florida. Corus executives, he said, behaved more like property speculators than bankers.
The failure of Corus would cost an already strained Federal Deposit Insurance Corporation billions. It would also underscore the wave of troubled commercial real estate loans now threatening to crash down on much of the American banking industry. Construction and land loans are now the biggest problem for hundreds of deeply troubled lenders and pose far greater dangers than commercial loans or home mortgages, according to Foresight Analytics, a banking industry research firm.
Many analysts see trouble ahead.
“The first big wave of losses for the banks were on loans to home builders and condo developers in once hot markets,” said Andrew McGee, a consultant at Oliver Wyman in New York. “Banks now are worried that office buildings, hotels and malls in areas hardest hit by the downturn are going bad too.”
Corus was not always so condo crazy. It used to be a sleepy family-run affair known as River Forest Bancorp. Then, in 1984, Robert J. Glickman took over from his father, Joseph C. Glickman, and began transforming the bank into a powerhouse in construction loans. Corus shut its student lending business, its trust operations and all but a handful of its Chicago area branches. It began catering to condo developers across the nation, offering developers quick loan approvals and attractive interest rates. Corus soon fanned out into hot markets like Atlanta, Las Vegas, Los Angeles and Miami. As the property market exploded, so did Corus. Its assets reached nearly $10 billion in 2006. But almost all the loans were tied to the condo market, and nearly 40 percent were for more than $100 million.
Robert Glickman kept reaching for more. Just off the Las Vegas Strip, Corus single-handedly financed a $108.2 million luxury development called Streamline Tower.
In Sunrise, Fla., locals shook their heads as Corus provided $126.3 million for the construction of the Tao, doubting that a luxury condo development on the edge of the Everglades could lure wealthy tenants.
And in downtown Miami, Corus financed the Ivy and the Mint, adjacent properties that were competing for the same buyers.
“It was like building two Wal-Marts next door to each other and thinking you would double sales,” Mr. McCabe said of the Miami projects.
Then, of course, the bottom fell out. By late 2007, the share price of Corus was under attack on Wall Street. But Robert Glickman, whose family then controlled nearly half of Corus, rebuffed offers to sell the bank. Instead, Corus paid a special dividend that netted the Glickman family about $25 million, even though the payout ate into the bank’s reserves. By mid-2008, Corus was losing money and stopped making loans altogether.
Finally, in early 2009, federal regulators ordered Corus to raise capital or put itself up for sale. It was unable to do either. In late June, the bank reported that its entire capital base had been wiped out. Since then, its auditors, Ernst & Young, have walked away, and Nasdaq has warned that it may delist Corus shares.
Mr. Glickman and his father, the chairman of Corus, left the company in April and recently sold their remaining shares for pennies on the dollar.
Corus officials did not return phone calls seeking comment.