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Longboat Key Wednesday, Aug. 11, 2010 7 years ago

Colony Collapse

by: Kurt Schultheis Senior Editor

The Colony Beach & Tennis Resort, a Longboat Key landmark for 41 years, is closing.

As of Sunday, Aug. 15, the historic tennis resort will shut down hotel/resort operations and all on-site businesses.

The closing comes after U.S. Bankruptcy Judge K. Rodney May ruled Monday to convert the Colony’s Chapter 11 bankruptcy reorganization with its unit owners to a Chapter 7 liquidation.

The ruling marks the end of the first condominium-hotel, rental-partnership agreement formed in Florida in 1972 by Colony owner and Chairman Dr. Murray “Murf” Klauber.

May also ruled Monday to give complete control of the resort units to the 232 unit owners.

That ruling also gives the Colony Association Board of Directors what it has wanted: control of the majority of the 18-acre property, which, for the past 41 years, was managed by Klauber and his daughter, Colony President and General Manager Katie Klauber Moulton.

Judge May appeared visibly annoyed Monday with a lack of compromise and an apparent lack of communication from all parties involved in the attempts to reorganize the partnership between Klauber’s management company and the unit owners’ association. Rather than heed the advice of U.S. bankruptcy trustee William Maloney, who suggested in court that the bankruptcy case be dismissed, May shocked the roomful of lawyers representing all of the participants.

Maloney argued against Chapter 7 liquidation because there is less than $200,000 in estate assets and more than $1 million in expense claims against the estate.

The trustee also advised May to give the unit owners possession of their units for the foreseeable future while keeping the hotel partnership in place between the owners and Klauber.

Attorney Jordi Guso, who represented Maloney, told the judge the settlement conference became useless when members of the Colony Association Board of Directors refused to work with Klauber or Colony Lender LLC, which owns Klauber’s $10 million overdue bank loans.

“It’s the trustee’s belief the association did not participate in good faith in ongoing discussions,” Guso said. “It’s the trustee’s judgment the case is ripe for dismissal.”

But May didn’t take the trustee’s advice and appeared perturbed with all of the Colony parties. May told those in attendance he was “hoping for some insight” and had received none.

“I’m at a loss and see nothing I can latch onto here,” May said. “It’s obvious the hotel can’t be operated at a profit, and I’m inclined to grant the ejectment (giving control of the units back to the owners) and convert the case (to a Chapter 7 filing). That’s what I’m going to do.”

With those words, it became clear the hotel partnership in place between Klauber and the unit owners was dissolved. That partnership allowed Klauber to run the hotel and rent the units for all but 30 days out of the year.

Moulton, as well as others in attendance at the Tampa hearing, were confused by May’s ruling.

“We were surprised and disappointed by Judge May’s decision,” Moulton said Monday night, a few hours after she told 75 employees the resort was closing. “We thought the trustee’s attorney made it very clear the terms by which we all came to the settlement conference were met by everyone but the association.”

Moulton says she and her father hope they can keep the resort open until Sunday. If a Chapter 7 trustee is appointed by the court before then, he or she would have the right to suspend operations and begin liquidation immediately.

What led to the ruling
Association attorney Jeffery Warren denied that the association board did not act in good faith while attempting to negotiate a settlement.

“I’m totally shocked and more than irritated,” Warren told the judge at the hearing. “We (the association) complied with the request to provide a term sheet that called for a joint reorganization plan, and no agreements could be made.”

Warren said the lynchpin of any future redevelopment is the transfer of Klauber’s property to the association.

“Without that lynchpin, your honor, nothing else swings,” Warren said.

Sarasota attorney Charles Bartlett, representing Klauber, told the judge the term sheet delivered to the trustee “never even made it to our side of the room.”

“We made an offer as to what Klauber would receive for his property, and we have never gotten a response,” Bartlett said.

The comments frustrated May and led to his swift ruling.

“Now I’m shocked,” May said. “We have two honorable people telling me you were both willing to present offers that neither side even saw. How does that happen?”

The comments prompted Guso to defend how the trustee handled the settlement conference proceedings.
“Dr. Klauber made a demand for money for his contribution of land,” Guso said. “It was clear the association was not going to work with Dr. Klauber.”

Guso also divulged that the association asked Colony Lender LLC representatives David Siegal and Randy Langley to present them with a proposal regarding its vision for the property, only to tell the trustee later on that it would not work with Colony Lender under any terms.

“Where we are today is there is no agreement for a Klauber buyout, no agreement for a recreational facilities buyout and no agreement with Colony Lender and the association,” Guso said.

Warren told May that it was his belief that no development of the property could begin until the unit owners were granted complete control of their units.

Fallout from the ruling
Association President Jay Yablon was pleased with May’s ruling.

“Judge May’s ruling means that the unit owners of the association now control the use of their condominium units 365 days a year and the partnership no longer has any right to use those units to run a hotel,” Yablon said. “Further, the conversion to Chapter 7 means the partnership which ran the hotel is now liquidated and will cease to exist.”

Asked why complete control of the units was so important to the association, Yablon said it allows the owners to oversee the resort’s revitalization.

“It means complete control, and it also gives the unit owners, through the association, the right of self determination with regard to the future of the Colony,” Yablon said.

But unless a deal can be made to purchase Klauber’s penthouse living/office quarters, Klauber’s beachfront Vagabond unit and Klauber’s businesses, which include The Colony Restaurant and Monkey Bar among others, the association can only renovate 15 acres that encompass the other three acres of prime beachfront property Klauber owns. The association also has no rights to recreational property that includes the resort’s longstanding tennis courts, which are owned by Klauber, William Merrill and Carolyn Field.

Colony Lender representative David Siegal seemed almost relieved that at least some decision has been made that now gives his and Langley’s investment two paths to follow.

“The ruling of the court doesn’t alter the basic need for the Colony to be renovated, rehabilitated and probably become a condo hotel,” Siegal said.

Asked if he is deterred by the fact the association told the trustee it was unwilling to work with Colony Lender, Siegal said: “We are going to make and continue to put forward our proposal we think all the unit owners will like, and, at the same time, we are a lender and are foreclosing on the mortgage. If it’s determined our proposal is not favored, we will continue our foreclosure and seek to get paid in full.”

Klauber and Moulton, meanwhile, declined to discuss their future or if they plan to appeal the judge’s latest ruling.

Moulton said she realizes the Association Board of Directors wants nothing to do with the management and overall history of the property that she and her father possess in shaping the resort’s future.

“But because our family continues to control the restaurant and the recreational facilities, there continues to be some need for what we have,” Moulton said. “There will be some continued dialogue. We are just not sure it will be with unit owners or future investors.”

Moulton told The Longboat Observer that after years of fighting with the association on failed assessments and the future of the resort “that there may be a point where it’s time for the resort to go through a rebirth, whether we are a part of it or not.

“When my father dreamed of a condo-hotel concept in the 1960s, it was not a part of the industry landscape,” Moulton said. “The exact model he created 40 years ago doesn’t work perfectly today, but with a few tweaks and reasonable collaborative movements on either side, there was room to remake the model so it would work for all parties. The fact the model needs to be modified doesn’t mean it had to be broken.”
But in an e-mail blast to unit owners sent out after May’s ruling Monday, Yablon describes a future Colony that he believes had to be broken before it can be fixed.

Yablon told unit owners that ties had to be cut with the Klauber management. He also informed unit owners the association is willing to develop a resort around Klauber and Colony Lender, if necessary.

“There are difficulties that lie ahead, including trying to redevelop 15 acres of property around a three-acre piece of land that Klauber and Colony Lender representatives have ties to,” wrote Yablon. “Because Colony Lender is, at this time, only a lender to Dr. Klauber and does not own any of the properties controlled by Dr. Klauber, we had no basis to make an agreement only with them.

“Moreover, our concerns about whether Mr. Langley and Mr. Siegal are the best people to work with on the redevelopment at The Colony have been previously expressed. Our position has been and continues to be that the unit owners have the right to decide who will be the best party to work with to redevelop The Colony. When that decision is made, Langley and Siegal will have the opportunity to make their proposal in competition with other potential developers.”

Yablon also divulged in the e-mail that the association will force Klauber, Langley and Siegal to buckle under pressure, if necessary.

“If the demands remain unrealistic, we will simply work around these properties that exist in isolation in the middle of The Colony,” he wrote. “As it becomes clear to all concerned in the wider community in Longboat Key that these parties are ‘lying on the railroad tracks,’ being an obstacle to bringing the Colony back on line as a productive enterprise on Longboat Key, we hope that not only economic, but also social and political pressure will mount on them to become realistic.

“We are prepared to pay a fair price based on the actual value of the properties they control. But we do not think it wise to pay a ransom, and we will be as patient as necessary.”

The difficulty ahead
Yablon also points out to unit owners in his e-mail that there are many other difficulties ahead.
Unit owners must first work with the town of Longboat Key to create a billing water-meter system that’s not currently in place for individual units.

But it’s still Yablon’s hope that the unit owners could be enjoying their units as early as the 2010-11 season.
Yablon also wrote that issues exist with the physical attributes of the property and warned that the property would not be luxurious for the foreseeable future.

“While every owner (after the ejectment) has the right to occupy his or her unit, there are safety concerns and possibly regulatory issues that need to be addressed,” Yablon said. “We know there are termite and mold concerns, and, in certain units, the dishwashers and refrigerators and even toilets are missing.”

Nor will the unit owners have rights to the resort’s tennis courts or swimming pool. Yablon said the association will try to seek alternative arrangements with Key neighbors for recreational amenities.

Nonetheless, Yablon believes the future is bright.

“We already have the right owners,” Yablon wrote. “All we need to do now is unleash the collective energy of our owners, select the right development partners, align our interests in common pursuit, and make that all happen.”

Gregory Rusovich, a 40-year visitor of the resort who recently purchased a Colony unit and lives at The Water Club, is not as hopeful as Yablon for the Colony’s future.

“I’m not so sure what the key to my unit does for me,” Rusovich said. “If the rest of the place is boarded up, it’s not appealing to me at all.”

Rusovich is frustrated with what he perceives as no plan in place for the association.

“Now that the dog caught the car, what’s the plan?” Rusovich wonders.

Remembering the legacy
In the meantime, longtime Colony visitors spent Monday night crying, hugging and commiserating with employees at The Monkey Bar.

“I am sick to my stomach,” said Las Vegas resident and 30-year visitor Lynn Wexler.

Wexler, who has watched three generations of her family visit the Colony, explains that much more is being lost than a hotel.

“What is unique to the Colony, especially in this day and age, is its down-to-earth family lifestyle,” said Wexler, who explains that only here can her son take a fish he just caught in the Gulf and run into the restaurant’s kitchen at a moment’s notice to have the chef fry it up for him. “This place is about real people who play with their kids in the pool and where people can relax and know their children are safe. I attribute Dr. Klauber’s vision for that and I will miss it terribly.”

Moulton also reflected on what her family has accomplished over the last 40 years, choosing not to talk about the resort’s infighting that has waged on since 2004 and sparked Klauber’s initial lawsuit in April 2007.

“What’s really important is my family spent 40 years creating a very special place that became a world-renowned destination,” Moulton said. “At least the legacy that is the Colony cannot change.”

Even Klauber, in the end, chose to release a positive statement.

“This has been my life’s work, and I am proud of what we have built and the millions of visitors we have welcomed to Longboat Key,” Klauber said. “I am committed to seeing that this gem on the magnificent shores of Longboat Key is preserved and revitalized, and I hope to watch the Colony move into a new and exciting era where countless more memories can be made.”

Colony time line

1968 — The Klauber family moves to Longboat Key from Buffalo, N.Y.
1969 — Dr. Murray “Murf” Klauber and a business partner purchase the Colony for $3.5 million and turn it into the first “tennis-centric resort” in America.
1972 — Klauber forms the first condominium hotel rental partnership agreement in the state.
1985 — The Colony is inducted into the Nation’s Restaurant News Fine Dining Hall of Fame.
1988 — Katie Klauber Moulton becomes president and general manager of the Colony.
2004 — The Colony is recognized as the No. 1 tennis resort in the U.S. by Tennis magazine for an unprecedented eight consecutive years.
2007 — Klauber files a lawsuit in Sarasota County, alleging the Colony Association unit owners owe $14.1 million in resort repair costs.
November 2008 — The Colony Association files for Chapter 11 bankruptcy in Tampa, forcing a federal bankruptcy judge to make the final decision on a two-year-old disagreement between the unit owners and resort operators.
April 2009 — Bank of America files a foreclosure suit against Klauber and seven of his corporations.
July 2009 — A federal bankruptcy judge rules the association does not have to pay $14.1 million in repairs.
Sept. 22, 2009 — Klauber and Moulton announce hotel operations will be suspended until further notice.
October 2009 — The Colony’s hotel-operating entity files for Chapter 11 bankruptcy, putting the resort’s debts on hold.
December 2009 — Bankruptcy Court Middle District of Florida Judge K. Rodney May approves the re-opening of 100 rooms at the Colony and a $175,000 loan to Murf Klauber.
January 2010 — The Colony’s hotel-operating entity submits a reorganization plan that would renovate the resort at a cost of $20 million.
Feb. 26, 2010 — Developer/entrepreneur Randy Langley and businessman/lawyer David Siegal purchase loans for $10 million from Bank of America for Klauber-owned property and announce a plan to revitalize the resort.
April 2010 — The Colony Association asks May to convert the case from a Chapter 11 bankruptcy filing to a Chapter 7 liquidation, which would make the Colony into a condominium association instead of a hotel resort.
June 2010 — May appoints William Maloney, a St. Petersburg-based, chief financial officer, restructuring partner with Atlanta-based Tatum Partners, as trustee to oversee all aspects of the Colony.
July 2010 — Siegal confirms that he and Langley will pursue mortgage foreclosure against Murf Klauber.
Aug. 9, 2010 — May converts the Colony Chapter 11 bankruptcy reorganization to a Chapter 7 liquidation, giving the resort’s 232 unit owners complete control of their units.
— Robin Hartill

Contact Kurt Schultheis at [email protected].

Contact Robin Hartill at [email protected].


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