Ginn Companies 2008 Bankruptcy Repercussions Continue at Tesoro Preserve

Judge rules that Tesoro Preserve property owners are bound by mandatory membership to the Tesoro Club, even though lots once costing $250K to more than $500K are reportedly worth less than $5K now .

Palm Coast, FL – May 22, 2014 – In December 2008, several Ginn-LA (Bobby Ginn and financial partner Lubert Adler) entities went through chapter 7 (liquidation) bankruptcy following their default on a $675 million dollar Credit Suisse loan. Repercussions of that bankruptcy are still being felt, as property owners at Tesoro Preserve in Port St. Lucie recently learned.

In an April 14th ruling, the United States Bankruptcy Court in the Southern District of Florida found that the Tesoro Club’s Mandatory Membership Requirement for Tesoro Preserve property owners pursuant to the Preserve Master Declaration is enforceable.

Tesoro is a Bobby Ginn developed community in Port St. Lucie marketed as a high-end luxury residential development. Its 115,000 square foot Tuscan-style clubhouse cost $45 million to build.

In 2008, Ginn-LA defaulted on a $625 million loan from Credit Suisse. Much of Tesoro and four other Ginn communities had been pledged to cross-collateralize the Credit Suisse loan. In December 2008, Tesoro and Quail West (another Ginn development near Naples) entities declared bankruptcy.

In March 2009, West Coast Investors LLC, headed by Glen Straub, purchased the Tesoro assets at foreclosure for $10,990,000. The assets included 353 building lots, a golf course, the clubhouse, a racquet club building, some commercially zoned land and the lease on a second golf course. The second golf course was subsequently purchased by WCI.

The WCI purchase agreement also included “All of the Debtors’ rights as developer under any master declaration, club declaration, developer agreement or other relevant document, and all assets of the common areas in the Tesoro Property.” This inclusion is the basis for the court’s ruling.

Tesoro Preserve is a nearby Ginn-developed planned community separate from but related to Tesoro. It consists of 440 residential lots in two sections; island and mainland as seen in the picture to the right. Tesoro Preserve was subject to neither the Credit Suisse loan collateralization nor the bankruptcy. But under the Preserve Master Declaration, the Tesoro Preserve mainland lots are subject to a mandatory social membership requirement at the Tesoro Club.

According to court documents, membership in the Tesoro Club “requires an initial deposit of approximately $26,000 to $28,000 depending on the type of membership purchased. Moreover, there are additional costs of approximately $6,922.50 per year for social dues.”

Beginning in early 2010, various subsidiaries of ValueRich, Inc, (NYSE Amex: IVA) began acquiring Tesoro Preserve assets including 120 building lots, interests as Declarant under the Master Declaration and Association Rights. VallueRich has since renamed Tesoro Preserve “Ravello.”

In July 2011, the Preserve Association, under control of the new developer, filed an Amendment to the Preserve Master Declaration removing the mandatory Tesoro Club membership requirement. However, under the Preserve Master Declaration, “Any and all provisions relating to Tesoro Club, including, but not limited to, the provisions of this Article IV (the section containing the Mandatory Membership Requirement) may not be amended without the written consent of Tesoro Club LLC.” The Tesoro Club had never consented to the Amendment.

In March 2012, WCI filed lawsuit against the ValueRich entities. The recent finding was the outcome of that lawsuit. It invalidated the Amendment to the Preserve Master Declaration and affirmed the Club’s right to enforce the mandatory membership.

The defendants have filed an appeal. That will have to work its way through the judicial process. If the ruling is upheld, the Tesoro Club can proceed to demand payment of the mandatory initiation fees and periodic dues, including any past due amounts and late fees or interest. A 2012 report showed that over 80% of Tesoro Preserve property owners had not paid their mandatory membership fees. Absent payment, the Club can pursue remedies up to and including foreclosure.

GoToby.com expects WCI to proceed with foreclosure on all delinquent lots. Then removing the mandatory membership requirement will allow development and resale of the lots at a price point more in line with current market conditions.

There are two categories of Ravello property owners. The first category paid top dollar when Tesoro Preserve was launched before the real estate bubble burst. They have already seen a massive loss of value and their lives have been disrupted. The second category, including the ValueRich entities, bought at rock bottom prices with hopes of profiting when the market turns. Both categories bought with full knowledge of the mandatory membership requirement. Both will be subject to the consequences of the recent ruling.