Jim Clark and Tom Jermoluk cut a swath through Silicon Valley in the 1990s with companies like Silicon Graphics, Netscape and WebMD. But they are finding that it is a lot harder to maneuver through the real estate market than to master the Internet. Five years after they decided to put their entrepreneurial talents and technology fortunes to work building Miami condominiums, the first two projects by their company, Hyperion Development, are plagued with delays and unhappy buyers. Some residents at the first tower, named Blue, are threatening to sue the company for not delivering on amenities, while other owners at the 330-unit complex are trying to sell their condos for less than they paid.
Blue’s problems have hurt Hyperion’s reputation so much that consultants say some buyers who put down deposits at the company’s second tower, the 516-unit Marina Blue, may decide not to close. Other Marina Blue buyers have sued to get their deposits back. The problems raise questions about the ability of Hyperion to repay a $110 million construction loan as well as its ability to develop future projects in the Miami market. They also offer a look at what can happen when entrepreneurs try to trade on their reputation as they branch into other areas.
The setbacks are an unexpected turn for the two partners chronicled in the book “The New New Thing” by Michael Lewis as having a magic touch at starting multibillion-dollar technology companies. They entered real estate with plans to build four or five projects in Miami and named their company after Mr. Clark’s 155-foot yacht, Hyperion. His net worth has been estimated at $1.4 billion.
Mr. Clark, 63, and Mr. Jermoluk, 51, are not the only successful entrepreneurs who are struggling in Miami real estate. Builders throughout the area are facing rising construction costs and a slowdown in demand. Many buyers who paid deposits at the height of the market a couple of years ago now own apartments that are worth much less than they had agreed to pay. Many are trying to sell.
Another developer, Joe Cayre, who amassed a fortune distributing videotapes to Wal-Mart and who became a financial backer for the redevelopment of the World Trade Center site, faces lawsuits and delays on his 54-acre midtown Miami project. Even Jorge M. Pérez, head of the Related Group, who is on the Forbes list of billionaires with Mr. Clark, has retreated in the face of lawsuits and losses.
“It doesn’t matter who the developer is, where the project is located, what price range the units are,” said Jack McCabe, a real estate consultant in Deerfield Beach, Fla., who has tracked Marina Blue for hedge funds seeking distressed properties. “Every project is going to take hits, some more than others. None are insulated, and it doesn’t matter whose name is associated with it.”
In an e-mail message, Mr. Jermoluk compared today’s real estate market with the boom and bust in technology during the last decade. He likened the construction challenges — weather, worldwide concrete and steel price increases — to “memory chip shortages and price increases.”
“Anytime you start a new company in a new business,” he wrote, “you learn things.” The slowdown, Mr. McCabe said, has developers in Miami trying to sell 52 multifamily sites that they once marketed as condos. Three other sites, he said, have fallen into foreclosure.
At Hyperion, the name Jim Clark was what attracted many prospective buyers. In 2003, Hyperion started its Blue condo project with a cocktail party where guests mingled with models painted head to toe in blue while partaking of the “usual finger food and free-flowing Champagne,” said Elaine Silverstein, a Miami advertising executive who attended the party. She said that many guests had been interested in meeting the pair from Silicon Valley with a “marvelous reputation. They were there to take advantage of this moment in time,” Ms. Silvers
Source: AllHeadlineNews.com