Miami Real Estate Company Failure Seen as Foreshadowing
Since the South Florida real estate party ended, the hangover has taken different forms - sales plunging, foreclosures rising, lawsuits flying.
Now, a Hialeah condo conversion company has gone bankrupt in one of the biggest bankruptcy cases yet to arise from a sour South Florida housing market.
Puig, a private condo conversion company in Hialeah, is seeking protection from creditors who claim they were stiffed for nearly $120 million.
Founder Juan Puig relinquished operations to corporate turnaround specialist Ron Glass in April, and lawyers are set to return to U.S. Bankruptcy Court in Miami.
The case may be one of many more to come - or so think the law and accounting firms that have launched or beefed up distressed property divisions for months.
The Urban Land Institute and Miami law firm Bilzin Sumberg each recently hosted panel discussions on what to do when a project goes wrong. And the Coral Gables law firm Kozyak Tropin even hosted a “Distressed Property” happy hour last week, not unlike the pink slip parties in Silicon Valley after the tech bust.
“Unfortunately, I think the ball is just beginning to roll,” said Bowman Brown, a veteran attorney at Shutts & Bowen in Miami. “This is probably not going to be the only major bankruptcy in this area.”
Puig offers the lesson of how a seemingly good strategy was upended by wild expansion, cut corners and shoddy accounting practices that ultimately cost the company when the Florida housing market turned cold.
Juan Puig could not be reached for comment.
Jerry Markowitz, Puig’s lawyer, declined comment.
Puig’s business was buying apartments and converting them into condos. The practice became big in the housing boom, as investors and speculators sought to buy whatever they could to flip for fat profits.
Between 2004-2006, right as Florida mortgage activity began to wane, the company’s personnel grew from eight to more than 600.
Puig aggressively expanded its operations as well, moving into Fort Myers, Tampa, Orlando and Tallahassee.
All told, the company converted and sold some 19 projects with 1,400 units. Meanwhile, another 2,900 units were in the works, including 980 that had been converted and another 1,920 still operated as rentals.
The company’s purchases also included a waterfront home on Miami Beach’s Di Lido Island in Biscayne Bay.
The business appeared poised for further success because it largely focused on lower-priced condos, a market that should find buyers in good times or bad.
Indeed, the company was profitable enough that in 2005 Puig paid $7.3 million for a five-bedroom home on Arvida Parkway in exclusive Gables Estates, according to court records.
Yet even basic accounting practices were scarce, according to Glass.
“By way of example, there were no records maintained for activity prior to 2006,” the restructuring specialist wrote in a court filing.
“Further, the 2006 and 2007 books and records comingled transactions between [Puig’s] various corporate entities.”
In the rush to turn apartments into condos, Puig also failed to obtain appropriate building permits, court papers say.
He did not always get permits for the work his personnel did on everything from installing appliances to remodeling bathrooms, so certain units sold may not be in compliance with local building codes.
By 2006, the Florida mortgage loan boom was fizzling fast.
Yet the company had taken out big loans to buy even more new apartments for conversions. It became harder and harder to make a sale - and harder to make Florida home loan payments to lenders, including both traditional banks and individual investors.
By April, Glass was hired as chief restructuring officer.
In late May the company entered bankruptcy, seeking to end bloodletting. South Florida bankruptcy law firm Berger Singerman is representing Puig, Inc., in court. U.S Bankruptcy Judge Robert A. Mark is presiding.
Creditors left out in the cold range from Ocean Bank in Miami and Compass Bank in Jacksonville to Big Idea Investments Limited in Hong Kong and PH Property Fund in Grand Cayman.
“In the Florida real estate business, everything can’t keep going up and up and up,” said Allen Greenwald, a Miami developer and real estate investor who is among the creditors owed money by Puig. “But the market turned so fast. Unfortunately, this was a very fast and severe downturn.’
Now, Glass must unload the units Puig could not sell to pay creditors like Greenwald back. He has to sell about 2,000 condominium units at a price low enough to entice buyers, yet high enough to pay creditors back.
How much creditors get will depend on how Glass does in a dodgy housing market that Puig failed to navigate.
“The market is flush with capital in the form of investors, if not individual home buyers,” Glass said. “It’s not going to be easy… but I plan to move quickly. I would hope we’re done within six months.”
SOURCE: Miami Herald
