In lieu of our weekly Opinion and Letters pages, we are reprinting letters sent last week to Colony Beach & Tennis Resort unit owners. The top letter was sent first by Colony Association President Jay Yablon. The second letter, below, was sent in response by the principals of Colony Lender LLC. — Editor
Owners' board: Resist efforts until defeated
Dear Fellow Colony Owners:
On Monday April 26, 2010, the court concluded two-and-a-half days of trial and testimony on a motion filed by the association and several limited partners to convert the partnership’s Chapter 11 bankruptcy reorganization into a Chapter 7 liquidation … Judge May has asked the parties for written briefs due in about three weeks, to be followed thereafter by his announcement of a decision.
In the next several days our legal counsel, Jeff Warren, will prepare a detailed report to the owners about what developed during this trial, which will include complete transcripts.
On March 26, I reported that Mr. Randy Langley and Mr. David Siegal had purchased Dr. [Murray] Klauber’s Bank of America loans, via an entity called Colony Lenders LLC. During the trial this past week, certain particulars came to light about the relationship between Dr. Klauber and Ms. [Katie Moulton] Moulton, and Mr. Langley and Mr. Siegal, which need to be brought to the attention of the owners at this time.
In testimony taken on April 26, Dr. Klauber, under examination by Jeff Warren, testified that he personally encouraged Mr. Langley and Mr. Siegal to purchase the loans, which were being foreclosed against the partnership and Dr. Klauber’s other entities by Bank of America. It is of record that Mr. Langley and Mr. Siegal did in fact purchase those loans, whereby Dr. Klauber and his various entities owed close to $10 million in total, for an amount that is not public but has been reported to be between $3.5 [million] and $4.5 million.
A deal with Klauber
In his testimony on April 23, Mr. Siegal under cross examination, after Judge May directed him to answer a question that he did not want to answer, admitted that he and Mr. Langley have negotiated a “private” deal with Dr. Klauber.
Under the terms of this deal, if we, the unit owners and members of the association, agree to transfer title to our units to an entity set up by Mr. Langley and Mr. Siegal and vote to convert our condominium into a timeshare so that Mr. Langley and Mr. Siegal can then refurbish and resell our units as a timeshare, then they will pay Dr. Klauber $3 million immediately, they will pay him another $9 million over time and they will forgive the approximately $10 million in debt that they now hold against Dr. Klauber and his entities.
In addition, Dr. Klauber would have a life estate in his personal residence at The Colony. In total, this would provide an approximate $22 million or larger benefit to Dr. Klauber and Ms. Moulton. Additionally, it became clear throughout the trial that legal counsel for Langley/Siegal were acting in a completely supportive fashion for the benefit of Dr. Klauber and Ms. Mouton.
Mr. Langley and Mr. Siegal have already begun in the Sarasota press to promote the benefits of their timeshare scheme and how it will purportedly solve all the problems at the Colony. We anticipate that they may soon start pitching this directly to the unit owners. Following several meetings I have had with Mr. Langley and Mr. Siegal, and after watching how they have approached this matter in the courtroom, I and the rest of the board of directors are extremely skeptical and would advise the owners to exercise great caution in analyzing any promotional efforts that may be directed their way in the coming weeks.
Other outside parties
What is the basis of our skepticism?
First, we know directly of at least a half-dozen outside parties who are very interested in working with the unit owners through the association to redevelop The Colony once the legal disputes have ended. Ms. Moulton and Dr. Klauber testified that “19” outside parties have expressed interest to them.
If Mr. Langley and Mr. Siegal truly felt that their proposal was best for the unit owners, they would have supported our conversion to Chapter 7 and then allowed their proposal to compete on the merits with proposals from other interested outside parties. On several occasions we suggested this to them but were strongly rebuffed at every turn.
Instead, they vigorously opposed our conversion motion in court and are trying instead to leverage the unit owners into transferring title to our units to their entity. This is not the behavior to be expected from someone who truly thinks [his] proposal is the best of all the possible alternatives, on the merits. This is behavior of someone who wants no competition.
The board is firmly resolved that any outside entities [that] wish to offer a redevelopment proposal must compete with all others to provide the best possible arrangement and outcome for the unit owners and not be an entity that is forced upon the unit owners and the association because they have offered the best deal for Dr. Klauber and Ms. Moulton. We trust that this represents the position of the vast majority of the association members by whose good graces we serve as your elected representatives.
Second, no matter what approach we collectively decide upon for redeveloping The Colony, once the legal disputes are ended, it will be vital to preserve as much value as possible for that redevelopment effort.
Siphoning value out of The Colony and into the hands of Dr. Klauber and Ms. Moulton as private individuals, removes the value that could otherwise be used in redevelopment.
In fact, if one remembers that Dr. Klauber and Ms. Moulton asked us to collectively pay about $20 million to rebuild The Colony in both 2005 and 2006, the value of the proposed payout from Mr. Langley and Mr. Siegal to the Klaubers actually exceeds the magnitude of the original redevelopment project. To allow this wholesale diminution of value from our collective investment in The Colony is highly unconscionable.
Leverage the loans
Third, Mr. Langley and Mr. Siegal, since their entry into the bankruptcy proceedings after they purchased the Bank of America loan, have simply not behaved like the creditors that they in fact are. They have shown little interest in having their loans repaid.
Mr. Siegal expressly waived objection to Dr. Klauber releasing an insurance policy, which might have served as collateral against his loans. (We objected to the release because this insurance policy might also be a source of funds for claims of the association, and Judge May has scheduled a hearing for this in late May.) They appear curiously disinterested in forcing foreclosure of their loans.
And, rather than foreclose these loans, it became clear from Mr. Siegal’s testimony that their real interest is to leverage forgiveness of their loans as part of the buyout package they would use to enlist Dr. Klauber’s help in stripping the unit owners of their equity in The Colony.
Finally, the actual performance of timeshares in Florida over the past 10 years has been underwhelming. Many of those projects have failed miserably, lost money for participants and left the owners of time slices with little to show, long after the timeshare developers have made their killing and exited the project.
In sum, it is our view that what is being promoted by Mr. Langley and Mr. Siegal, which Dr. Klauber admits in his own testimony he orchestrated from the outset, is no more than a multimillion-dollar bailout package for Dr. Klauber and Ms. Moulton, to be underwritten by the unit owners transferring their equity interests to Mr. Langley and Mr. Siegal and converting our beloved Colony into a timeshare.
This would deny the unit owners and the association any choice in the future direction of The Colony by forcing us into a shotgun wedding with Mr. Langley and Mr. Siegal over the many interested outside parties who are waiting to compete for the unit owners’ attentions once the legal disputes have clarified.
‘Attempt at a hostile takeover’
Plainly put, we believe this is an attempt at a hostile takeover of The Colony that is being engineered by Dr. Klauber and leveraged by Dr. Klauber’s debt. This is an effort to create an enormous personal benefit to Dr. Klauber and Ms. Moulton from the ashes of a partnership that they drove into bankruptcy, which would be paid for by the surrender of our equity interests at The Colony. And, we are being pushed in the process to relinquish all choice and control with regard to possible future suitors.
We believe these actions are highly adverse to the interests of the unit owners as the association’s members whom we were elected to represent and to whom we owe the highest degree of fiduciary duty under Florida law.
Please be assured that we are resisting these efforts by Mr. Langley and Mr. Siegal and by Dr. Klauber and Ms. Moulton as forcefully as we possibly can. Moreover, we will continue to resist these efforts for as long as it may take to defeat these efforts.
I have told Mr. Langley and Mr. Siegal on more than one occasion that if they are interested in working with our association in the future, they will need to get in line with everyone else who has a similar interest and compete on the merits of their proposal, not on the exertion of leverage in concert with Dr. Klauber. Finally, under no circumstance will we accept or support any effort to deprive the unit owners of their right to determine what will be done with their units at The Colony.
We anticipate that many of you will agree with our views of this situation as you learn more about these recent developments and revelations, and we thank you once again for your continued support and the many words of encouragement we receive from you on a regular basis.
For the Board
Jay R. Yablon, President
Colony Lender: Our plan meets owners’ goals and then some
Ladies and Gentlemen:
We are David Siegal and Randy Langley, the principal individuals in Colony Lender, LLC. As you may be aware, we recently purchased the Bank of America debt encumbering, in part, much of the Resort other than the actual units. For all intents and purposes, the Company is the bank providing financing for the Resort.
As many of you may also be aware, the debt financing we own is in default and is in foreclosure. Both your homeowners association and the partnership controlling a good deal of the residential units of the Resort have filed for protection under Chapter 11 of the U.S. Bankruptcy Code, and those cases are pending in bankruptcy court at this time.
In short, the future of the Resort and the nature, character and quality of your vacation experience at the Resort are in doubt and in quite a state of flux. Despite what others may be telling you, there is no certainty at all with respect to any court-mandated resolution of the outstanding issues at this time.
We have received a copy of the recent submission sent to you by your homeowners association president, Mr. Yablon. We can say only in response that false statements, propaganda and fear-mongering are not the avenues to travel to return the Resort to its former glory that all of you have enjoyed for many years.
I think it important to realize that some of the salient points presented by Mr. Yablon are outright falsehoods and that he has misrepresented what our company is about and what we are trying to do. It is easy to tear other people down and criticize their ideas. It is far harder, we humbly suggest, to formulate a real set of plans to address the problems of interested parties in this matter.
Plan goes beyond goals
The association board is full of critics and not one practical solution, to date. We have a solution that gives you as a unit owner (i) greater value than you currently possess; (ii) six (6) weeks of use of your unit; (iii) 60% of the gross revenue from renting your share of the unit; (iv) swapping rights within the Resort with respect to your six (6) weeks of use; (iv) a brand new resort and amenities with no dollar cost to you for the renovation and rehabilitation to your unit or the common elements of the resort; (v) the funding of the first year reserves without cost to you, (vi) paying the common area maintenance and the taxes and costs of your unit only in proportion to the six-week period in your unit, (vii) an opportunity to purchase more six-week shares of your unit at an advantageous price, only if you wish, and (vi) brand new, professional management of the resort unrelated to or beholden to former management (Klauber). These are the goals that we understand the association to have demanded from all interested parties. Our plan meets them all and goes significantly beyond.
We do not ask you to blindly take our deal. What we do ask is that you keep an open mind, review our proposal when it is submitted to you and vote your preference. All we ask is that we have a chance to propose to you our thoughts and plan for the turnaround of The Colony. Part of item (vii) above will be an opportunity for you to participate in the newly rehabilitated Resort, by buying more fractions at advantageous prices and receiving 60% of the hotel revenue from your interest as well as reselling if you wish at a substantial profit.
In this way, you each make your own individual investment decisions. Some may want to invest. Some may not want to invest anything and just want new management, a totally rehabilitated five-star Colony with no contribution from them, a percentage of revenue instead of profit sharing and more and better time in their units.
Lastly, we write to respond to the misleading statements and outright falsehoods disseminated by the association in its recent correspondence to you.
Relationship with Klauber
The association would have you believe that our company is nothing more than a Klauber shill in sheep’s clothing. Nothing can be further from the truth.
It is true that the we bought the debt encumbering the Resort, but that is something that Dr. Klauber suggested to everyone who was interested in purchasing an interest in the Resort.
The reason to do this is simple — it allows any purchaser of the Klauber interests to control the fate of the amenities at The Colony (the pool, the clubhouse, the hotel, the bar, the proshop, the tennis courts) that are not subject to either the condominium regime or the present partnership agreement.
By buying the debt and the Klauber interests, we accomplish two things that are or should be important to you: (i) we eliminate the Klaubers from future management of The Colony; and (ii) we are in a position to marry the amenities of The Colony with the rental units (if you all agree to our proposed plan) to operate the Resort as a unified whole.
Our attorney was protecting our company’s interests at the bankruptcy hearing. We believe that the conversion of the partnership’s bankruptcy case is not in the best interests of our company or you as unit owners and will lead to years of litigation and problems, which will reduce everyone’s interests in restoring
The Colony to its former glory.
So, it may have appeared that our interests were aligned with those of Dr. Klauber at the recent hearing because we both oppose the conversion, but our plan does not now and never did involve the future participation of Dr. Klauber and his family at The Colony. The [town] manager of Longboat Key also testified that the town opposes the conversion.
There is no question but that Dr. Klauber will receive money for his interest in property related to The Colony. Dr. Klauber does possess equity in various pieces of property relevant to the future operations of the resort. Everyone who wants to run The Colony as a complete resort — units plus amenities — is going to have to make a deal with Dr. Klauber to acquire his interests outside the condominium. To suggest that there is a scenario where Dr. Klauber can be forced to leave without money is not a reality-based scenario.
We understand from the board that the unit owners want Dr. Klauber gone, the resort restored and the resort to be an operating whole with amenities included. Our plan accomplishes that.
If Dr. Klauber continues to be pursued by the association, he will fight back, there will be years of litigation (for which you all will pay individually) and he is not without claims of his own against all of you.
So, years of litigation may well ensue; title to all the units will be unclear, perhaps unfinancable and unsaleable for lack of a clean title policy; The Colony will fall into further disrepair and disrepute; and there is no guaranty being offered by the association to you that Dr. Klauber will not win if he or his relevant corporate entities pursue his/their claims against you (e.g in your bylaws you each individually obligated yourselves to the recreational facilities lease).
It is a gamble the association is taking with your future — and if you lose, the loss could well be devastating on an individual basis, involving damages well beyond the price you paid for your unit, if not its present market value.
Our plan eliminates all of this uncertainty and involves releases of all of the Klauber-related claims against you, which, we believe, are of very significant value to you. Litigation is most often not a good thing for anyone involved, except the lawyers.
‘The New Organization’
Make no mistake about it, The Colony is currently a timeshare under Florida Law, albeit without some of the nicer features of timeshare ownership like swapping rights.
Make no mistake that, under Florida Law, to consummate our proposed plan would require only an amendment of the governing documents. It would not involve a conversion of a condominium regime to a timeshare regime. Any suggestion to the contrary is incorrect and false.
Our plan involves a fractional ownership of the hotel and resort by each of you with the features to that ownership described in the opening several paragraphs above. You may recall that the only deal that your board has touted to you to date involved a Marriott timeshare.
Your association is a not-for-profit corporation. Under the law, it cannot run a hotel or rent out your units. The association must do business with a developer or property manager to maximize the return for your units. If the amenities are no longer available to the unit owners, do any of you really believe that anyone will be able to maximize the return on your units?
Moreover, who is going to repair and renovate your units? Under the association’s scenario, [it hopes] to cut a deal with a developer in the future to rehabilitate and repair The Colony as well as manage the rental of the units. Will anyone be willing to do this without the amenities, and will that person be willing to invest the monies it will take to renovate and rehabilitate The Colony? We submit that this scenario is extremely unlikely.
Longboat’s zoning restrictions
The question regarding fractional ownership is a difficult one. You are presently a timeshare. The difficulty in doing anything else with these units arises out of the zoning restrictions of the town of Longboat Key applicable to your units, which restrict your occupancy thereof to a period of less than 30 consecutive days.
That zoning ordinance will be enforced against the unit owners. To the extent that the association is telling you that you can personally enjoy 365-day use of your unit if the bankruptcy case is converted, that representation is materially false and contrary to the zoning code, which allows The Colony to have a density of 237 residential units instead of the approximate 108 otherwise allowed.
Then, there is the issue of the partnership’s right to the 335 days of occupancy of your units under the governing documents. If there is no amicable resolution reached, there will be years of litigation over this issue.
We believe we have a $3.7 million security interest in those days as did Bank of America. To protect our investment, we cannot give up that right lightly.
Further, there is no guarantee that the judge will convert the partnership’s bankruptcy case. Instead, the case may be dismissed, and the matter referred to state court for resolution. More time will pass, a lot more money will be spent, all for an uncertain outcome.
Our plan eliminates the uncertainty as well as the litigation risk of you and gives you a new resort at no cost to you, plus enhances the value of your investment at The Colony.
With respect to the association’s position that there are “other interested parties” who want to be part of The Colony, we can only ask, where are they and why have they not made the commitment to this project that we have made to date? All interested parties have the same right that we do to make a plan of reorganization and present a plan to you for your approval.
We submit that you will see no other real plan because the other interested parties are either without funds to complete the necessary renovations and acquisitions or are tire kickers, looking to pick up something for nothing. They will not restore the Colony to its former glory, but will bleed it and leave it poorer than they found it.
We are serious people and residents of Longboat Key. We are embedded in the community, and it is imperative to us to make this project a signature project for us. We are local and accountable. That should be important to you; absentee ownership or ownership residing outside the community is decidedly not in your best interests.
We stand ready to restore The Colony and maximize the return on your investment therein. All it will require from you is an open mind and an unwillingness to be swayed by false propaganda.
Lastly, with respect to our position vis-a-vis the foreclosure lawsuits, we forbear not for Dr. Klauber’s benefit but because we believe there is a business solution for the troubles that ail The Colony, and we wish to be part of the solution as opposed to part of the problem and will resolve our mortgage loan faster and less expensively than another six or seven months of foreclosure litigation.
Will we make money from our efforts and recover our investment? Of course we will, whether you accept our plan or not. There is not a single person or entity anywhere that will help The Colony out of a pure sense of altruism.
However, our pledge to you is to enhance the value of your investment at The Colony, increase your time of use, restore the resort to its former glory and create a vacation experience at The Colony that you and your families can continue to enjoy for generations to come. Again, we ask only that you review our proposal and keep an open mind.
We are serious, we are here to stay and we offer the best solution available to the problems that ail The Colony at present.
If you love this Resort and have enjoyed the vacation experience you have had there over the prior years, you will love what we have planned for you.
We look forward to working together collaboratively to making The Colony Beach and Tennis [Resort] the best that it can be and to restore its status once again as one of the premier vacation destinations in the state of Florida, if not in the world.
Randy Langley and David Siegal
Colony Lender LLC
To read Jay Yablon's response to the letter sent to unit owners by Colony Lender LLC, click here.
Currently 0 Responses
5 Catherine Reghere Trunk Show
10:00 am - 6:00 pm
5 Holiday Party! Business After Hours
5:00 pm - 7:00 pm
Paint the town red and green
This year, we won’t just be on the lookout for the most festive holiday lights on the Key. We’ll be on the prowl for anything that embodies the happiness of the holidays with our new “Spirit of the Season” contest.
Pettingell tradition is as sweet as pie
For the sixth consecutive year, Pettingell delivered pies from Yoder’s Restaurant in Sarasota to his customers at Thanksgiving.
Former Key Club manager takes on new role
Former Longboat Key Club & Resort General Manager Michael Welly has a new gig.