Joel Altman knew the perils of building condos in Florida. The veteran developer saw the Sunshine State get flooded with condos in the late ’70s. But he avoided the temptation of for-sale housing, focusing instead on apartments. And he built a successful empire doing so: Altman has developed 20,000 units in seven states over the span of 40 years in real estate.

Then came the 2000s. Suddenly, the forbidden fruit was far too alluring. So the CEO of Boca Raton, Fla.-based The Altman Cos. took a tiny bite and built Symphony—two 22-story buildings with 338 units in Ft. Lauderdale, Fla. He liked what he tasted. “The job sold out,” Altman says.

Over the next few years, Altman started four more condo developments. Then the world turned upside down. Consumers stopped shopping for new homes, prices plummeted, and committed buyers walked on their contracts. Since 2003, nearly 23,000 new condo units have been built in Miami—today, about 9,400 (roughly 41 percent) remain unsold, according to Condo Vultures, a Bal Harbour, Fla.-based real estate consultancy firm.

“People started believing their own hype—that there would be a never-ending supply of South American, Russian, and European buyers,” says Jay Jacobson, a partner with Atlanta-based Wood Partners, a multifamily builder with numerous projects throughout Florida.

Now, Jacobson, Altman, and others are working to dig themselves out of trouble at their condo developments. Deepest in the struggle appears to be Miami-based The Related Group, a firm that became synonymous with the word condo nationwide. Related’s chieftain Jorge Perez built more than 5,500 units in Miami, according to Condo Vultures; today, he is still sitting on $1.5 billion of debt on five projects, according to The Miami Herald, and is desperate to employ any creative means possible to emerge from under that mountain.

When the music stopped playing in South Florida’s condo circus, all three of these firms managed to remain in business—and continue to stand almost three years later. And, if these CEOs have their way, they’ll be around for the next cycle, too.

The Altman Cos.

Getting Into Trouble: Succumbing to temptation paid off initially for Altman—and the success of Symphony encouraged him to jump into additional Florida projects: Harborage in Stuart, a 129-unit building that opened in December 2004; Astor, a mixed-use development with 90 units and a retail component in downtown Delray Beach that opened in April 2005; and, lastly, Sapphire, a 172-unit project in Ft. Lauderdale that opened its sales office in August 2005.

At first, the interest and buzz in those three towers were as vibrant as with the first project. Consider Harborage, which sold out in December 2004. “We had 2,400 people stand in line to buy 129 units, and they were mad at us because there weren’t enough units to go around,” Altman says.

The trouble came after the market collapsed—and half the buyers failed to close on their units. “Out of 2,400 potential buyers, 50 percent of those who we selected were the wrong ones,” Altman says.

At Astor, 100 percent of the retail defaulted, while 50 percent of the residential defaulted. At Sapphire, 40 percent of Altman’s buyers defaulted—prior to construction, the building had 100 percent of its units reserved.

A Way Out: Suddenly, Altman had to sell almost half of the units that he thought he was rid of. So he established three principles by which he approaches his condo projects.

First, he revised his sales strategy in light of the new market. He set a price, sold one or two units a week, and only lowered prices if he hit a wall. Today, condos are selling at about 40 percent to 45 percent of their original list price.

“We went back in and put together a sales office,” Altman says about his experience at Harborage. “We furnished two models and went back to the basic 101s of selling units. We had been sold out, so there was no reason to have a sales office before then.”

Next, Altman employed a proactive approach with his remaining buyers and sought to get the projects Fannie Mae-approved, which meant the government would essentially be backing the mortgage of the individual buyer. “We gave the buyers a finished package because they were sold developer-ready. We’re giving them a discount off of their original contract, even though they have a firm contract with no contingencies and a 20 percent nonrefundable deposit up front,” he says. “We know that the market has eroded.”

Finally, he set up an open communication channel with his construction lenders, who simply wanted to be made whole again. “So we went to them and told them exactly what the issues were,” Altman says. “We were in a good enough position in terms of release prices to work it out. At the end of the day, it probably takes all of the profit and equity and wipes it out. But the bank will get out. There will be no problem wiping the bank out.”

Altman was able to leave his banks unscathed. “He is a good example of a guy who really waited it out and rolled up his shirt sleeves to try to find ways to successfully get out without causing a lot of financial impact to his lenders,” says Marc deBaptiste, a principal in the Boca Raton office of brokerage firm Apartment Realty Advisors.

Of course, since Altman took a more conservative tack than many developers, putting more money in and not switching gears completely to condos, the banks were more willing to work with him. “He lost money, but Joel was always more conservative than some of the other developers,” says Jack McCabe, CEO of Deerfield Beach, Fla.-based McCabe Research and Consulting. “Joel is smart, and Joel is primarily apartments.”

The Outlook: Currently, Harborage has only 20 units left. Astor has 15 remaining units and is selling at a rate of one per week as prices stabilize. And Sapphire has around 100 units left after Altman started to rebuild sales in early 2006. “We just started closing,” Altman says. “We’ll see where that goes. I can’t tell you how many out of the 100 will close. Obviously, there will be some defaults.”

Despite that uncertainty, this cycle has taught Altman one thing: “I’ve learned to stay away from for-sale,” he says. No matter how tempting the fruit.

Wood Partners

Getting Into Trouble: Like Altman, Jacobson at Wood Partners, the fifth-largest multifamily developer in 2008 with more than 3,369 units developed, has seen these cycles before. In the late ’60s, when he was in high school, Jacobson saw his grandfather’s company get overextended by building too many condos in Florida. Then, in the mid ’70s, it happened again. “When I got out of college, my father’s development company had the same issues that are happening now,” Jacobson says.

Florida was overbuilt again in the mid-’80s before the market crashed and the federal-run Resolution Trust Corp. stepped in. Despite watching the booms and busts of three decades, the rampant speculation and overbuilding of the early 2000s drew in Jacobson and the other leaders at Wood.

“We were looking at the prices that [converters] were getting for buying existing apartment deals and immediately converting them,” Jacobson says. “We figured, ‘Why can’t we do that?’ So we did.”

Between 2004 and 2006, Wood converted five apartment complexes that it developed and owned into condos in Florida. All sold out essentially overnight. In addition, they built three new condo projects—at Solaire at the Plaza, a 306-unit high-rise in downtown Orlando, Wood initially sold out the deal within five days. At Esplanade at Town Center in Jacksonville, Fla., a low-rise condo building with 258 units, Wood also originally sold out. Then, Wood took up the construction of the 307-unit The Edge in West Palm Beach, Fla. Construction began in 2005, and sales went remarkably well: Initially, Wood was able to sell 300 of 307 units with 20 percent deposits.

“We had The Edge’s land, and we were going to develop it as an apartment, but we made the same decision based on the same question, ‘Why build it as an apartment?,’” Jacobson says. “Since we’re going to sell it to someone who will convert it anyway, we might as well sell it out before we start construction and call it a condo.”

A Way Out: Then came the downturn. In Solaire, 60 units came back online. In Esplanade, 40 units opened up. Wood’s tack? Go the auction route and finish sales. So, the firm partnered with Boston-based Accelerated Marketing Partners to auction off 30 units at Solaire in one day and the rest of the inventory over the next six months. In Esplanade, it took two years for the developer to close out that inventory, but Wood was able to pay off its banks and equity partners—and turn a profit on the last 40 units.

“We had to set a price,” Jacobson says. “We had no idea what the value of our product was. We found the best way to set the price was through an auction. The auction was also the best way to get rid of inventory.”

The Edge was—and still is—the biggest headache in Wood’s Florida portfolio. When the firm started closing in July 2007, it closed 155 of the 307 units at $378 per square foot. The firm went through almost all of 2008 with no sales until it auctioned 40 units last November. That day, 31 units sold for about $198 per square foot.

Since the auction, Wood has been selling about one or two units a month for around $185 a square foot. Right now, it has about 82 units left. “Our construction loans are almost paid off,” Jacobson says. “It’s just us and our equity partner [identified by the South Florida Business Journal as New York-based Real Estate Capital Partners]. We’ve all agreed to remain friends.”

Despite the problems at The Edge, Jacobson knows things could have been a lot worse. “During the first year of construction, we had a couple of other sites we were going to build out as condos, and we started to see the sales market slow down—buildings weren’t selling out overnight,” Jacobson says.

Other signs emerged as well. “When people started tearing down industrial neighborhoods that you wouldn’t drive down the street in, let alone walk your dog in, that’s when I said, ‘Enough is enough, I’m getting out,’” Jacobson says. “When you start seeing people line up around the block to write you a $70,000, $80,000, and $90,000 check, and you ask them if they are going to live in this unit, and they say they’re just going to buy it, hold it for six months and sell it, that’s when I knew it was time to get out. And we did.”

The Outlook: Jacobson thinks that, all things considered, he timed the company’s South Florida market moves about as well as possible (the company also had closed out deals in Phoenix and Atlanta before the market turned but did have to hand over an Atlanta deal to Chicago-based Corus Bank. It had no recourse in that project.)

“I don’t know if we were smart or just scared. So we decided to get out of it,” Jacobson says. “Jerry Durkin [Wood’s CEO] keeps reminding me that one of the smartest things we ever did was to get out of the condo business in South Florida when we did.”

That’s what others say as well. “In my view, Wood Partners saw the downturn in the condo market and adjusted quickly,” deBaptiste says. “They seemed to deal with changes in the market quickly before they became major issues.”

THE RELATED GROUP

Getting Into Trouble: To most players in the multifamily arena, Jorge Perez needs no introduction. Related’s CEO began his career as an urban planner with the city of Miami and, in 1979, partnered with Stephen Ross (currently the Miami Dolphins owner and then-owner of The Related Group in New York) to form The Related Group of Florida.

The company’s early focus was affordable housing and renovating homes. But Perez’s developments grew more extravagant, with world-renowned designers such as Philippe Starck creating towers and collections of breathtaking art and amenities. Just consider Icon South Beach. The 290-unit project felt more like a hotel than a condo with a 40-foot-long reception desk enshrouded in a semi-circle of white curtains with a huge chandelier; a lounge at the foot of a gigantic pink-hued glass wall encasing a glowing fireplace; units with 9-foot ceilings; a whirlpool spa; and a 24-foot golden urn-shaped coffee and tea area.

“He has become a billionaire and the biggest condo developer in the country,” McCabe says. “He’s the Latin Trump, only more likeable, more realistic, and not quite as egotistical. When I talk to other developers in the marketplace, it’s pretty universal that they hold Perez in the highest regard.”

So did the media and buyers. Time magazine named him one of the country’s most influential Hispanics; Multifamily Executive named him Builder of The Year in 2004. “Perez and his sales and marketing team built up what I consider to be the greatest speculative flipper machine that there was going,” McCabe says. “They had buyers from Latin America and Europe that bought units in their buildings.”

When the condo market collapsed in 2006, Related, which didn’t respond to calls to participate in this story, was easily the most exposed developer in the market. The firm developed 24 percent of the 22,737 new condo units delivered or under construction in the greater downtown Miami area between 2003 and 2010, according to Condo Vultures. Today, many of the firm’s loyal buyers have walked out on their contracts. And that’s where the trouble began.

A Way Out: With so many units sitting on the market, Related needed more than an accelerated sales process like that of Altman’s or an exit strategy like Jacobson’s. Instead, the firm partnered with Lubert-Adler, a Philadelphia-based real estate private equity firm to establish a $1 billion fund to buy distressed real estate assets, including its own. It put down $36.4 million for 146 units in its own 50 Biscayne in downtown Miami last summer, according to the South Florida Business Journal.

“They have continued to leverage their strengths in the downturn and created funds in order to buy other developments below replacement costs,” says Andres Lemos, principal of Miami-based multifamily marketing and investment firm Miami Waterview Properties.

In June, The Miami Herald reported that Perez, who is taking over as vice chairman of the Miami Dolphins, had reduced his debt from $2 billion to $1.5 billion. And he’s trying some innovative ways to work down that debt. “They go to lenders and say, ‘Listen. This is what we have, and this is what we’re willing to throw in. Otherwise, we’ll turn [the developments in debt] over to you,’” says Peter Zalewski, a principal with Condo Vultures.

If the bank accepts Related’s offers, they get the building (that’s worth less than the loan on it) and an undisclosed amount of money. Related gets out from under its debt and receives fees to manage, maintain, and sell the buildings. “Who better to manage the building and the process on behalf of the lending institution than the guy who built it?” Jacobson asks. “They know the building the best.”

So far, only a group led by Toronto-based Scotia Capital has gone for the plan. It agreed to buy the 420-unit City Place South Tower in downtown West Palm Beach, where only 39 units had sold. McCabe estimates that in that transaction, the bank took back the units at an average cost of $318,000. “I have no doubt that he comes out ahead in that deal because he’s rid of all of that debt, and he’s rid of all of that liability,” he adds.

The Outlook: The ultimate question is whether the gambit will work at Related’s other debt-laden projects, such as Icon Brickell and 500 Brickell Avenue in Miami; Trump Hollywood; Trump Towers in Sunny Isles Beach; and Oasis in Fort Myers, according to The Miami Herald. Right now, there is only speculation, though Jacobson says the fact that the foreclosure process can drag out for years in Florida may make banks more willing to work with Perez and not chase after him for guarantees.

Still, getting his banks to go along with a friendly foreclosure process would only add to Perez’s legacy. “If he’s able to accomplish that with these other buildings, he will have changed the skyline and left his mark on Miami for generations to come,” McCabe says. “He’ll have made himself a billionaire and perhaps had the best exit strategy of all.”