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Holding a portfolio of nearly 30 luxury condos, even ones on Siesta Key in Sarasota, would seemingly be quite the pickle, considering the shakiness of the real estate market.
But for New York-based NorthStar Realty Finance Corp., which owns the portfolio, the pickle is a pleasant opportunity. A real estate investment trust, NorthStar picked up the condos, The Residences on Siesta Key Beach, in a mortgage take-back deal announced early this year. The note in the deed in lieu transaction was worth about $40 million, says NorthStar executive Dan Raffe.
“The owner owed us a bunch of money,” says Raffe, “and wasn't able to pay.”
NorthStar, says Raffe, will spend millions of dollars to rebrand, re-market and re-introduce The Residences on Siesta Key Beach. The sales effort is off to a fast start so far. Four condos sales have already closed. “That just shows the sort of demand,” says Raffe. “We are very hardened by that.”
The previous owner of the complex was Brent Virkus, a developer with offices in Sarasota and Michigan. A high-powered group backed Virkus and his firm, the Triton Cos., in the $100 million project. The list at one point included the Carlyle Group, a Washington, D.C.-based private equity firm. Virkus didn't return calls seeking comment.
Originally called Hyatt Siesta Key Beach, the project was built on the former Sea Castle motel site. The six-story building opened in 2009, with 44 units total. Sizes range from 1,700 square feet to 2,600 square feet. High-end interior design and appliances fill each unit, with names like Sub-Zero, Viking and Wolf.
The initial plan was to sell condos under fractional ownership shares. Prices, based on three-week or six-week stay agreements, ran from $140,000 to $750,000. The previous owners sold 11 condos under fractional ownership. But the housing bust quickly curtailed any momentum, and sales stalled.
That left 33 units when NorthStar took over, a tally now down to 29.
NorthStar has made several alterations to the project. It changed the name, slightly, from Hyatt Siesta Key Beach to The Residences on Siesta Key Beach, for one.
More significantly, NorthStar, a publicly traded REIT with $130 million in 2010 revenues, shifted the sales approach. Instead of fractional ownership, it now sells condos on a whole ownership basis. Units are priced from $785,000 to a little more than $2 million.
One reason NorthStar went whole condo is the rarity of new construction on Siesta Key. Indeed, a large chunk of condos on the Key were built from 1970 to 1985, says Rudy Dudon III, a Realtor with Sarasota-based Michael Saunders & Co. Dudon has several clients interested in buying a unit at The Residences.
“You are getting new construction,” says Dudon, “and there's nothing else out there that's new.”
Furthermore, Raffe says selling fractional ownership shares could be 350 separate deals — a daunting task. “Even though it's less expensive,” says Raffe, “that's still a lot of transactions.”
Raffe says NorthStar considered selling the entire portfolio in bulk. But the firm ultimately decided it could get the most money per unit if it sold each one individually.
“It's not like Miami Beach, where there is just one (condo) after another,” Raffe says. “This is onto itself.”
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