Miami Condo developer Jorge Perez said South Florida real estate is undervalued and he's setting up a $1 billion fund to start buying properties

BY MATTHEW HAGGMAN

The condominium developer who led South Florida's high-rise building boom is making a $1 billion bet that the region's real estate market is a bargain.

Amid a slumping Miami condos market, developer Jorge Perez is joining with a Wall Street firm to create an investor fund that will buy troubled mortgages and distressed property that ranges from raw land to finished condominium units in the southeastern United States. He will look at properties built by other developers as well as by his own Miami-based Related Group.

For months, investors have been pooling money and waiting to pounce on bargains prompted by overdevelopment, a tight credit market and overzealous investing in housing. This year is expected to be the time when opportunities arise, in part, because so many condo projects will start closings -- and many jittery buyers are expected to walk away rather than close.

With $1 billion, Perez and his investors will rank among the most well-capitalized funds trolling for deals in the region, said real estate analyst Lew Goodkin, who is advising bargain hunters, though not Perez.

The moves of Perez, the biggest Miami high-rise condo builder in Florida and among the biggest in the country, are closely watched in the industry because he has demonstrated a knack for spotting trends and quickly taking advantage of them. While his projects span from Argentina to Atlanta, he has built -- or is building -- 12 towers in Miami's downtown and Brickell areas and several in Broward County, including Trump Hollywood in Hollywood and ICON Las Olas in Fort Lauderdale.

He said his decision to launch a vulture fund -- or an ''opportunity fund'' as he calls it -- should be interpreted as a sign of confidence in South Florida's condo market, not a reason for worry.

''I strongly believe that Miami real estate is undervalued,'' Perez said. ``Three years from now, people will look back and be amazed. Nevertheless, right now there are some people stuck in the middle of a loan who don't have any cash and need to get rid of some inventory.

''We are going to try and take advantage of that situation,'' Perez said.

He said the money is in place and contract details for the investor fund are being finalized this week. He declined to name his partner until the deal closes.

Perez, chairman and CEO of privately held Related Group, said his plan is premised on the long-term growth and success of the region's real estate market: He's buying when the market dips, using his financial strength to carry him through the downturn, and then riding it back up.

The plan, he said, is to focus primarily on properties in the Southeast, from Atlanta and Jacksonville to Miami, though he said there may be opportunities elsewhere in the country. Big chunks of unsold condos will be targeted.

Perez said the investor group intends to hold units for two to five years at a loss and then sell at a profit when, he bets, the market will have improved.

That means Perez would become a much bigger renter of apartments across the region, at least in the short-term. Perez, who was an apartment developer before building Miami luxury condo units, said his company currently leases and manages 7,000 rental units and could handle renting many more.

The builder said the fund could also buy raw land or mortgages. ''Anything we think has value,'' he said.

Creation of the fund also positions Perez with a ready source of capital to be used in purchasing his own units, if he chooses to do so, Goodkin said.

A big challenge for many builders is what to do with excess property in the down market. Typically, builders want to avoid hasty or high-profile sell-offs that undercut previous buyers or give the appearance of a fire sale. A highly capitalized fund with a joint venture partner can be an inviting alternative.

In November, Lennar, the Miami-based home builder that's among the country's biggest, announced it was joint-venturing with Morgan Stanley to buy, develop and sell real estate. Its first deal: buying Lennar-owned properties valued at $1.3 billion for $525 million.

Perez said he has not decided to use the investor fund to buy units that his company built -- though he said he anticipates as many as 20 percent of his buyers may default on some of his projects. Perez has a host of large condo projects that will close in the next 12 months, including Brickell Avenue projects in Miami such as The Plaza and 500 Brickell.

The developer said he plans to rent unsold units in those projects himself, without the investor fund.

Still, ''the fund'' gives him a lot of flexibility in addressing inventory issues that he may have, as well as picking up distressed properties on the cheap,'' Goodkin said.

Since the downturn, Perez has responded by launching more than 10 projects in Latin America in an attempt to diversify geographically. He also has been careful about starting new projects in South Florida; he recently canceled the proposed Loft 4 condo high-rise in downtown Miami and is still deciding whether to build another downtown project, Loft 3.