“In 2007,” the Wall Street Journal reports today, “Credit Suisse Group sold $163.5 million in mortgage-backed securities backed by a virtually empty former Superfund site in North Miami, Fla. Investors didn't even blink at the $475 million appraisal of the property's value.”
The roughly 200-acre site, leased from the City of North Miami, was to be developed and marketed as “Biscayne Landing,” complete with thousands of condos, lofts and apartments. Fully built out, the development would supposedly have a value of $3 billion, according to its website.
Biscayne Landing has a certain ring to it – it sounds like the setting of a Dashiell Hammett detective story.
Romantic name aside, as reported in the Biscayne Times, the property is located on “on a site that was a toxic dump in the 1980s and is adjacent to [a] sewage treatment plant.” Assuming that’s true, it sounds like the sort of place where you have to pay people to live. Or turn into a giant parking lot.
If you are beginning to get the feeling that the site’s $475 million appraised value was wildly optimistic, keep reading.
Continues the Journal: “The project won a $233 million loan in 2007 from Credit Suisse. Of that amount, $163.5 million was sold as commercial mortgage-backed securities. Credit Suisse sold $35 million of the debt to New York Life Insurance Co. and held the rest.”
And now, in March 2011 – how do things stand?
Well, let’s quickly summarize some additional background. The original developer sold the project to another developer. That second developer defaulted on $200 million worth of mortgages.
The banks that seized control of the project following the default are behind on payments owed to the City of North Miami. The municipal government (which still owns the land) is therefore moving to seize the property and terminate the lease.
According to the Journal: “Negotiations [with the city] are ongoing, with the servicer overseeing the [$233 million] loan hoping to sell it to the city for $6.5 million.”
Ouch - a haircut like that on the original value of the loan has to hurt.
Just as with any entertaining story, there’s a twist – the original developer is making noises about getting involved in the project again, according to the South Florida Business Journal. (Somewhere, Dashiell Hammett is smiling at this 11th hour drama.)
The collapse of Biscayne Landing has brought disappointment to many people - not only the disappointed parents who dreamed of moving their families to Biscayne Landing, and enrolling their children in the schools that were supposed to be built to serve the new community.
As the Journal notes, the investors who held the $163.5 million in commercial mortgage-backed securities mentioned above must be livid about the project going belly-up. Biscayne Landing is set to “second-biggest flop ever among such securities. Holders of the bonds likely will see little or no principal returned from the deal.”
Just a few days ago, Phil Angelides of the Financial Crisis Inquiry Commission said that “I think there’s a sense in the country that in the wake of this massive breakdown [i.e., in lending standards leading up to the 2008 recession]… people expect an aggressive effort [to determine who is at fault] and they haven’t seen it.”
This is true in North Miami, where the Biscayne Landing debacle is being studied like an unavoidable act of divine will, rather than the consequence of human action (or inaction).
Where is Hammett’s Sam Spade when you need him, to provide the “aggressive effort” required to find out how a $233 million loan can become worth just $6.5 million?