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Corus Bank in Trouble

8/3/09 - Well, things don't look good for Corus Bank and the Montage. I would have had this article up sooner as I follow Corus Bank on a weekly basis, but had to put one of my dogs to sleep this weekend which was pretty harsh.

So, Corus Bankshares suffered a preliminary net loss of $487.3 million in the second quarter that made it “critically undercapitalized." Corus reported. $3.1 billion of its $7.07 billion in assets are "nonperforming," which include loans more than 90 days past due and those not generating any interest income for the bank.

Federal regulators had required Corus Bank to achieve a Tier 1 capital ratio of at least 9 percent by June 18, which it failed to do. The bank sent regulators its plan to raise capital, but regulators rejected that plan in a May 28 letter, Corus Bank reported. The bank on June 27 gave regulators a plan to liquidate the assets of the bank over two-and-a-half years and sell the bank to a third-party investor at the end of that period. However, federal regulators rejected that plan on July 6.

So the rumor is the Feds could seize Corus Bank as soon as August 6. Meanwhile, Corus continues to acquire projects in the form of deed in lieu of forclosure. For example, Aventine Apartments in Florida. Aventine, on 14.2 acres at 1575 S.W. Eighth St., in Boynton Beach, is the second repossessed property held by Corus Bank in South Florida. Corus took back the Tao condominium in Sunrise and has a pending foreclosure action against the developer of the Onyx on the Bay in Miami.

So what does this mean for Corus? Well I'm speculating of course, but this could go a few different ways. First, the one of the rumored private-equity firms circling Corus Bank like Lubus Adler could put out a bid for Corus. If that happens, Corus' residential projects would simply have a new asset holder, whichever buys Corus. If Corus Bank is seized by the feds and goes into conservatorship, then the bank's assets would most likely be sold off to non-banking entities like private equity firms.

OR, the Corus could be seized by the feds, and all assets could be stuck in limbo for a while because they are so toxic no one would want them on their books.

So what does this mean for the Montage? Again, I am just using my prediction powers here. On the surface, and in the short term, I don't feel it will change the Montage's dire situation. Corus, or whoever the new deed holder would be, would still likely have the same goal - fill the building up, somehow. As rentals? MAYBE, but with the building's maintenance costs, rentals don't really pencil over the long term. Maybe an auction of individual units? Possibly, but I doubt it, because Corus' plan to auction off individual units at Tao condos in Miami last year failed miserably. Maybe as timeshares or a resort concept hybrid mixed with condos or rentals? Who knows. All I know is their units are not selling at the prices they are offering.

What does this mean for existing contract holders? I've heard existing contract holders fall into two basic classes; the ones who have wanted out of their contract and bought at the Montage purely as a speculative investment, and then those who truly want to live there but can't afford/can't get the loan in this economy. If someone new takes over the Montage, they just might get their wish and be able to get out of their contracts finally.

We'll see what happens! Thoughts?

Comments:

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Posted by: James Bukowski - 8/3/2009 10:48:50 PM
Turn it into artist lofts.

Posted by: CW - 8/4/2009 12:12:16 PM
What will happened to those that are still under construction. Will the new deed holder continue to fund the construction?

Posted by: doofus - 8/4/2009 7:04:08 PM
As it stands now, the Montage is in a state of suspended animation. Buyers can't get purchase loans (except through Corus) due to the minimal occupancy. Contract holders won't or can't close due to uncertainties about the ongoing viability of the project, the financial health of the HOA, their changed financial situations, or just because they are chickening out on their substantial investments. The death of Corus is a foregone conclusion, but will hopefully be positive for the Montage itself. If the new owners slash prices to where the building is competitive in the current marketplace, it will fill up. If it goes rental, it will rent up at the right price. Just removing the uncertainties may entice some of the more than 100 contract holders who are on the sidelines to close, and get some of the new people who are considering a purchase to move forward. Good luck to the project. No one has ever had a disparaging word on the quality of the build-out or lifestyle available there. It is important to get bodies downtown, and the Montage is ground zero.

Posted by: Bruno - 8/4/2009 8:42:57 PM
The HOA monthly fees are extraordinary. Just look at Florida and you can get a better picture. People lost their units after paying their HOA dues and Mortgage payment. This created the legistation which changed the presale requirements. The State Ombudsman took over the condos. There is no way an owner now can pay the dues when the bank stops subsidizing the fees. The Montage, not the Palladio, is the class of Reno. I am worried we may have a death in the family.

Posted by: Kathy - 8/4/2009 9:49:50 PM
Sorry about your dog.

Posted by: DD - 8/5/2009 9:55:15 PM
As rentals? MAYBE, but with the building's maintenance costs, rentals don't really pencil well over the long term. ------- I believe who ever buys the Montage will quickly start renting out the units. Assume you buy the building in bulk. Each unit costs you $X in monthly costs. Now if you rent it out for $.7X you are in the hole for only $.3X a month. Which would rather do. If Corus/whomever quits funding the monthly maintenance, the current occupants will be in deep shit. Recently there was an article about the one and only family living in a high rise in Florida. See http://www.usatoday.com/money/economy/housing/2009-08-02-lonelycondo_N.htm

Posted by: El Devo - 8/6/2009 7:13:28 AM
Doofus hit the nail on the head. It is ground zero right now to gentrify the downtown core - and a change of ownership will only release the factors that are really keeping it from sale. While the economy is slow to recover, the Reno market is very affordable in comparison with California and other regional options - we just need to weather the storm, and hope that whomever owns The Montage - they give it the time and marketing it deserves. And yes Mike...most importantly...sorry to hear you had to put your dog down. THAT'S tough.

Posted by: PatF - 8/6/2009 8:59:34 AM
Mr. Bruno - strange comment from you.After berating the Montage and it's high homeowner fees you go on to proclain "the Montage, not the Palladio is the class of Reno." I beg to differ. The Palladio has an active and successful homeowners association beginning it's second year of operation. The board of directors is a very knowledgeable group of professionals who work tirelessly on behalf of the residents, The Management group is also responsive to the needs of the association and the residents. Our homeowners dues seemed high at first but as I examined what we get for the .40 per sq. ft. I find it right in line with other well managed properties. What do I get? Add it all up: building insurance, flood insurance, sewer fees, garbage pickup, water (including hot water), pool and common area maintenance, etc. We're building up a fund for replacement of systems as they wear out. All of this and we have a surplus that just might allow us to reduce the fees in the future. With the last push by our realtors only a half dozen or so units along with a few resales remain on the market. Some activity is percolating in the commercial side of the property, a great sign in this economy. I wish Montage the very best and want to see it sold out as quickly as possible. But challenges remain for it in the near future which need to be overcome before it can be truly called the "class of Reno." All in all, a nice property operating with some degree of success might be considered classier than one operating under an economic cloud. If I had some extra jingle I surely would buy the remaining Palladio units at rock bottom prices and consider them good investments.

Posted by: MD - 8/7/2009 8:05:45 AM
What happened to Reno's great savior - Mr. Leal????

Posted by: Walt - 8/7/2009 8:54:56 AM
PatF - I count 16 Palladio units listed on the MLS - that is almost 20% of the units for sale, or nearly 1 in 5.

Posted by: want2buy - 8/9/2009 7:59:47 PM
It would seem the logical end result of the Montage would be that a new buyer - whether through Corus selling it off or the Fed's selling it off - will acquire the project at a price it can sell at. Imagine buying the property at $60 million (33% of costs?) and being able to reduce the prices by 1/2, which would be darn competitive in this market. Then approaching the 100 or so buyers that have their deposit in escrow,and offer to settle their lawsuits by having the deposit applied to the unit. I'd predict this would be the hottest item in town under the above circumstances, and might just jump start further downtown development. Sorry about you dog, Mike. I get where I like dogs more than I like people sometimes.

 

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