Florida Real Estate No Longer a Sure Bet For Investors

It was a simple pitch.

Or at least it seemed like one.

Investors would put little to no money down to take out construction loans that a real estate developer would use to build modest homes in a fast-growing sector of the West Florida housing market.

When finished, homes would be flipped for tidy profits of $30,000-40,000 apiece.

Too simple, perhaps.

Nearly two years since the developer started marketing the investment plan nationwide, work on the homes has come to a halt, leaving 482 investors with half-built houses and thousands of dollars in construction liens.

Coast Financial Holdings, which owns the bank that made many of the Florida home loans, has disclosed that $110 million, or 20 percent of its portfolio, could be in danger. Its shares have fallen 46.5 percent this year, and banking regulators are investigating.

“It was strictly a passive investment,” said Paul Matera, a retired contractor from West Islip, N.Y., who signed up for two houses and introduced dozens of others to the plan.

“You didn’t pick out the model of the house. You didn’t pick out the exact location. Everybody signed papers without reading what they were signing.”

During the boom that ended in 2005, tons and tons of money poured into Florida real estate from investors ranging from the ultra-rich to middle-class people such as like doctors, teachers and mid-level managers. Florida was one of the biggest recipients of this type of investment wave because housing in the Sunshine State often deemed a sure bet.

Like the day traders who drove up Internet stocks in the late 1990s, these scores of investors, aided by cheap Florida mortgage loan costs, helped drive a Florida housing market boom over the edge.

“It was a groundswell,” said Jerry Manning of J.J. Manning Auctioneers, a company which markets and sells homes in the Northeast and in South Florida. “Everybody thought that they were going to be a real estate mogul.”

Last year, however, a number of such plans started failing, causing pain to investors, builders and Florida mortgage lenders. Beyond their inherently speculative nature, many of the investments were never fully investigated and were poorly monitored.

Now some lenders and investors are starting to wake up to a harsh day-after reality.

“You will have a market correction, and the correction will make regional homeowners unhappy as Florida home prices fall,” said John Lonski, the chief economist at Moody’s Investors Service. “Regional mortgage bankers will find their livelihoods threatened.”

So far, the slumping market has not claimed a major casualty in Florida, though lenders to people with weak credit have started shutting down and regional home builders in formerly hot markets are hurting.

Transeastern Homes, which builds homes in Florida, is in settlement talks with lenders who contend it is in default on its debt totaling hundreds of millions of dollars.

WCI Communities, which builds condominiums in Florida and in other areas, recently hired Goldman Sachs to advise it on strategic options, including a possible sale of the company.

“We’re going to see much bigger builders and much bigger lenders facing bankruptcy because so much of the building has been on a speculative basis,” said Jack McCabe, a real estate consultant in Deerfield Beach.

Many borrowers where steered toward home loans that started out as construction debt and convert into traditional mortgages when the house is built.

“I’ve got my father stuck, my brother stuck, an ex-wife stuck,” said Carl Cirinelli, a partner at Seashore who previously lived in New Jersey.

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