Article Courtesy of Bloomberg
Business Week
By Roben Farzad
Published
July 7, 2011
In
2002 the city of North Miami struck a deal with developer Michael Swerdlow
to build a grand city-within-a-city called Biscayne Landing. Set on the
largest available tract of waterfront property in South Florida, Biscayne
Landing would feature 6,000 condos, many overlooking Biscayne Bay, along
with shops, restaurants, nature trails, and a $10 million Olympic training
facility. It would rival Aventura, North Miami’s elite neighbor just a
few miles north, one of the wealthiest cities in Florida. Rents, taxes,
and fees from Biscayne Bay would add $13 million a year to the city’s
coffers.
Eight
years after groundbreaking, Biscayne Landing represents
some of the worst excesses of the housing bust—grandiose
development plans, easy financing, and municipal
overreach. The project consists of little more than two
condo towers looming over a landfill. The sales office is
closed, upkeep is sporadic. Sylvia Londono, a real estate
agent and mother of two, says her condo, which she bought
for $450,000 in 2007, is now worth $150,000. She has never
moved in, she says, put off by the stench that rises from
the site and a nearby sewage treatment plant on rainy
days. “It has been the worst experience |
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Biscayne
Landing’s towers stand on a former Superfund site
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ever,”
says Londono, who has organized a group of 60 fellow owners to petition
lawmakers and the U.S. Housing and Urban Development Dept. to investigate
the project. The department has declined.
Now the cash-strapped city of North Miami finds itself
the reluctant landlord of the mixed-use project, having taken over the
190-acre property on Mar. 31. Credit Suisse
is among the lenders that have lost money on the deal. North Miami is once
again soliciting development plans for the site. “Look,” says Councilman
Scott Galvin, the city’s point man on Biscayne Landing, “we can all
Monday-morning quarterback this. We were all so enamored of condo real
estate. There was no Plan B. Now we, the city, have to move with haste.”
The waterfront parcel has a haunted history. In the
1960s, North Miami designated it for a futuristic Pan American theme park
called Interama that was never built. In 1971 the city contracted with a
now-defunct firm called Munisport to build an Olympic-caliber sports
complex. The city allowed Munisport to bring in clean construction debris to
raise and shape the land for a golf course. At some point, Munisport started
accepting municipal, medical, and toxic waste—so much that in 1982 the
Environmental Protection Agency declared the development a Superfund site,
having unearthed drums of chemicals and at least a dozen noxious gases,
heavy metals, and other toxins.
An underground fire at the abandoned landfill burned
for two months in 1990, sickening residents of an adjacent mobile home park.
According to the federal government’s Agency for Toxic Substances and
Disease Registry, the residents voiced concern that pollutants from the
Superfund site were behind their rashes, respiratory illnesses, infections,
and cluster of cancers, and complained that the EPA did not adequately
monitor the abandoned dump. In 1999 the EPA took the site off its Superfund
list, concluding that the biggest risk it posed was to marine life in
Biscayne Bay. “It still needed cleaning up,” says Carol Keys, a lawyer
who unsuccessfully ran for mayor of North Miami this year. “The water on
the land was not and is still not fit for human contact.”
With the housing market picking up in 2001, North
Miami solicited proposals for developing the site, ultimately signing the
agreement with Michael Swerdlow’s Swerdlow Group, a commercial developer
that had built the Great Mall of the Bay Area in Milpitas, Calif. By the
January 2003 groundbreaking, Swerdlow had brought in condo specialist Boca
Developers as partner in Biscayne Landing. While construction of the first
two towers was under way, Swerdlow sold its interest to Boca in 2006,
disagreeing with the partner’s plans to take on additional debt to build
more high-rise condos. “It was a different time, and things were fairly
crazy,” recalls Swerdlow Group President Brett Dill. “Michael and I were
happy to leave and wish everybody good luck.” Boca Developers no longer
exists.
Along with its other construction loans, Biscayne
Landing secured $233 million in financing in 2007 from Credit Suisse, which
got $163.5 million of that total from a commercial mortgage-backed security
(CMBS) it sold to investors. “In hindsight, it’s easy to say that this
was one of the more egregious examples of the commercial real estate
bubble,” says Spencer Hollerith, an analyst with research firm Trepp, who
has studied the CMBS behind Biscayne Landing. “But given the environment
at the time, it doesn’t seem that extraordinary. What is surprising to me
is that a loan on undeveloped land even made it into a CMBS deal in the
first place.” Credit Suisse declined to comment.
When the credit crisis struck in 2007, mortgage
financing dried up, and many people who had agreed to buy units couldn’t
close. When Boca didn’t make its loan payments, one of its lenders assumed
ownership of Biscayne Landing. A year later, that lender walked away, and
another took over. This year, rather than keeping up payments for taxes,
fees, and maintenance, the lenders ceded control of the property to the
city.
So what happens now? Councilman Galvin says Biscayne
Landing is costing North Miami taxpayers around $100,000 a month to
maintain. In June of last year, Miami-Dade County’s environmental
regulator reminded the city that it must still install wells on the site to
extract and dispose of contaminated groundwater. That and other remediation
could cost more than $20 million. “The best thing that could be done for
North Miami,” says area historian Seth Bramson, who has written books on
the city, “would be to tear down the monstrosity and turn it into
parkland.”
North Miami isn’t giving up. It has put out another
request for proposals for the property, due July 16. Among the builders that
have shown interest is Swerdlow, which is suggesting a combination of hotel,
retail, residential space, and possibly even senior living. “We have such
an extensive history with the site that we think we understand it better
than anyone else,” says Dill.
Gary Poliakoff, an attorney representing Londono and
other condo owners, is doubtful. “No matter the year, no matter the
decade,” he says, “this site never becomes what is promised.”
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