West Coast firm sees groovy times in Florida

A California commercial real estate firm with a niche in complicated loan workouts of distressed properties sees big doings in Florida.

Not exactly uplifting news for the local economy. But for San Diego-based Breakwater Equity Partners, the state's underwater property largesse is a trove of opportunities.

“Florida lags the country in terms of the mortgage underwater review process,” Breakwater Equity Chief Strategist Jack Rose tells Coffee Talk. “We at Breakwater predict a long slog in Florida. This can go on for at least five years. (The state) is a strong market for us.”

An example of that strength is a nine-story office building at 400 Cleveland St., in the heart of Clearwater's revived downtown. Breakwater Equity recently worked with the owners, a four-person group of investors based in Monterrey, Mexico, to save the building partnership from bankruptcy. The ownership group had already defaulted on the property.

That the Monterrey partnership was in dire financial trouble wasn't much of a surprise, considering the project's timing. The investors bought the property, built in 1961, for $8.2 million in 2003. They spent another $2 million on entitlements, with plans to build a high-rise condo building on the site.

But the condo market collapsed before the redevelopment project even got started. The investors decided to hold the property and lease office space there. But that has been a challenge, too.

For starters, the building's current vacancy rates, which vary from 60% to 70%, are double some other local properties, according to Breakwater, and several short-term leases recently expired. Several key maintenance projects have been delayed, Breakwater adds, and the building lost $20,000 a month through early 2012. “The property was hemorrhaging cash,” says Breakwater Equity Senior Director Thomas Lackman.

Still, Breakwater, which the investor group hired in early 2011, was able to broker a deal with Berkadia Commercial Mortgage, the suburban Philadelphia-based firm that represented the bondholders on the property.

After a lengthy negotiation period, the firms reached an agreement in February, when Berkadia sold the note on the building to a group connected to the current owners. Berkadia sold the note for less than half the outstanding loan balance, according to Breakwater. But the alternative, bankruptcy, would have likely netted the firm much less.