Corrected April 29, 2010
The lender holding a mortgage on The Colony Beach & Tennis Resort property outlined a renovation plan for the resort Friday, April 23. That plan involves paying Colony Chairman and owner Dr. Murray “Murf” Klauber $12 million in exchange for his departure from resort affairs and acquiring all of his property and on-site businesses.
David Siegal, one of the partners of Colony Lender LLC, testified in a Colony Chapter 11 reorganization bankruptcy hearing that he and his partner, Longboat Key businessman Randy Langley, have created three options. All of them include partnering with York Capital Management LLC, a New York-based investment company that has an ownership interest in ResortQuest International, a national resort-rental company with an office on Longboat Key.
Siegal, a Longboat Key resident who practices business law in New York state, told the court he expects signing an agreement with York Capital in two weeks that would allow Colony Lender LLC and York Capital to buy out Klauber.
Lender outlines options
Siegal told the court the total indebtedness owed to his and Langley’s company was $10 million as of March 1. Of that $10 million, one entity, Colony Beach & Tennis Ltd., owes $3.7 million. Colony Beach & Tennis Ltd. is the company that filed for Chapter 11 reorganization.
In addition, Siegal said, other Klauber-controlled, non-bankrupt companies have guaranteed the $3.7 million loan and owe $6.3 million on their loans. The collateral on the loans includes such assets as the Colony’s restaurant and service buildings, tennis courts, spa and a penthouse office.
Siegal did not say in court what Colony Lender paid to buy the $10 million loans from Bank of America almost two months ago.
Siegal described the three options as plans A, B and C. In each plan, Colony Lender would pay Klauber $3 million upfront and an additional $9 million over five years in exchange for the resort owner’s interests and all of his businesses on site. It would absolve all of Klauber’s resort debts and loans and give him “a life estate” for his fifth-floor penthouse living quarters.
The A plan also would include:
• Investing $20 million at no cost to the 232 unit owners to return the Colony into a “brand-new, five-star hotel and resort.”
• Increasing unit owner use time at the resort from 30 days to six weeks and allowing owners to select their time any time of the year.
• Funding $1.5 million for the first year of reserves for the new Colony, at no cost to the unit owners.
• Free use of all recreational faculties on site for unit owners.
• Unit owners receiving 60% of the profits for unit rentals.
“This is what they say that they want,” Siegal said. “They want the Klaubers to retire their interest in the resort. This plan allows for that and more.”
Siegal said he hopes the Colony’s 232 unit owners will agree to plan A.
But plan A comes with a caveat that Colony Beach & Tennis Resort Association attorney Jeffrey Warren insinuated that unit owners will not accept.
In exchange for plan A, unit owners must sign over the titles to their units to a trust, converting the resort from its current state into a timeshare resort facility. Currently, the owners hold titles to each unit and are part of partnership with Klauber in the management of rentals to resort guests.
Siegal said he needs board approval and 75% of the unit owners to agree to the plan, or an 80% vote of the unit owners without board approval.
If the unit owners don’t agree to plan A, Siegal said, plan B calls for making arrangements with unit owners individually to upgrade their buildings and continue to operate the Colony under the current operating agreements.
“We need seven out of eight unit owners per building to upgrade everything from interiors to replacing new windows at a cost of $90,000 per unit,” Siegal said. “If they agree, they will get use of the amenities.”
Siegal said he and his partners will not spend $20 million for a new facility under plan B.
“Plan B allows a 40-year-old resort to continue aging with renovations that wipe away termites and other issues with the buildings,” Siegal said.
If plan B is not accepted, Siegal said, plan C, which he called “the least desirable alternative,” involves building a six-story hotel building on Colony property that his corporation, Colony Lender LLC, eventually could own near Gulf of Mexico Drive.
“We would build 50 to 90 condos and exist among unit owners that don’t want any part of the resort,” said Siegal. He said plan C would significantly lower the value of his corporation’s investment, because his new hotel “would be surrounded by dilapidated conditions.”
Association lawyer Warren told Siegal he didn’t understand why Siegal and Langley could not submit their proposal to the association, along with other interested parties, once the bankruptcy case was resolved.
Siegal responded by suggesting he won’t have a chance to present a plan if the judge decides to convert the bankruptcy filing from a Chapter 11 case to a Chapter 7 liquidation at the association’s request.
When Warren questioned why Siegal was working toward his proposals, even though Klauber has signed a letter of intent to work with Days Inn founder William M. Hitson on a renovation plan, Siegal downplayed the question.
“A letter of intent doesn’t concern me,” Siegal said.
Judge May called Siegal’s testimony “very helpful to the court.”
Town manager testifies
On Monday, April 26, Town Manager Bruce St. Denis took to the stand, explaining to the court the town does not support the Colony Beach & Tennis Resort Association’s request to convert the bankruptcy case if it means the island loses the resort’s tourism units.
Said St. Denis: “It’s important for the town to promote tourism because residents of this island are tourists first. We need a significant tourism aspect to get the businesses the island has through the year.”
St. Denis said a substantial loss of tourism units, which were converted to residential properties a few years ago when property values skyrocketed, has hurt the town’s revenue stream.
St. Denis told the court that in 2004, the town received $325,000 in tourist development penny sales-tax revenues. And in 2005, the town collected $410,000.
Of those total collections, St. Denis said 40% of those amounts came from the Colony and another 40% came from the Longboat Key Club and Resort.
Warren, however, questioned whether St. Denis should have been a witness for the resort.
“Isn’t it unusual for a town manager to get involved in a private dispute such as this?” Warren asked.
St. Denis responded by explaining the town is a creditor in the bankruptcy case for water utility services owed and that Colony President and General Manager Katie Moulton asked him to be present.
Warren suggested that if the hotel rooms were still in use, regardless of who was running the resort, the town wouldn’t have an issue.
St. Denis agreed.
“If the town continued to collect the tax and the situation at the resort is something similar to what exists now, it would be a wash for us,” St. Denis said.
Moulton was also brought back to the stand Monday to report that the month of April has been profitable for the hotel.
Moulton reported 1,100 room rentals this month at an average daily rate of $315. The resort, Moulton said, also has $320,000 worth of business on the books so far for the year and more than 500 rooms reserved in May.
Upon cross-examination, Warren pointed out that the upcoming summer months for the resort are not usually profitable. Warren noted losses of approximately $200,000 in May 2007 and June 2007.
Moulton, however, noted during her testimony July is often a profitable month and the resort uses profits from its busy season to carry it through the slower summer months.
Moulton and Klauber both testified they are working with 14 investors who have shown an interest in the resort grounds and that they have signed letters of intent to work with a few of those investors.
“All deals are contingent on this bankruptcy hearing,” Moulton said.
Klauber and Moulton both testified that the resistance of the association’s board to meet with those groups was the main reason many of the groups are not willing to move forward with plans.
Moulton also noted that a limited partners (unit owners) advisory council she formed to develop a plan for resort renovation that was listed in the Colony’s reorganization plan consisted of a broad range of unit owners, some of whom did not vote in favor of past resort assessments.
Said Moulton: Their input, which had not been sought from by the board, was essential in developing a plan that would be appealing to the largest percentage of the owners.”
When Warren asked Klauber why he was dealing with so many different parties to make a potential deal for the resort’s renovation, Klauber said, “Mr. Hitson, Mr. Langley and Mr. Siegal know I have been talking to other people. I have a tremendous love for the Colony and respect for the people who back me. I have to find the best solution available for me and the unit owners.”
May told both parties Monday he won’t rule on the conversion request until Tuesday, May 25, after receiving written final briefs from all attorneys May 17.
Contact Kurt Schultheis at [email protected].