(Part 5) Jorge Perez was Miami’s homegrown billionaire developer and a prominent Democratic campaign contributor. What he is now, is thanks to forgiving banks who may have decided-- as governments decided in turn for them-- that Perez was too big to fail.In a 2009 New York Times report, Perez, a founder and chairman of The Related Group, acknowledged that “greed was one of the reasons for the collapse” of the condo market. “Mr. Perez said he was motivated by more than profit. “As developers, we were driven by legacy,” he said. “People ask me, would I do it again? The answer is yes. We are creating a city.” (NY Times, March 11, 2009) But what kind of city?
Miami is the Detroit of the South. Its only industry is land speculation. That is to say, Miami is as dependent on speculators as Detroit, on automobile executives. The city that Mr. Perez held forth is very nearly bankrupt as a consequence of the massive overdevelopment and cratered market for housing. While news focuses on the bitter dispute between the mayor over staffing and funding levels of the police department, the real source of the budget crisis is the failure of elected officials who allowed zoning changes and building approvals committing taxpayers to unsustainable levels of municipal expense during the boom years.
Jorge Perez is right: greed substantially contributed to the collapse of Miami's real estate markets. What he understands better than most readers is that covering up culpability and blame is everyone's business who has skin in the game. Shortly after his inauguration in 2010, Mayor Tomas Regalado said that the unfortunate budget shortfall was in the range of $20 million. Only weeks later, he revised the number to $40 million. To balance its 2009 budget, the city borrowed $54 million from its rainy day fund. Bond rating agencies, that misplaced risk to trillions of fraudulent mortgage backed securities, turned toward Miami's budget problems like tortoises in slow motion. In April 2010, Moody’s revised Miami’s outlook to negative from stable for more than $225 million in general obligation bonds. The SEC is in the midst of an investigation of Miami's finances.
Jorge Perez could do no wrong, to the majority of Miami elected officials who approved changes to accommodate zoning for Perez' whale-sized developments. Those changes included drastically limiting future public access to the Miami River at one of his sites. No project—including a plan to build a condominium tower with prices starting at $10 million against widespread community opposition in Coconut Grove--would be denied. Everything would be approved.The Christmas 2004 edition of the now defunct Sunpost heralded the Related Group with its awed fixative: “It (Related Group) is a real estate development company that seeks to redefine South Florida's skyline with projects all over Miami, Miami Beach, Aventura, Hallandale Beach, West Palm Beach and other municipalities in the tri-county area.”
Perez planned to conquer Las Vegas like a character in Oceans 11. In January 2006, he unfurled Las Ramblas, an over-the-top $3 billion project teaming George Clooney with a full casino, spa, hotel and related retail. By June, his Vegas marriage with Hollywood stars imploded. ("Clooney and Pitt close down Las Rambles, San Francisco Chronicle, June 6, 2006)
"Pérez is scrambling to survive one of the most turbulent moments in Florida real estate history. His company, The Related Group, has lost more than $1 billion in the last year and confronts nearly $2 billion in debt. The ICON, responsible for much of that debt, sits largely empty as those who made 20 percent preconstruction deposits either flee or find themselves unable to get a mortgage. Last month, Pérez met with dozens of bankers at the Hilton hotel in downtown Miami, asking for more time to pay off the debt, mostly due this year. As he waits for the bankers to decide, Pérez's landmark project hangs in the balance. The ''total meltdown that we are seeing today,'' Pérez said, is far worse than he ever imagined. "In order for us to succeed, we need help from our lenders.'' It's a new and scary time for Miami's Condo King. But betting bigand sometimes losing bighas always been part of the craps game that is South Florida real estate." (Miami Herald, Feb 28, 2009)
Only a few months earlier, Perez had been singing a different tune. "An interview with Related Group CEO Jorge Perez appears on a website geared toward readers in Argentina. When asked about buyer activity, Perez says "Buyers are coming back into the market, because we're arriving at the bottom." And when asked where the best deals are, he tells his countrymen, "I think it's the best time to buy an apartment especially in the Brickell area, the financial center of Miami." (The Housing Blog, October 27, 2008)
By the end of 2009, a group of lenders led by HSBC and Bank of America were manoevering to take over Perez' Miami empire. (Wall Street Journal, Dec 17, 2009) Dozens of bankers crammed a conference room. Perez appears to have dealt with the nervous bankers who invested too much with him by having them double down with him.
"Here's the current philosophy: We can't pay our own bills. But hey, let's buy more stuff and hope for the best!" described Perez' efforts to double down in the midst of staving off bankruptcy. Call it seeking shelter in the "too big to fail" category of speculation. ("Will Bulk Sales Stabilize Miami's Luxury Condo Market?", World Property Channel, August 31, 2009) "Corus Bank lent money to at least 16 projects in South Florida, including the nearly empty Tao Sawgrass in Sunrise and Trump International Hotel & Tower in Fort Lauderdale. Now that Corus is on the brink of failure, vultures such as Related are hovering. "If the deal goes through, the Related Group (which has strong ties to Related Companies) will finish building Corus' condo projects in South Florida. "This would be quite a feat, considering that Related is already struggling to fill its own Florida condo buildings -- Icon Brickell in Miami is mostly empty, and CityPlace South Tower in West Palm Beach is in foreclosure. "Indeed, Related's building frenzy played a big role in creating the glut on the condo market that led to the current crisis. How can it possibly tackle the albatrosses left behind by Corus? Isn't that a little like Philip Morris selling nicotine patches?"
Ultimately, Perez failed in his efforts to acquire Corus while Related was, itself, on the verge of collapse ("Starwood -led Group Pays $554 million for Corus Bank Assets", Oct 6, 2009, Marketwatch) Investigative journalists have yet to report how or why banks kept Perez in the real estate game when it cleared the Related Group assets off the table.
Perez recently claimed in the Miami Herald that 2/3rds of his net worth was wiped out by the real estate crash. He nevertheless agreed to donate $35 million, $20 million in cash and $15 million in art, to the Miami Art Museum that now bears his name. Eye On Miami pointed out that $20 million could be about the value of Perez’ take from his interest in debt on the downtown Omni complex that his partnership purchased and held for only six months, before it was bought outright by an Indonesian billionaire as part of the plan to incorporate adjacent Miami Herald property for “the world’s largest casino”. The timing and purchase of the Omni debt could not have been luck, any more than it is the bad luck of the Miami Police Union to be forced to pay the price of budget shortfalls.
It is difficult to believe that Perez wasn’t one of the insiders who knew about the casino development that seemingly sprung to life from thin air. The pure speculation of the housing boom transformed the Miami skyline and suburbs and simultaneously committed taxpayers to billions of dollars of infrastructure deficits. Like any surfer knows, if you don't know how to ride a wave you can get drowned by it. Jorge Perez knows location and timing. Taxpayers are just swept along by the storm. ... to be continued
See the 9th day of Christmas.
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