Bonita Bay Correction

Bonita Bay Group incorrectly included in list of golf course communities in bankruptcy

Palm Coast, FL – November 3, 2009 – In a PR Web press release yesterday [Golf’s High Fixed Costs Sink Real Estate Developers as Revenues Dry Up], incorrectly included Bonita Bay Group in a list of high profile private community developers hit by bankruptcy. Bonita Bay Group has not filed for bankruptcy. apologizes for any confusion this error may have caused.
Bonita Bay Group’s position is most accurately characterized in a recent letter to members by David Lucas, Chairman of the Bonita Bay Group’s Board. The letter (below) appeared in an October 30 news story (emphasis added). It illustrates the dilemma facing the entire industry.

August 25, 2009
Dear Bonita Bay Group Residents and Members,
I am writing to you today to set the record straight about the status of the clubs and the membership deposits. You have likely seen the allegations of fraudulent business practices related to our decision to suspend membership deposit refunds on November 7, 2008. Those allegations are so baseless that initially, we didn’t feel they merited a response. Now we realize that we should have responded immediately and we are taking this opportunity to provide you with the facts.
First, the company is in an extremely difficult financial position due primarily to the deteriorating economic conditions we all have endured in recent years. Our land sales – the main cash source of the company – have declined from $91.5 million in 2006 to less than $30 million annually in 2007 and 2008 to less than $2 million during the first seven months of 2009. Our key customers for land sales are home builders and sub-developers, and those companies continue to have no appetite for land. 
Another factor that has made us vulnerable to the extended slowdown is the strategy that we adopted early in the life of the company to re-invest the profits back into the business. This strategy worked for the first 21 years of the company’s existence, we grew from $4 million in revenues in 1985 to $413 million in revenues in 2005. Unfortunately the price of raw land has dropped and our estimated land values have declined dramatically. This drop in value severely hampers our credit and liquidity. Any profits generated in earlier years have been completely wiped out by the losses sustained in recent years. In total, the shareholders have realized a cash deficit of more than $100 million from their investment in Bonita Bay Group to date.
The unforeseeable and unprecedented economic conditions facing Southwest Florida and the country as a whole are the primary factors contributing to our deteriorated financial situation. As did many other businesses, we underestimated the length and depth of this recession.
We have concluded long and arduous negotiations with our bank group and have succeeded in amending our credit line, one component of which included the release of funds to continue our operations for the near term. In exchange for this liquidity, we have had to agree to a very stringent operating budget. 
With those facts as background, allow me to discuss the allegations related to the company’s use of membership deposits. The total cost of the clubs owned by Bonita Bay Group, including the land at cost, is more than $340 million. The cost of subsidizing the losses of the clubs over the years is another $106 million, for a total amenity investment of more than $448 million. Membership deposits collected account for $243 million, so we have invested more than $200 million to create and sustain the clubs for the membership. In each and every one of our clubs, our investment in club assets plus operating deficits exceeds member deposits. Unlike our profits, which are gone, the clubs and the courses remain as tangible assets for the membership.
[ note: The existence of the golf courses enhanced the value, hence the selling price, of hundreds of building lots. The resulting aggregate profits are not mentioned in the developer’s argument.]
Following the suspension of refunds of deposits in November 2008, we engaged in six months of extensive negotiations with the club advisory boards. We expended enormous effort to reach an accommodation between the demands of resigning and continuing members to develop alternative refund plans that would have provided refunds to resigned members on a gradual basis. Unfortunately, the alternative deposit refund plans required further depletion of the company’s limited cash position, which our lenders ultimately did not support. As a result, we, working with our bank group, determined that the best course was to offer the clubs for sale to the members. It was always contemplated that the clubs would be turned over to the members, and that upon such turnover, the refund obligations would be converted into equity positions in the newly formed club. We are now involved in this turnover process and we believe it offers the best prospects for resolving the issues arising from the deposit refund controversy because it offers the club members control over the club resources. I hope that this process will continue at each of our clubs until a successful conclusion is reached.
Certain members have argued that the membership deposits should have been placed in escrow. That was never contemplated nor promised. No club that I know of has a separate escrow account for membership deposits. We have had three sources of money to use to refund membership deposits. First and foremost is land sales revenue. We are a real estate developer, and our primary business is the sale of improved land to third parties. As indicated, land sales revenues have virtually disappeared. Second is the cash generated by the clubs from dues revenue, membership deposits, and sales of golf rounds, merchandise and food. The third source of funds is equity from the owners or additional indebtedness. Contrary to rumors and speculation, our investment in Bonita Bay Group has been anything but financially rewarding. During the past three years alone, the company’s shareholders have contributed an additional $115 million to support the company and are not contemplating making additional contributions at this time. Likewise, the bank has declined to put any new money into club operations. These revenue sources are not sufficient to meet all deposit refund obligations.
This leaves us with very difficult choices. If we refunded all the membership deposits to those persons on the resigned list, we could not operate the company, and bankruptcy would inevitably ensue.
I hope these facts answer some questions that have been raised and give you a better understanding of our past and current financial condition. We, along with many other reputable businesses, have fallen victim to unprecedented low levels of business activity. In retrospect, we certainly could have done things differently, but there was absolutely no fraudulent activity or intent to deceive anyone; to allege otherwise is irresponsible and harmful to our residents, our members and to us. The continuing spreading of these falsehoods only contributes to the lack of sales in your communities and hurts your property values. We have been committed for the past 25 years to delivering the best possible experience to our customers. It hurts me to have to curtail certain services temporarily but we have no choice – it is a matter of survival. I hope you can see your way clear to work with us in the coming weeks and months to achieve a mutually beneficial solution. 
David Lucas


1 reply
  1. George D Meegan
    George D Meegan says:

    More to loose filing bankruptcy

    They white nighted themselves by putting in more investors money, as the banks would not give funds out they knew were from the to be owners of the club once it was turned over. Then as things did not turn around, they have no funds to operate, but still see future sales of land. They know if they go bankrupt, the land assets will be auctioned and the net result would be an actual loss, and not the paper loss they have now. It sounds like a smart move for everyone, as bankruptcy would only make the lawyers and a few others required to do the auctions get rich. That tells you how realy bad things are in general, for the real estate industry. They and many others can’t afford the cost of bankruptcy. Just let the municipality take the property by tax auction, and walk away if it comes to that, but don’t give up by filing bankrutcy, as it cost more.

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