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Real estate firm eyes $1B investment in Florida

Strategic Real Estate Advisors, the asset manager that invested in London's Heron Tower development, plans to raise $1 billion to buy luxury homes in Florida that were repossessed by banks.

The Florida Prime Residential Opportunity Fund will purchase oceanfront condominiums and undeveloped land approved for housing, CEO Pierre Rolin said.

Rich individuals and sovereign wealth funds based in the Middle East and Europe will provide most of the money. The fund plans to buy with all cash and wait seven to 10 years to sell, Rolin said.

"If they have that kind of time horizon, that will present them with better opportunities," said Jack McCabe, CEO of Deerfield Beach-based McCabe Research & Consulting. "In a market like Miami, there's a lot of inventory to clear and the litigation surrounding foreclosures will draw things out for years," said McCabe, whose company advises investors on real estate.

Florida is one of three states with the highest foreclosure filings in the United States. A building boom and the collapse of the mortgage market created the biggest glut of condominiums in Miami-Dade County in at least 30 years. Prices for single-family homes in the Miami metropolitan area quadrupled in the 20 years through 2006. Since then, they've fallen 26 percent, the S&P/Case-Shiller Index shows.

Locations such as Key Biscayne, Miami's South Beach and Brickell Avenue districts, nearby Star and Hibiscus Island, and Palm Beach will be the main target areas for the new fund, though Rolin said he may consider properties in Orlando and Tampa.

Stratreal, as the London-based company is known, aims to pay about $400 a square foot for the homes, Rolin said in an interview last week.

"We're in no rush," Rolin said. He estimated that average prices of luxury homes are about $500 a square foot, down from a peak of more than $1,000 for some developments, and will fall further.

The fund sees an annual internal rate of return of more than 20 percent.

The Related Group of billionaire Miami condominium developer Jorge Perez teamed up in February with Philadelphia-based property buyout firm Lubert-Adler to form a $1 billion fund to buy mortgages and properties.

"The whole world is looking at Florida at the moment," Rolin said.

Last month Miami ranked 19th in May among metropolitan areas with the highest foreclosure rates, according to RealtyTrac, a seller of default data. The Cape Coral-Fort Myers metro area, on Florida's Gulf Coast, was second-highest.

Stratreal manages $6.5 billion of real estate, including a stake in the Heron Tower development and the Grand Plaza building in Chicago.

The Heron Tower, scheduled to be completed in 2010, is the second-tallest building that is currently under construction in London's main financial district.

The company opened an office in Miami in 2005 to explore opportunities in southeast Florida and has contacted local banks and developers to identify potential investments, he said.

Investment demand from Europe, Latin America and the Middle East as well as from Americans who want second homes means that "Miami will come back," Rolin said.

The dollar's 16 percent decline against the euro in the past 12 months has given some overseas investors an advantage over their U.S. counterparts, McCabe said.

"If prices go down, the American firms lose money while the Europeans may be at break-even," he said.

Posted on Tue, Jun. 17, 2008 - BY SIMON PACKARD - Bloomberg News

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