Friday, August 6, 2010

New Wave of Atlanta Corus Bank Condo Offerings Coming

By Michelle E. Shaw and J. Scott Trubey

The Atlanta Journal-Constitution

2:04 p.m. Friday, August 6, 2010

Atlanta’s battered condo market is about to be stirred again when 800 new units hit the market this month.

Chicago- based ST Residential, an asset management company led by Starwood Capital Group, is helping the federal government market the remains of the failed Corus Bank -- including seven high-profile Atlanta condo properties.

ST last week announced its intention to market units in The Atlantic, in Atlantic Station; The Brookwood, in Buckhead; and Serrano, in Sandy Springs. All have been empty for a year or more. Other properties where units have already hit the market include the Midtown high-rise Luxe and Horizon at Wildwood, in Cobb County.

Industry watchers are waiting to see the effect of the additional units on already depressed condo and housing markets.

David Green, a principal and co-founder of Mountain Seed Advisors, takes an optimistic view that the sale of the former Corus portfolio can be good for the market. The balance between supply and demand in the market was off-kilter even without the Corus portfolio, he said.

The condo market needs the stability of a cash-flush owner like ST Residential, which will have FDIC backing and offer financing, he said.

“Everything depends on where they set the price of those units,” said H. Jerome Russell, president of Atlanta-based Russell New Urban Development. “And I’m sure we, like everybody else, will think about adjusting prices based on what they do.”

Debbie Smith, a private wealth adviser in Atlanta, is interested to see what ST does for personal reasons. She put her Buckhead condo on the market in April, not long after she got married.

“The additions to the market let me know it might take a little longer to sell this home than I thought,” she said. “The good thing is, I can afford to wait a little while and I’m not in a rush to sell.”

Wade Hundley, chief executive of ST Residential, said the company doesn’t intend to drive down market prices.

“This won’t be a fire sale,” he said. The company’s partnership with the FDIC, he added, will enable it to “be more patient.”

Chicago-based Corus, which failed almost a year ago, had no branches in Atlanta but was the lender on nearly a dozen condo projects. Corus was one of the nation’s most prolific backers of condo projects in fast-growing Sun Belt areas. But the real estate bust brought on huge losses.

Atlanta was Corus’ third-largest market. Before it failed, the company listed loans outstanding on nine Atlanta properties for $350 million, plus a foreclosed loan for $11.8 million, according to a September 2009 Securities and Exchange Commission filing.

The tandem of private equity with the FDIC ensures the bank regulator can gain some of the upside from the sales, rather than dump the properties at bargain basement prices.

“The FDIC uses these structured transaction strategies to minimize losses to creditors of failed banks by partnering with private sector experts who manage and work out the portfolio in an orderly manner over time,” FDIC spokesman David Barr said.

Hundley said the partnership must pay back the FDIC before it sees profits. That will help ensure pricing stability.

According to Haddow & Co., an Atlanta-based real estate consulting firm, condo inventory in Downtown, Midtown, Atlantic Station and other intown locations decreased in the first half of 2010 to 7,950 units in 104 active projects.

There were 9,067 available units in 112 active projects at the end of 2009, the firm says.

Condo projects like the Cosmopolitan in Lindbergh fell of the active list because there were no more units to sell.

Haddow’s numbers don’t include the thousands of new and resale units, like Smith’s, that are outside of the intown area.

According to Haddow, the gap between supply and demand continues to narrow for projects with an average unit price below $300,000. Of 21 developments where prices have been cut, the average reduction was 33 percent off the original listed price, the report shows.

Similar results are expected when ST unveils its pricing for The Brookwood, The Atlantic and Serrano in the coming weeks, experts say.

“Pricing will be lower than they were originally projected to be,” Hundley said. “But we’re not trying to sell out in the first year. We’re setting the price at what we think the market will bear.”

He said they may hold back on penthouse and units with unique features that could command a higher price.

“But if somebody comes to us with a reasonable offer, we will be willing to listen,” Hundley said.

Units at The Atlantic, a 46-story, 400-unit development on 17th Street in Atlantic Station, were to start around $300,000, with most listing between $500,000 and $700,000, and penthouse units upwards of $700,000, according to a 2006 AJC article.

At The Brookwood, which broke ground in April 2007 and is located at Peachtree and 28th streets, units were originally priced from the $500,000s to $900,000s, the AJC previously reported.

Serrano, which was slated to have 150 one-, two- and three-bedroom condos, boasted starting prices from the low $300,000s in 2007 when plans were initially announced, according to an AJC report.

Investors in distressed properties had predicted Atlanta’s condo prices could plunge once ST Residential returned the buildings to market. But Green, who has followed the portfolio for the past few years, doesn’t think so.

“The market is still pretty dead,” Green said. “I don’t think it’s going to have that much of a negative impact.”

The success of ST’s decision will largely depend on the perception of the buying public, suggested Michael McGwier, senior managing director at Mill Creek Residential Trust LLC.

“It will depend if we’ve really hit the bottom, and whether buyers believe we’ve hit the bottom,” he said.

He noted that ST’s offerings are far enough apart that they won’t compete with each other.

“They’re spread out geographically and they’re at different price points, so my gut is they have a pretty good chance,” he said. “I don’t think this changes the marketplace, because they’ve been on the market before. They may have been stalled, but they’re back now.”