Linger Longer’s Offer to Sell Amenities to Property Owners is a Non-Starter

None of the other possible outcomes is certain, but a YES vote is certainly a mistake.

Palm Coast, FL – April 14, 2011 – Linger Longer Development Corp., (Reynolds Plantation) has gotten its financial panties in a wad. Like nearly all developers of luxury golf course communities over the past 15 years, LLDC is stuck with high maintenance amenities and little revenue. Everything looked great when home sales were booming. But the developer’s business model, built on the premise of ever-increasing property values, was fatally flawed. When the music stopped, all the chairs were gone.
Two wrongs don’t make a right, but three do.
Attracted to the luxurious lifestyle of the highly amenitized community, buyers paid premium prices for their lots. When they built their homes, they probably paid another premium. Typically, the developer’s in-house real estate group handles home builder sales and the developer extracts a premium "royalty" from preferred builders who are allowed to build within the community. Add these premiums up and you probably have more than enough money to build the amenities.
When owners join the club, the developer collects a "refundable" initiation deposit; collectively, probably enough to build the amenities a second time.
On the theory that two wrongs don’t make a right, but three do, LLDC now wants the club members to pay for the amenities a third time. Members are being asked to buy (on short notice and without full disclosure) the Reynolds Plantation amenities for $45 million, exactly what Bank of America needs by the end of April else they may foreclose on the Reynolds properties. That’s a 200% premium over the generally accepted current market value of the Reynolds amenities. And it gets worse.
LLDC maintains control
If property owners agree to LLDC’s offer, they will own the amenities, but the agreement on which the property owners will vote stipulates that LLDC will retain control over key decisions regarding the club’s operations. LLDC pledges to subsidize the club financially. But LLDC has proven itself incapable of fiscally responsible behavior.
Non-members can vote
Non-club member property owners are allowed to vote for or against the purchase on the assumption that the continuing operation of the amenities protects their property values. Yet the non-club members would not have to contribute toward the purchase.
Any post-foreclosure or post-bankruptcy buyer will come in at a much lower cost basis with limited debt burden. When luxury community developer Bobby Ginn (and financial partner Lubert-Adler) defaulted on a $675 million Credit Suisse credit facility, Ginn was forced to sell two highly leveraged South Florida communities through a Chapter 7 (liquidation) bankruptcy sale. Both are in an improved situation now. Tesoro and Quail West Doing Well Without Ginn
Quail West (near Naples)
Quail West Development was the successful bidder at the Quail West bankruptcy auction picking up 262 residential building lots, a sales center, two Arthur Hills-designed golf courses, and a 70,000 square foot clubhouse for a reported $13.5 million. Ginn had recently spent millions upgrading the clubhouse. Quail West Development is owned by a few Quail West residents and the principals of a construction company already active in the community.
In January 2010, Quail West Development turned over the golf club assets to the Quail West Foundation, which took over the club operation while the developer concentrated on property sales and development. The members are reportedly very happy.
Tesoro (in Port St. Lucie)
West Coast Investors, headed by Glenn Straub, owner of the Palm Beach Polo Club, paid less than $11 million for the Tesoro assets, including 353 building lots, one golf course, a magnificent clubhouse, some commercially zoned land, and a lease on a second course
Straub has regained the second golf course. Prior to the Credit Suisse loan, Ginn-LA had transferred the Palmer course to Bobby Ginn, who then took out a mortgage from Textron, then leased the course back to the club. A third party had picked up the mortgage from Textron, but Straub settled with the third party and now owns the Palmer course as well.
The two Ginn examples illustrate the real market values of amenities in today’s market. They also illustrate that positive outcomes are achievable.

1 reply
  1. Dave
    Dave says:

    What Side Are You On?????

    It all depends on which side you are on, if positive outcomes do occur!!! Someone has to take the loss when assets such as you refer to are bought at distressed prices. Someone is ALWAYS left "holding the bag"!!!

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