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— Hard Times —
According to the bank's 2008 results, Corus has over $400 million in foreclosed property, most of which occurred in the fourth quarter of last year. An additional $1.5 billion of loans, or some 36% of its loan portfolio, is non-accrual, with little chance of performing again.
So, while Corus continues to operate, only the terminally optimistic believe it can survive. "The consent order is a death order," says a workout specialist with detailed knowledge of Corus. "It's a precursor to the inevitable." Corus built its $4 billion loan book on the back of condominium construction. Not only did management bet the bank on this most speculative and cyclical of activities, it focused on condo projects primarily in southern Florida, as well as in Arizona, Nevada and southern California. Corus could serve as an early-warning system of where real estate would crash hardest. "It was a concentration of risk, geographic and strategic," says the specialist. "It was very high-risk." Corus, of course, isn't the only bank to get in trouble over real estate. Nor is it alone. Regulators have shuttered 17 banks this year. Others are barely hanging on. Take Sanford, Fla.-based Federal Trust Corp., which announced last year that if it didn't raise more capital or sell itself, it couldn't survive. After two failed attempts at gaining more funds, the bank announced in January a proposed $10 million acquisition by Hartford Financial Services Group Inc. Hartford agreed to the deal to obtain bank status, provided Treasury approves the insurer's access to up to $3.4 billion in Troubled Asset Relief Program funds. That approval has yet to come, and the merger has been put on hold. Last month, Fitch Ratings downgraded another South Florida bank, BankAtlantic Bancorp Inc., to negative. While the Fort Lauderdale, Fla., bank's capital levels exceed regulatory thresholds, the parent would be significantly hard-pressed to come up with more money if necessary. Nonperforming assets almost doubled in the fourth quarter. One weakness compounds another. Matthew Levin, an Atlanta-based restructuring partner at Alston & Bird LLP, describes the "ripple effect" of insolvent lenders, especially nonbanks such as Lehman Brothers Inc., that renege on construction loan commitments. Other lenders, he says, may not be willing to take over financing, jeopardizing the project. Or a strapped lender may slap a "pretext" default on a project in an effort to get repaid. "A developer can't refinance, can't find another [lender] to bring in," Levin says, with little recourse but to sue, which takes time. "The developer ends up in bankruptcy as well." All these issues come together in South Florida, ground zero for overbuilt condominums. According to Brad Hunter, director for housing market research firm Metrostudy, the inventory in South Florida of finished and vacant or under-construction condos totals 28,464, of which Miami-Dade County has 22,652. They're not exactly flying off the shelves. Lucas Lechuga, a Miami realtor whose Web site, Miami Condo Investments, says of four newly completed projects, none have topped 5%. The most ambitious is the 1,640-unit Icon Brickell, part of a $1 billion residential, hotel and retail complex. Its closing rate stands at 0.84%. "This is indicative of what's going on," he says. "Nobody's able to close. It pretty much has to be cash buyers." This is especially worrisome to individuals who forked over money for the condos with the idea of living there. Joseph Altschul, a Fort Lauderdale attorney, represents purchasers of preconstruction condo units trying to get their 20% deposit back. A looming issue, Altschul says, is ongoing maintenance, which Florida law limits to six months for developers. He cites Tao Sawgrass, a 396-unit project, in which exactly five units have closed. Holding a $126 million construction loan and a $20 million mezzanine note, the lender foreclosed on the Sunrise, Fla., development and took over in November, promising to market the condos itself. The lender: Corus. Matt Miller covers distressed investing for The Deal. |
In the financial world's version of night of the living dead, Corus Bankshares Inc. zombie-walks near the front of the pack. It's so bad that in January the Treasury Department rejected the bank's application for bailout money. Last month, Corus agreed to a consent order with the Office of the Comptroller of the Currency, which is demanding the Chicago bank improve its minimum capital levels, cap deposit rates, and, most vexing, figure out what to do about the bank's self-admitted "growing portfolio of foreclosed real estate assets."
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