Is Reynolds a Good Guy or a 2,000 Pound Gorilla?
Are the developer’s plans for The Conservatory at Hammock Beach in the owners’ best interest?
Palm Coast, FL – June 14, 2010 – The Conservatory at Hammock Beach never moved beyond its successful launch in 2005 when eager buyers snatched up 337 building lots for prices ranging from $329,900 to $529,900. The launch yielded approximately $142 million revenue. But the eager buyers were expecting to sell at a higher price to even more eager buyers. Those buyers never materialized when the market evaporated overnight. Judging by the most recent selling prices ($15K to $25K), the total value of Conservatory lots has slipped below $10 million.
In spite of well over 150 foreclosures, scores of unpaid Property Owners Association (POA) fees, non-dues paying club members, a closed clubhouse, and only one private home constructed in the past 5 years, there is still hope. Most agree that the original vision of million dollar homes was overreaching. The Conservatory has to be scaled down to a community of $300,000 to $650,000 homes (lot included). Requirements for a successful repositioning include:
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A reduction in architectural requirements to allow less expensive homes to be built
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A reduction in landscaping requirements. The current requirement will cost property owners over $40,000 each.
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The club should open up tiered membership classes. Full golf dues are currently nearly $800 per month. Lower priced options will be necessary to attract the changed demographic of future buyers.
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Unbundling POA services will allow owners to opt out of some current required services. Buyers of a $400,000 home do not expect to pay over $1,000 per month in POA fees.
Over the past year, I’ve had several conversations with Conservatory property owners, members of the POA board, and those representing Ginn-LA (Bobby Ginn and his financial partner, Lubert-Adler). Lately, that representative has been Tom Allhoff who works for a subsidiary of Reynolds Plantation. Reynolds has a contract with Ginn to manage the Hammock Beach Club as well as development efforts for the several Ginn-LA entities in Palm Coast. They inherited an existing situation. Reynolds’ involvement began only one year ago.
I’m know of groups of investors who have attempted to aggregate multiple lots; enough to perhaps start a spec home or two. But until the building requirements are changed, those investors are stalled. Meanwhile, a loyal and committed group of property owners continues to pay their mortgage payments, taxes, POA fees, and club dues; either out of a sense of honor and/or of belief in the community. Yet they cannot build the type of home that everyone agrees is appropriate for the community going forward. (Today’s building requirement is totally inappropriate.) And they certainly don’t want to sell their lots in this market.
Over 290 Conservatory lots are mortgaged. Most are distressed. Reynolds says they are working with the banks holding mortgages on distressed properties to gain control of the lots as a partner of agent of the banks. Once control of a majority of the lots is assured, they plan to move forward with their repositioning and re-launch of the community. Their plan is to market home/lot packages. By the way, Reynolds has a subsidiary which can build the homes. How convenient.
Ginn-LA’s strategy is ill advised but not surprising considering the history of their lack of communications with owners over the past five years.
Reynolds is acting like a 2,000 pound gorilla. They are pushing their plan forward with little or no regard for current lot owners. Getting the building standards changed to allow more "price appropriate" construction should be paramount. The fact that Reynolds does not yet have their banks in line to assure the developer’s "pennies on the dollar" takeover of distressed lots is of no concern to property owners. Owners concerns are immediate. They are real. They are emotional – even visceral. And nobody is telling them anything. They are the proverbial mushrooms; living in the dark being fed S**T (quoting one owner). Reynolds is seriously out of touch with owners. I know this because I hear from owners every week. I’ve become the Dr. Phil of The GINNdom.
If Ginn-LA/Reynolds gains control of a majority of the lots (for pennies on the dollar) as well as controlling marketing and home construction, it will be a public relations disaster. I can see the bumper stickers now – "HONK IF BOBBY RIPPED YOU OFF TWICE" or "HONK ONCE FOR EACH TIME BOBBY RIPPED YOU OFF." Ironically, Bobby is no longer operationally involved. Lubert Adler is calling the shots.
Reynolds tells me that they want to benefit the "whole community," not just a small group of investors who have a few lots. First, it’s not just a few investors and they are not seeking only a few lots. They certainly are not "small."
Reynolds tells me that they want to benefit the "whole community," not just a small group of investors who have a few lots. First, it’s not just a few investors and they are not seeking only a few lots. They certainly are not "small."
As long as Reynolds is negotiating with the banks, the banks are not replying to short sale offers, effectively shutting out Reynolds’ potential competition for building lots. Their actions also interfere with owners’ efforts to negotiate mortgage relief options.
The concept of repositioning the community is at least two years old. The carrying cost of a Conservatory lot (mortgage, taxes, POA fees, club membership) is in the tens of thousands per year. Frustrated property owners don’t want to wait longer. They want action now. Lot values and sales will pick up only when rooftops begin to appear. The community doesn’t benefit when the developer acts unilaterally, neutering the POA.
Florida law is quite precise in determining when and how a developer must transition the control of the POA of a Master Planned Community to the property owners. Unfortunately, the law is much less precise in specifying exactly which powers transfer to the property owner controlled board and which powers remain with the developer.
Reynolds (acting as proxy for Ginn-LA) is the 2,000 pound gorilla. They are in a position to take advantage of the legal ambiguities of transition. They should not abuse that position!
Be sure to read the follow up commentary: Toby Sits Down with Reynolds to Discuss the Conservatory Gorilla Flap
VERY THOUGHTFUL AND THOUROUGH ANALYSIS
TOBY,
YOU ARE RIGHT ON. I PAID CASH FOR MY
LOT AS I PUT IT IN MY IRA. I APPRECIATE YOUR THOUGHTS ON THE SITUATION AND BELIEVE
THAT THE REYNOLDS PLAN MAY BE THE BEST
WAY OUT FOR MOST LOT OWNERS, AS ROOFTOPS
GO UP, WE MAY GET 30-50% OF OUR MONEY OUT, INSTEAD OF 5-10% AS IT IS NOW. KEEP
UP THE INFO ON THIS AS I LIVE OUT OF STATE NOW.
BEN
Over the line
Well, Toby, you finally went from fair and balanced reporting to over-the-top biased editorializing. Everyone here at Hammock Beach is talking about your take on Reynolds and The Conservatory, and almost all disagree with you. First, Lubert/Adler is in control, not Reynolds, and not Allhoff. You got a lot of this wrong. Will you print the other side, should someone offer to present it?
Thought
It seems to me that the banks plainly know that these lots in the hands of taped out investors are worth pennies. Many of these investors have stopped paying everything. Many of those same investors are stalling the banks foreclosure process to try and figure out an alternative to potentially facing a HUGE judgment which would likely drive most into immediate BK since if one could stroke a $500,000 check they probably would have done so already.
It seems to me that the banks are going to recoup their money much faster if they can regain control of these lots ASAP and put them in the hands of a group like Reynolds so that rooftops can start going up. That would benefit the banks, the lot owners who paid cash or want to hang on, and it would even benefit Reynolds / LA.
I truly believe that most of the owners that are in default would gladly stop the fight if the bank came to them and said "OK, no deficiency judgment, just turn over the property and go on your way". Under that scenario, everyone "wins". I use the term "wins" loosely as those owners are still out $100,000+ in past costs. Regardless, if they are willing to take that hit and move on then the bank should take their lumps too.
It seems like they could easily take a deed in lieu, get the property and then sell / partner with Reynolds to build homes. They would get a better return & Reynolds would certainly control the bulk of the lots.
That is the only way I see the plan working. Otherwise, owners will continue to dig their heels in and file motion after motion in court to drag the process out. That could equate to years of lost profit for the lending institutions.
RE: Toby
Yes, the 1099 is an issue for most. One solution would be my scenario outlined above where in the banks take the lots back at note value. At that point there is no phantom income to report. All they are forfeiting in that case is the tax loss but the bank gets the properties, Reynolds can build on them and return a greater amount to the bank than they would otherwise receive, the borrowers stop fighting, the POA gets healthy, property taxes get paid, and the club can reopen.
An extra benefit would be that all borrowers would agree to remove themselves from any current or future litigation against the banks.
In this case, the bank takes a hit and the borrower takes a hit (both from a cash standpoint and from a credit standpoint) but it would be the fastest, cheapest, and probably the most profitable solution for the banks.
Reynolds
Reply to John.
You are asking for the Banks to take a hit and the owners to take a hit but the Crooks get away with making profits twice on the same project, what kind of Justice is that. Do you think people should benefit from Fraudulent activities, without recourse.
This cannot be allowed to happen if it does what message does that send- Crime pays, I hope this is not your opinion, because it certainly isn’t mine.
Reynolds
Reynolds are not a 2,000 Pound Gorilla, they are merely a light weight puppet like Bobby Ginn was, Lubert Adler are the driving force and the money behind all of this. Their strategy is to drive prices and properties into the ground and then buy them back for 10 cents on the dollar or less from the Banks. Take Laurelmor for instance, GINN-LA buy Laurelmor with huge loans from the Banks take another huge loan from Credit Suisse, then take $200m selling land at fraudulently inflated prices to speculators, the infrastructure is then paid for then it is bought back by Reynolds-LA for cents on the dollar wiping out all Bank debt and leaving the owners stranded, then Reynolds-LA will buy up the land in Foreclosure at cents on the dollar and make the profits all over again. The same is happening in the Conservatory, the land was sold for 5 times what it was worth again to speculators at fraudulently over-inflated prices the Banks funded these deals, many Bank officials bought in here too, now Reynolds-LA are planning to buy back the lots at cents on the dollar and sell them again at a profit, it is obscene and cannot be allowed to happen. But it proves that Lubert Adler can manipulate the Banks. So the answer re-Reynolds is they are guilty by association and cannot be trusted. Lubert Adler will be made to answer to the Highest Powers for what is the Biggest Ponzi scheme in Real Estate History.
RE: bankslayer
I should be more clear with my postings, that is often a problem with written text.
My take on the situation is one purely from the prospective of how to alleviate this burden from some many families who have suffered for years with no real hope on the horizon. I believe that most just want to unload this monkey on their back and get back to some sort of normal life. My outlined suggestion is my take on the quickest, most effective, less damaging way to accomplish this for the owners who are suffering.
LA making a profit from possible fraudulent activities is a totally different discussion. I am firmly against anyone who defrauds profiting from it especially at the expense of some many innocent families and individuals. But that is a topic outside of my initial thought process.
I’m more focused right now on finding a solution to the immediate problems rather than trying to right the wrongs from the past.
Reynolds Has Taken Hammock Beach Backwards
I have read both of your commentaries regarding Reynolds and company and you are right on with your assessment of the Gorilla. Of course, I am not surprised that Mr. Alhoff called to whine. He is like Mr. Obama in the sense that he blames everything on the former management, but has done nothing to fix the problems. Lubert Adler and Reynolds have taken Hammock Beach backwards over the last year, since Ginn was forced to relinquish control.
The occupancy at the resort is still horribly LOW and rates are seemingly at Red Roof Inn levels. I say this because the checks that I receive from the resort for the rental of my condo are MUCH lower than even last year.
The realty group they brought in to sell the Ocean Towers has basically done nothing in the last year. The Towers still sit empty which is not good for anyone, especially the EXISTING OWNERS. I am concerned they will continue to cut prices and ruin our already distressed property values. It seems the only thing the realtors on site are capable of doing is taking listings and selling a few cheaply priced resale properties.
Yes, Mr. Alhoff, you have been here for just over a year, but you really have not performed, HAVE YOU?. And, Mr. Adler, you covered your butt when you forced Bobby Ginn out, but you continue to devalue your/our assets further by bringing in a group that has no authority or capability to turn things around. Maybe you should sell our beautiful facility to someone who cares and is capable of making this the world class resort Mr. Ginn envisioned.
Reynolds
Reply to Pete.
I think this is what people outside of Hammock Beach do not realize, owners in the Rental program get screwed, I had a lot of information that proved there was fraudulent goings on at the highest level and people were being screwed out of their rentals. I still have the information including emails from management telling staff to rent out a Ginn Salesman’s Unit as often as possible and I also have proof of who they took the rentals from to do this.
It is worse at Reunion, the rental program has failed and 100’s have pulled out and are now doing it themselves it is a complete mess.
As for the Sales I was told they were bringing in the biggest International Realtors around and they were talking to some big guns, but then they go and use a local team from Flagler who know nothing about Reunion, which just supports my theory, they want this whole thing to fail, so they can pick up the pieces and start the machine again.
Reply to bankslayer
I agree, the rental program is a joke! My checks have been going down like a waterfall. I always thought there was a secret society, but sounds like you know that to be the case.
The sales team they brought in to Hammock Beach and Reunion has been a disappointment to say the least. What’s interesting is the owner of that company doesn’t appear to even be a broker. I heard he has been in real estate for only about 3 years. I don’t get it. Why didn’t they bring in a top firm to handle the real estate sales?
reynolds
Reply to Pete.
My opinion is that they do not want many sales to go through because they are in talks with Banks to reduce the debt or buy the note and if a successful sales team were in place that would reduce their leverage, this was done in all the Ginn-LA Credit Suisse Loan Communities while talks were on going with Credit Suisse. All sales teams were pulled out and sent to Reunion to sell the Villas, which also failed badly, but the fact was it puts pressure on the Banks who do not want to own these properties. Lubert Adler are ruthless individuals who know how the Banking system works and are using that to screw the Banks. This is touching the surface there is well over $200m debt in Reunion alone and it is probably worth less than $100m Lubert Adler took all the profit out up front and this will become Public Knowledge very soon when a new Website is up and running, watch this space.
Hammock Beach
My understanding is the leader of the Hammock Beach team failed the broker exam and therefore they have to use an absentee broker to put his name on everything. Either way, very curious decision for LA to put a sales team in place with no developer sales experience- just local realtors.
Reynolds
Hello!
Speaking with Tom Allholf, I was told by HIM that Reynolds only needs to own ONE lot in the Conservatory to have majority control with their current position. Is there any truth to this?
Reply to Jack
Reply to Jack
Thank you for your input. This piece was published as a commentary, not a news article. As an editorial piece, it was the culmination of a lot of input from Conservatory lot owners who are universally suffering month after month without any sign of relief. Their frustration is aimed equally at the lenders. Hammock Beach and Ocean Hammock property owners are in a much different position. I should have made that distinction.
I have already spoken with Tom Allhoff and will certainly meet with him and Hammock Beach Club members and residents who feel I was heavy handed and/or wrong. We plan to get together next week. I will write a follow up report of that meeting. If the result of my commentary is a clarified view based on facts, it will have served its editorial purpose.
Reply to John
I agree, but it is more complicated than that. If the loan is forgiven, it triggers an IRS event. The forgiven amount is reported on a 1099 as current income. It’s either a rock or a hard place for some or most. A lot of thought and cooperative thinking will be required to mitigate buyer’s losses. Any solution should at least consider their plight.
Reply to John
Ginn owns three lots already. They were held so Ginn employees could represent each of the three lots – enough to control the board. Those three members are gone. the board is made up of property owners.
The developer (represented by Reynolds) still wields a lot of power. They control the preferred builder program for instance. In many planned communities, the developer has control of architectural, landscaping, and build-out requirements as long as they with to exercise it.