Condo King Corus Weighs Its Options

By JONATHAN KARP The bank that funded a big part of the condominium boom is considering selling all or part of itself as rising defaults force it to seek capital. Corus Bankshares Inc., a symbol of the exuberance for glass-and-steel condo towers from Miami to Los Angeles, reported a $260.7 million quarterly loss late Friday and said that more than one-third of its $4.1 billion in outstanding loans were nonperforming. Amid what it called a "precipitous decline" in property values, the Chicago lender also warned that banking regulators may soon strip Corus of its standing as a well-capitalized bank and impose higher cash requirements. Mike Dulberg, Corus's chief financial officer, said in an interview Tuesday that management is exploring options, including selling the bank or finding a strategic investor. "We are working with investment bankers and searching for capital, but it's a very tough market," he said. Mr. Dulberg said Corus still has $758 million in capital and nearly $4 billion in liquid assets that can be tapped to "meet the demands of borrowers and depositors." The vast majority of its $7.6 billion in consumer deposits is federally insured. Corus is one of the few lenders to report that the Treasury Department intends to reject the bank's application for funds from the Troubled Asset Relief Program, or TARP. Some analysts don't believe the bank can raise the capital necessary to survive. "The company is in dire straits," said Daniel Cardenas, senior vice president at Chicago brokerage Howe Barnes Hoefer & Arnett Inc. "Barring a surprise injection of private capital and/or a dramatic rebound in condo values, Corus appears unlikely to survive 2009." Mr. Cardenas on Monday reduced his 12-month target price for the stock to zero. In the two trading days since it reported its quarterly results, Corus has shed 63% of its value. Tuesday, Corus's shares fell 30%, or 18 cents, to 41 cents, in 4 p.m. composite trading on the Nasdaq Stock Market. Corus's market capitalization has withered to some $22 million, limiting its financing options. Condos are one of the hardest-hit segments of the housing market. Many of them were bought by speculators who walked away from deposits when the market soured and never closed on their units, leaving developers with empty condos. Also, much of the new condo development is located in second-home markets, such as Florida, where prices have crashed and foreclosures have risen. There was a glut of 588,210 condo and cooperative apartments on the market in December, close to a 15-month supply, according to the National Association of Realtors. While it has been clear for months that thousands of condo projects were doomed, the full impact on financial institutions is only now being felt. Construction loans were structured with "interest reserves," provisions that gave developers funds to pay interest until the projects were complete. Now that projects are completed and failing to sell, the loans are going into default. Banks and thrifts had $36 billion of condominium debt on their books as of the end of the fourth quarter, according to Foresight Analytics. Over the past year, the delinquency rate rose to 26% from 10%, estimates the Oakland, Calif., research firm. Conditions are likely to get worse before they get better because many cities still are getting hit by a deluge of new supply. In Chicago, 5,570 units are scheduled to be delivered this year, up from 4,018 in 2008, according to Reis Inc., a real-estate market-data firm. Deliveries are expected to increase in 16 other markets as well, including New York City, Phoenix, San Diego and Seattle, Reis said. With $8.4 billion in assets as of Dec. 31, Corus ranks as one of the biggest banks to flirt with failure this recession. The bank has been in regulators' cross hairs for months because its once-diversified lending unit, Corus Bank, bet almost exclusively on condos during the housing boom. More than four-fifths of Corus's loans are concentrated in construction and development projects, mostly condo buildings in speculative markets such as South Florida and Nevada and overbuilt cities such as Atlanta and Phoenix. The strategy reaped often-huge profits, but in the second quarter of 2008 Corus reported the first loss in its 50-year history. As condos failed to sell and developers defaulted, Corus last year suspended new condo loans and later halted all commercial lending, among other steps, to preserve cash. President and Chief Executive Robert Glickman, scion of the Minneapolis family that founded the bank, had maintained that Corus could weather the storm. In the latest financial results, the company conceded that the "housing calamity is worse than even the 'severe downturn' for which we had planned." Treasury officials have said that a bank's viability is a prime consideration in determining whether to grant TARP funds, but the denial of a request can depend on other factors. One red flag for regulators is a concentration in commercial real-estate loans, such as Corus has. Yet the move to establish a bank for toxic debt and other measures in the pending stimulus bill could offer relief for Corus. Corus offers the starkest case study of the condo frenzy. In Sunrise, Fla., west of Fort Lauderdale, Corus lent $126 million for two 26-story buildings with 396 luxury condos. The Tao Sawgrass complex stands empty, and Corus has repossessed the property. Corus also took over -- and then sought bankruptcy protection for -- a 765-condo complex in Panama City, Fla., where only 65 units had been sold. Mr. Dulberg, the Corus CFO, said the company's strategy for troubled projects is to reduce condo prices and provide consumer mortgages in order to stimulate sales. "Our focus is to move those units," he said, adding that the traditional spring buying season will measure the plan's success. Corus has about $2 billion in unfunded construction commitments and that in the event of a federal takeover, regulators wouldn't be obligated to fund these commitments. —Matthias Rieker and Peter Grant contributed to this article. Write to Jonathan Karp at jonathan.karp@wsj.com