Corus Is Bullish on Condo Market;
Invests Heavily in the Sector

To Corus Bankshares Inc., it is a great time to lend to condominium developers while other lenders cut back in the face of a slowing housing market. To short sellers, it is a great time to make some money betting Corus President Bob Glickman is wrong.

Mr. Glickman, also a major shareholder of the bank with 11 branches in the Chicago area, has become one of the nation's most aggressive condo lenders. He says more than 90% of Corus's nearly $9 billion loan portfolio is allocated to condo projects in major cities, up from 40% five years ago. The bank has a market capitalization of $1.13 billion. According to the bank's most recent regulatory filing for the second quarter, 21% of its loan portfolio is concentrated in Miami and 9% in Las Vegas -- two of the cities with the biggest gluts of unsold condos.

"Condominiums in the next five to 10 years will make up an increasing percentage of housing in this country," says Mr. Glickman, who has spearheaded the condo loans since taking over the local bank that his father Joseph bought 40 years ago. "I think that the desire for people to live inner-city is just a trend that I think is picking up steam."

He is particularly bullish about the Miami market, where some 100,000 condo units are under construction, planned or announced. In some cases, he has cut Corus's lending standards there, requiring only 50% of the units to be presold rather than the 80% he used to require. Mr. Glickman is delighted other banks are cutting back condo lending in Miami. "I wish everyone had left because we would like to do more business," he says.

Short sellers also are happy. The sellers -- who sell borrowed shares in hopes of profiting from buying them back at lower prices -- are shorting Corus shares eight times more than they did a year ago, according to data tracked by Wall Street Journal Market Data Group. So far it has been a good strategy. Corus's stock price has dropped 31% over the past three months, falling 1.6% yesterday to $20.19 as of 4 p.m. on the Nasdaq Stock Market.

"If you're negative on the condo market, Corus is the purest play," says David Konrad, a senior vice president of equity research at New York-based Keefe, Bruyette & Woods. "The market has attached themselves to this company for better or worse because of that direct exposure."

What the shorts don't understand, Mr. Glickman says, is how well Corus has cushioned itself against the effects of a downturn. He says that because the bank lends to a condo project about 60% of what individual units ultimately would sell for, the developer and mezzanine lenders on these ventures are more likely to get hurt than Corus.

Even in a slowing market, Mr. Glickman says he is confident the condos he backs will fare better because he targets larger projects with an average size of $100 million, enabling Corus to weed out lesser-quality developers.

Some of Corus's competitors aren't as bullish on condos. Late last year, lenders including UBS AG, Wachovia Corp. and General Electric Co.'s GE Commercial Finance Real Estate division reduced condo lending, citing too much inventory in markets such as Miami and Las Vegas.

Corus has cut back some as well. The bank's latest filing shows Corus originated $707 million in condo construction loans in the second quarter, down from $976 million in the same quarter last year. Loans for condo conversions -- existing properties typically being converted into condos from rental apartments or office buildings -- fell sharply, to $10 million from $747 million a year earlier.

Mr. Glickman's approach so far has panned out in Las Vegas, some analysts say. Nearly 9,000 of the city's 92,000 planned units have been canceled or are unlikely to move forward, according to Brian Gordon, a partner in Las Vegas-based research firm Applied Analysis. But Mr. Gordon says that Corus came to the market early and that most of the projects it backed -- Corus's Web site mentions more than 3,100 units altogether -- have been completed or are far along in construction.

Miami may be more of a problem, some market experts say. Corus has made loans to about a dozen condo projects with nearly 4,200 units, according to the bank's Web site. While Corus lent to well-branded projects like the Four Seasons Miami, the bank also has backed projects in the more saturated lower-priced segment, says Seth Semilof, a former broker and publisher of Miami lifestyle magazine Haute Living.

Mr. Glickman says he has confidence in the Miami market because many buyers have put down nonrefundable deposits for units, and that he hasn't seen any buyers walk away from these deposits.

Corus's latest regulatory filing describes the consequences "in the event of a serious recession" -- the bank could be left with $1.5 billion of defaulted commercial real-estate loans and have to take losses of as much as $266 million, or 3% of its $8.8 billion in loan commitments. Corus executives are allocating $47.7 million for loan losses as of June 30, or about 0.50% of the total loan commitments.

Peyton Green, an analyst in the Nashville office of FTN Midwest Securities Corp., credits Corus for disclosing more information than some banks about the consequences of a recession, but says its loan-loss reserves are lower than the 1% or more allocated by many commercial banks.

Mr. Glickman says Corus's reserves adhere to generally accepted accounting principles based on the bank's prior performance. Corus hasn't had to write off any loans in the past six years and very few loans in the past decade, he adds.

Nonetheless, short sellers smell opportunity. Corus has about 58 million shares outstanding, with about 24 million of those owned by Mr. Glickman's family and company officers. Investors have shorted 57% of the remaining 34 million shares available for public trading, compared with 7% a year ago, according to data from WSJ Market Data Group.

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