Palm Coast, Florida – January 19, 2009 – Most of the assets of Tesoro, a luxury private golfing community developed by Ginn-LA (real estate developer Bobby Ginn and his financial partner, Lubert-Adler) in Port St. Lucie, Florida came under a Chapter 7 bankruptcy (liquidation) filing just before Christmas. The process has brought to light several unresolved issues between Ginn-LA and Tesoro property owner/members, including a reported member deposit escrow account that is missing an estimated $20 million. As an overwhelmed court appointed trustee tries to sort things out, the two sides jockey for position.
Tesoro owners feel duped. There is some evidence to suggest they may be right. Their present status places them seventh in line behind the secured creditor, the trustee, administrative costs, unsecured claims, wages, and employee benefit plan. Areas of immediate concern are:
Escrow of membership deposits
The status of an approximately $20 million escrow account supposedly set aside to assure the completion of all the amenities promised new members. Membership documents provided to property buyers mention an escrow account into which member initiation fees would be deposited pending completion of the club facilities. The Club Facilities are defined to include the Beach Club – which "will include access to the ocean, private parking, ladies' and gentlemen's locker facilities, and a beach-themed restaurant. The Beach Club will feature a main pool overlooking the ocean, whirlpools and a children's pool." The facility described has not been built.
Under a section titled Assurance of Completion of Club Facilities; "Membership Deposits will be held in escrow……pending completion of the Club Facilities, as set forth in an Escrow Agreement for Membership Deposits, a copy of which is available for review in the Membership Office." The escrow funds could only be released if the Club otherwise provided security insuring completion of the Club Facilities. Several members have requested a copy of the Escrow Agreement for review. They report to me that they have been stonewalled. Some owners have been told that the account is no longer necessary because the amenities have been essentially built. Other members were told that the escrow agreement cannot be located. But the fact remains, the $20 million is not there.
One former Tesoro property owner relates how the Tesoro Club failed to remit a membership deposit when the owner's property was purchased by someone who then bought a social membership. After several months' delay before acknowledging that a refund was legitimate, the actual payment was stalled until the bankruptcy filing. The individual is now an unsecured creditor with little chance of receiving any funds.
Special Assessment District
The Special Assessment District (SAD) bond issued for Tesoro infrastructure construction included money for a turnpike interchange at Becker Road, the extension of Southbend Blvd, and a new fire station. This 19-year bond is being paid solely by Tesoro property owners although adjacent developers, including Wayne Huizenga, have benefitted. Claims made by an engineering firm hired by Port St. Lucie that 100% of all traffic would be the result of the Tesoro development to support the bonding allocation are of dubious merit, suggesting possible collusion between the city and the developer. While documents provided to buyers mention the SAD, they mention neither the amount of indebtedness nor the terms of payment (approximately $2,400 per year per lot).
Ginn trying to hang on to some property
Ginn-LA is apparently trying to carve out the discovery center (sales center) and Tesoro Beach Club properties from the bankruptcy. Clearly, the value of Tesoro property and a membership would be diminished if the beach club is never realized. The status of additional land owned by Ginn-LA in nearby Martin County, alluded to in the membership offering as an18-hole "All Green" Championship Golf Course located approximately nine miles from Tesoro in Martin County is also questioned by some Tesoro owners. As do many developers, Ginn has created literally hundreds of LLCs, and limited partnerships to shield one entity from the other.
POA services without competitive bids
The vertically integrated Ginn Company is alleged to have engaged Ginn Hospitality as manager of the Property Owners Association (POA), which, in turn, contracted with Ginn Security and Austin Outdoor (a landscape services company reportedly owned in part by Ginn) at uncompetitive rates without a proper bid process (according to several members who have contacted me). A representative of Austin refutes this fact. His comment is posted as a reader comment below. When owners gained control of the POA at Ginn's Conservatory in Palm Coast, Florida, they dismissed Ginn Property Management, realizing a 75% savings.
It's obvious that bankruptcy is not the result of things gone well. Many people will suffer losses, both financial and emotional; property owners, investors, creditors, even Ginn employees. The only apparent winner here is Credit Suisse. The $675 million (the amount of the loan in default which led to the bankruptcy) was not their money. The money came from 52 private investors (mostly hedge funds). Credit Suisse acted as the intermediary, collecting a fee for arranging the credit facility and, presumably, additional fees for negotiating the final settlement agreement.