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Wyoming Governor Declares State of Emergency Due to Flooding, Severe Weather

The Wyoming National Guard has activated two rapid action teams to assist with ice jams in Worland. Each team consists of 20 soldiers. Several Worland homes have been evacuated due to rising water in the Big Horn River. The executive order remains in ...

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Originally published June 12, 2010 at 10:01 PM | Page modified June 12, 2010 at 10:22 PM Comments (0)     E-mail article      Print      Share Barry Sternlicht, the real estate bargain hunter Barry Sternlicht has been one of the downturn's busiest buyersIn the last year and a half, his private equity firm, Starwood Capital, has raised more than $3 billionHe has bought land in Florida and ski lodges in ColoradoHe created a real-estate finance company, Starwood Property Trust, which he took public last August in a successful initial public offering. By DEVIN LEONARD The New York Times Related MIAMI — The Paramount Bay condominium is a 47-story steel-and-glass cadaverConceived at the height of the real-estate boom as another ultraluxury tower in a city that would soon be choking on them, it looms unfinished and unoccupied on Biscayne Bay. The lobby is like a mortuaryThere are no chandeliers on the three-story ceiling, no paintings on the walls, no one at the front desk to greet visitorsThe only sound is the eerie gurgle of a 40-foot waterfall. None of this deters Barry Sternlicht, the investor who owns the building"The bones," he says, gesturing around the room"The bones are extraordinary!" Sternlicht plans to transform Paramount Bay into a haven for wealthy buyers who will one day want to live hereBut he concedes the entrance needs work. "This looks like an abandoned property," he says"We have to make it look like it's alive." The pool area lacks something, too"It needs a concept," Sternlicht says, wrinkling his browHe's not yet sure what that will beBut he knows this much: The bamboo trees adorning the entrance have to go"We should put some wisteria or some vines over there," he says. Then it's up to one of the top floors to admire the sweeping views from an empty unit"Look at this," he says, pointing out the landmarks in the distance: South Beach, Key Biscayne and the downtown Miami skyline"Someone is going to want to live here, someday." Perhaps such brio is a prerequisite for an investor wading into the worst real-estate wipeout in generationsIndeed, Sternlicht, 49, has been one of the downturn's busiest buyers. In the last year and a half, his private equity firm, Starwood Capital, has raised more than $3 billionHe has bought land in Florida and ski lodges in ColoradoHe created a real-estate finance company, Starwood Property Trust, which he took public last August in a successful initial public offering. And last month, he ended an aggressive but unsuccessful run at Extended Stay Hotels, which was being auctioned off in bankruptcy court. But his highest-profile deal has been the acquisition of the $4.5 billion real-estate loan portfolio of Corus Bankshares, the nation's largest condominium-construction lender until it failed last September because it had financed too many projects like Paramount Bay. The following month, Sternlicht and a group of investors — including TPG Capital, WLR LeFrak and Perry Capital — won the loans in a Federal Deposit Insurance Corpauction, paying $554 million for 40 percent of the package, valuing the debt at 60 cents on the dollarThe FDIC holds the remaining 60 percent. Sternlicht hopes to foreclose on many of Corus' errant borrowers, restyle their buildings and sell units for a significant profit once the market recoversHe says his group can afford to wait because the FDIC has provided it with $1.4 billion in zero-coupon financing and an additional $1 billion in low-cost loans to complete unfinished projects. There's an upside for the FDIC too, Sternlicht says: It will recover the full value of the Corus portfolio by working with him"They are going to make a couple of billion," he says"If they sold it outright, they would have lost money." If all goes as planned, Sternlicht says, he and his investors are positioned to do rather well themselves. Some are skepticalWhile real-estate prices are no longer in free fall, a recovery still looks far awayCondo prices have plummeted since the 2006 peak, according to the National Association of Realtors — 43 percent in Miami and 55 percent in Las VegasIn Los Angeles, they are off by 44 percent from their high three years ago. Then there's that $554 million price the Sternlicht group ponied up to snare its portion of the Corus portfolio — it was 20 percent higher than its two closest competitors. "Everybody in the industry thinks Sternlicht overpaid," says Peter Zalewski, founder of Condo Vultures, a real-estate brokerage and consulting firm in Bal Harbour, Fla. Nothing bothers Sternlicht more than the suggestion that he overpaid"If I had to bid for it again, I'd pay more today," he says. But Linus Wilson, a finance professor at the University of Louisiana, Lafayette, who has studied the FDIC's real-estate sales, says he thinks the price will hobble Sternlicht's returns. Wilson points out that 59 percent of the loans on Corus' books were no longer performing before the bank failed in September, meaning they were generating virtually no incomeCorus described an additional $558 million in the portfolio as "problem loans" that were near default. Wilson argues that if Sternlicht doesn't sell condos right away, he may have trouble making his first loan payment of $150 million that comes due in October 2011"It is far from guaranteed that he and his investors will make money on this transaction," Wilson says. And before Sternlicht can even change the lobby furniture and the landscaping at many of these Corus-financed projects, his investor group has to prevail in a slew of foreclosure proceedings against developers who have defaulted on their loans. Some of these exhausted borrowers are handing over the keys peacefullyOthers are fighting back and asking a politically charged question: Why is the federal government offering low-interest financing to Sternlicht and his private equity partners when it could be helping struggling condo builders finish their projects, keeping hundreds of people employed? Sonny Astani, developer of one such project, the Concerto in Los Angeles, says the government should support him rather than backing Sternlicht. "I think Sternlicht is going to wind up flipping all this stuff in a year," Astani predicts"There are going to be huge lawsuits and bad publicityHis investors are going to get sick of it." Tanned, fit, seeing things You might not expect to find Barry Sternlicht selling condos in Miami in a recessionHe is best known for creating Starwood Hotels & Resorts Worldwide, a major hotelier he built into a public company with $6 billion in annual revenue and brand names like Sheraton and Westin. He conjured up the Westin's signature Heavenly Bed and the W Hotel chain, which introduced hip, boutique inns to the masses. In the real-estate recession in the early 1990s, Sternlicht laid the groundwork for his hotel empire by snapping up distressed propertiesNow Sternlicht, who left Starwood in 2005 after a dispute with the board of directors, is making a similar play with distressed condos in overbuilt cities like Miami, Las Vegas and Los Angeles. Tanned, fit and sitting on the couch of his office in Greenwich, Conn., he apologizes for his head cold then starts a spirited defense of the Corus dealThe way he sees it, he and his partners are going to be the dominant players in all the cities where Corus poured its money. "We are going to be like the Saudis in all these markets," he says"We have the lowest cost of production and all the oilThere's nothing else new under constructionIn three years, when all the debris, all the clutter is done, we'll be the guysWe will have price control." The key, he says, is the cheap FDIC financing"That's the beauty of this investment," he says"I can afford to waitIf I had high-ticker, 10 percent financing, which would probably be the market rate, I would have to dump stuffThe interest payments would be killing me." Sternlicht says he is simply doing today what he did during the last real-estate recession: amassing inexpensive property and finding ways to make it more desirable. "Barry likes to buy real estate by the pound and then find the value in it," says Robert Wennett, a Miami Beach developer who worked with him in the 1990s. Doing deals record A Harvard Business School graduate, Sternlicht spent the 1980s learning his trade at JMB Realty in ChicagoHe was let go after the real-estate market collapsed in 1989. So he ventured out on his own, raising $20 million from the wealthy Ziff and Burden families of New York and buying loans from the Resolution Trust Corp, which the federal government had created to mop up the real-estate mess left from the savings-and-loan debacle. He journeyed to auctions and bid against guys in pickups to buy the notes on apartment complexes at rock-bottom prices. He says one complex came with a llama farm and turned out to be a pretty good investmentThe llama farmer, Sternlicht says, flew to Chicago to pay off a $1 million loan before Sternlicht could foreclose on it. He also invested in hotelsIn 1994, he bought the discounted debt on a publicly traded hotel company, Hotel Investors Trust, and used it to buy Westin HotelsThen, in 1996, Sternlicht surprised Wall Street when he outmaneuvered the Hilton Hotel chain and bought ITT Sheraton for $14 billion. "He was absolutely a minnow compared to Hilton," says Thomas Flexner, Citigroup's global head of real estate, who advised Sternlicht on this deal and many others. The new hotel king became known for his obsession with detailsHe says the "one time" he totally lost it was when he arrived at the W Hotel on Lake Shore Drive in Chicago and discovered the foliage at the front door was dead. "I actually went over to the Smith & Hawken store and bought furniture and plants for them," he says"I didn't want to wait 18 months." "Barry doesn't delegate," Flexner says. Sternlicht's tenure as the hotel company's CEO would end badlyHis friends say he wanted to relinquish his managerial duties and do dealsHe recruited his successor, Steven Heyer, only to become disillusioned with him. The board didn't agreeSo, Sternlicht resigned in 2005Heyer left two years later. Sternlicht returned to Starwood Capital, his original investment vehicle, to do dealsBut his timing couldn't have been worseHe raised a lot of money but couldn't seem to find his wayHe tried to start an eco-friendly hotel chain called the 1, but nothing developed. He chased hotels and office buildings, but says he couldn't bring himself to be the high bidder paying top dollar in such a frothy market"I'm a distressed-real-estate guy," he explains"I could make no sense of what was going on." Corus condos Sternlicht says he was relieved when the real-estate bubble burstHe had a ready stockpile of cash and a target in mind: Corus. Once a plodding Chicago lender, Corus went into overdrive after Robert JGlickman became its chief executive in 1984It offered certificates of deposit with above-market interest rates to buyers on the Internet and lent the money that gushed in to developers. By 2006, Corus was the nation's foremost condo-construction lender, says Matthew Anderson, a managing director of Foresight Analytics, a real-estate consulting firm. When the market fell apart, busted loans piled up on the bank's books"If you were in the real-estate business, you know that this bank was going to fail," Sternlicht says"It was just running out of time." (Glickman declined to be interviewed.) In March 2009, Sternlicht started forming a plan to buy the bankSix months later, the government shut Corus and announced it would sell its real-estate loans in an auction, keeping a large part of the equity and offering potential buyers cheap financing. "The reason why we do it is to allow the FDIC to capture the asset-management efficiencies and expertise that a sophisticated player in the market can bring to the table," says James Wigand, a senior official with the regulator"It also allows us to participate in the recovery." Analysts say that structuring the deal that way was a smart move for the FDIC. "Over all, I'd say it was a home run for Sheila Bair," says Chris Whalen, editor of Institutional Risk Analyst, referring to the FDIC chairwoman"You have to remember how bad the markets were back thenShe was trying to jump-start the resolution process." Sternlicht also he is having fewer problems than he expected with foreclosuresRather than litigate, some developers with projects in default are handing over buildings and have agreed to stick around and help the new owners manage them and sell condos. One of them is Key International, which developed the Mint condominiums in Miami with Corus money. "It was a close call," Key Vice President Inigo Ardid says wearily"I just decided it would be better to do a workout than have a fight and waste a lot of energy." E-mail article      Print      Share var ST_permalink=""; if (! 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