𝐖𝐡𝐚𝐭 𝐢𝐟 𝐚 𝐥𝐞𝐧𝐝𝐞𝐫 𝐜𝐚𝐧’𝐭 𝐟𝐢𝐠𝐮𝐫𝐞 𝐨𝐮𝐭 𝐭𝐡𝐞 𝐋𝐓𝐕 𝐨𝐧 𝐚 𝐩𝐫𝐨𝐩𝐞𝐫𝐭𝐲?

A recent horror story out of Miami illustrates how confusing loan calculations can get when a development project spirals out of control.

A developer bought almost an entire waterfront condo building to tear down and replace with a luxury condo tower.

Everyone moved out. Demolition started. 

🧱 Floors, finishings and even the pipes were ripped out.

🏢 Windows were removed.

⚡️ Utilities shut off.

Then a judge ruled that the developer had improperly changed the condo bylaws to force the termination of the old 1964 condominium.

The result?

The developer was ordered to 𝐫𝐞𝐛𝐮𝐢𝐥𝐝 𝐭𝐡𝐞 𝐩𝐚𝐫𝐭𝐢𝐚𝐥𝐥𝐲 𝐝𝐞𝐦𝐨𝐥𝐢𝐬𝐡𝐞𝐝 𝐩𝐫𝐨𝐩𝐞𝐫𝐭𝐲 so that owners could move back in.

Now look at the staggering numbers involved:

💸 $150𝐌 loan to acquire the property

💸 $3𝐌 demolition budget

💸 $65𝐌 estimated rebuild cost

💸 $100𝐌 in potential lawsuits from a small group of unit owners

Plus legal fees, special assessments, redesign costs and multiple project revisions.

And that’s before considering the $275𝐌 𝐢𝐧 𝐩𝐫𝐞-𝐬𝐚𝐥𝐞𝐬 for the new luxury tower (including buyers' deposits) that may now trigger their own lawsuits.

So what is the lesson for lenders?

How do you calculate loan-to-value when the collateral keeps changing and every change requires more capital?

Construction risk is present in every development.

But legal structural risk can be just as dangerous, especially when a project depends on several things going perfectly: condo termination, minority owner buyouts, winning litigation and construction execution.

There’s a reason a 𝐬𝐮𝐩𝐞𝐫𝐟𝐞𝐜𝐭𝐚 pays what it does.

Renderings of luxury waterfront condos are nice.

But when success depends on all of the above?

You’re not just lending on a property, 𝐲𝐨𝐮’𝐫𝐞 𝐮𝐧𝐝𝐞𝐫𝐰𝐫𝐢𝐭𝐢𝐧𝐠 𝐚 𝐫𝐨𝐥𝐥 𝐨𝐟 𝐭𝐡𝐞 𝐝𝐢𝐜𝐞.