A Colony Beach & Tennis Resort auction was canceled in Tampa last week. An entirely different auction, meanwhile, will proceed July 14, in Sarasota County Court.
Such is the complicated legal mess surrounding the shuttered Colony resort.
U.S. District Judge Steven D. Merryday canceled the auction for the Colony’s bankrupt Partnership estate, after Colony Lender LLC filed an emergency appeal last week to overturn U.S. Bankruptcy Judge K. Rodney May’s ruling to allow the June 17 auction.
That Partnership estate comes with a $23 million judgment that Merryday previously awarded longtime Colony owner Dr. Murray “Murf” Klauber. The judgment, which developers will bid on for the right to negotiate with unit owners, can also be used to assess those owners for damages.
Colony Lender, which purchased overdue bank loans for key Klauber-owned properties in 2010 and is the case’s largest affected creditor, believes it is entitled to a $3.8 million secured claim against the Partnership. It also wants the right to credit bid at the auction.
Credit bidding is a right that secured creditors have in bankruptcy sales and auctions to bid the full amount of their claim without offering any cash.
In this case, that means if Colony Lender has a secured claim and is allowed to credit bid at the auction, it could bid up to the $3.8 million it says it’s owed without putting up any cash.
The Colony Beach & Tennis Resort Association argues that Colony Lender doesn’t have a secured claim it can use to collect money from the auction.
Merryday overturned May’s ruling, stating that Colony Lender has “bona fide issues” and a “reasonable probability of success of appeal.” Merryday wants May to rule on the secured claim and credit bid issues before an auction can occur.
In response to the credit bid issue, Merryday wrote, “Colony Lender risks immediate and irreparable loss, measurable in millions of dollars if the assets at issue are sold at an auction where Colony Lender is forbidden to exercise the statutory right to credit bid.”
Ocean Properties makes a bid
The canceled auction, meanwhile, had three key players vying to own one piece of a complicated resort bankruptcy puzzle.
Ocean Properties Ltd. submitted an offer at 3:59 p.m. June 17, one minute before bids were set to close for the Partnership estate. Ocean Properties placed a $2.45 million bid that it later raised to $3.74 million.
If Ocean Properties wins the auction whenever it’s rescheduled, it will own a stake in the Colony and could potentially own its third resort on Longboat Key.
Ocean Properties already owns the former Longboat Key Hilton Beachfront Resort and the Resort at Longboat Key Club. It is working to renovate both of those tourism properties.
Ocean Properties officials couldn’t be reached for comment for this story.
Two other developers put in offers for the estate.
Orlando-based Unicorp National Development Inc. President Charles Whittall put in an offer for $2.3 million.
Colony unit owner and developer Andy Adams put in an offer for $1 million.
Merryday’s order, though, freezes the auction for the Partnership estate or any other auction U.S. Bankruptcy Trustee William Maloney can hold for the foreseeable future in an attempt to collect money for Colony creditors.
The order means that once Colony Lender’s issues are settled, an auction for the Partnership estate must start over when May reschedules it.
That means Ocean Properties, Unicorp and Adams will have to bid again to be a part of a future auction.
It also means other developers still have a chance to enter a future auction. That includes Longboat Key-based MW Development Group principal Manfred Welfonder.
Welfonder’s group didn’t enter the auction last week as expected.
Welfonder said Siggy Levy, who has been involved in numerous condominium properties on Longboat Key and some developments with the Four Seasons Hotel Corp. decided not to enter the auction.
Welfonder also confirmed his other partner, Ritz-Carlton, Sarasota developer Kevin Daves, is no longer associated with MW Development Group.
“It’s not over,” Welfonder said. “Siggy and I remain a very strong interested party for the future of the Colony.”
The association, which previously aligned itself with Welfonder and his partners, is intrigued with Ocean Properties interest in the auction.
Colony Beach & Tennis Resort Association President Jay Yablon said the association isn’t fazed by the cancellation of the auction, saying it allows for more time for a settlement and a possible alliance with Ocean Properties.
“Ocean Properties’ public entry into the Colony equation is one of the most significant developments of the past couple of years,” Yablon said. “I believe the association is obligated on behalf of the Colony unit owners to promptly and thoroughly explore the opportunities which may now exist because of Ocean Properties’ clear expression of interest in trying to help find a solution for the Colony.”
Colony property auction up next
May scheduled a July 7 hearing date in his Tampa courtroom to discuss the Colony Lender secured claim issue and whether Colony Lender has a secured claim for an auction.
Merryday is also awaiting briefs from Colony parties before he makes a ruling on whether Colony Lender can credit bid at an auction. That ruling isn’t expected until August.
It could take several hearings, though, before May and Merryday rule on those issues.
In the meantime, the freezing of auctions until the resolution of the secured claim issue doesn’t prevent Maloney and Colony parties from working together to reach a settlement agreement that would provide money to creditors and settle some issues out of court.
Colony Lender, meanwhile, also has a different auction scheduled in Sarasota County Clerk of Circuit Court July 14.
The auction is for Colony Lender’s 80% interest in 2.3 acres of Colony property in the middle of the resort.
That auction was postponed in May when Klauber entered one of his Colony corporations that were attached to the auction into bankruptcy.
In May, Siegal said he expected Unicorp would be the highest bidder at the auction, but on Tuesday, he said he had no idea if Ocean Properties would bid at the auction, too.
“I know that Unicorp has set aside a great amount of money for a new Colony,” Siegal said. “I have no idea about Ocean Properties. We haven’t talked to them.”
Contact Kurt Schultheis at [email protected]