September 29, 2009 – 11:03 am

By Teri Buhl for BankImplode.com

The developer of Bonita Bay Club, an exclusive golf community on Florida’s west coast, is using aggressive tactics to get the club’s members to pay off his debts and save him from bankruptcy, according to some disgruntled investors. Questions continue to swirl regarding whether the club’s group of lenders, led by KeyBank, who had lent the developer $120 million by securing club property, is aiding in the scheme.

Last week David Lucas, president of Bonita Bay Group, the golf club’s Management Company, was sued by club members in a complaint that evokes another Ponzi scheme. Claims against Lucas and BBG charge the developer and the company with deceptive and unfair trade practices, constructive fraud, and unjust enrichment. But Lucas isn’t the only party accused of wrong doing, as Dealbreaker reported that Ohio-based Key is also about to be named a defendant in the case.

Lucas married into the moneyed Shakarian family, who founded the GNC chain, and took over running the club after his father-in-law David Shakarian died right before the community was set to open in the mid 80’s.

Local news reports tracking the saga in Naples, Florida say BBG is now nearly insolvent. BBG collected over $100 million when it was formed in “refundable deposits,” which constituted members’ entry fees, and issued promissory notes in return. The notes were essentially a non-interest loan to be paid back in 30 years or within 30 days of a member’s death or resignation. This arrangement worked well until there was a rush of withdrawals in the fall of 2007 and BBG said it didn’t have the money to pay them back. Where that money went has turned into a complicated legal mess that has forced members to turn to the courts for relief.

A few months ago, Bonita Bay Club residents started receiving letters from Lucas saying that unless they buy the club from his firm, he’ll have to shut it down, which could result in a bankruptcy. Lucas wanted the members to come up with another $20 million, on top of the interest free membership notes and the dues they’d been paying, to take over the club. However, their commitments would not end there. Members would still owe money to KeyBank and have to pay back the members who had resigned. It would be a good deal for Lucas, who after being forgiven from the membership note liability, could book a gain on his income statement. It would also be a pick-up to his capital account, clearing the way for him to become a credible borrower again and start all over on another deal.

The members, who’ve entrusted a Turnover committee to speak for them, said in a letter to Lucas last week, “The Club cannot possibly sustain the economic burden you propose without a significant dues increase or a significant reduction in services (or both) in addition to the lack of funding for capital replacement or improvements. We would have no assurance that by the time the $20 million of debt was repaid the facilities would be in acceptable condition.”

David Lucas responded to club members last week that negotiations to buy the club were halted and threatened members that if they did not pay their dues this winter season, they would not have a club to play at. According to the letter obtained by BankImplode, “If you support the current course of the Turnover committee, you commit yourselves to years of litigation, continue or worsen the negative effect on the value of your home and completely halt all real estate activity in Bonita Bay.  Your community will stand still and your club experience will suffer as the result of diminished dues payments.”

Should members choose to stop funneling money into a management company they believe won’t be used for its intended purpose, then the specter of bankruptcy looms. Should conditions worsen and the situation get to that point, the focus of the battle would then shift to who is senior as a creditor and has control of the club’s assets. Is it the bankers or the members? Are there victims in this case that would trump any creditors’ claims? Many club members BankImplode interviewed for this story didn’t have a clear understanding of the distinction.

One of Lucas’ strategies was to scare members into the possible threat of KeyBank foreclosing on the loan and taking over their beloved club’s assets. Such a move has led members to believe that their private access could soon become public.  Lucas, in his own defense, claims he could not refund members’ money because he had to pay off the looming loan so they don’t lose the club. Indeed, nearly $30 million has been paid back to KeyBank. Unfortunately, members are only hearing Lucas’ side of the loan terms as they can obtain no information from Key. As a result, they feel Lucas cannot be trusted to run their club or control the golf course.

In a letter sent to club members last week by their Turnover Committee, the Committee reminds members that “KeyBank has told the TOC that they cannot talk to the TOC without [BBG’s] consent. BBG has refused to grant our request.”

When Roger Brunswick, a Bonita Bay resident, was asked if Lucas was using foreclosure as a scare tactic to get members to pony up more money and actually buy the club from Lucas to pay off his debts to Key he said, “That’s definitely a possibility”.

But BankImplode has learned that foreclosure is not a plan KeyBank has in mind, since the bank does not want to be in the business of running the club. A person familiar with KeyBank’s thinking said there are other ways for the lending group to get their money back. How legal or ethical those ‘ways’ are is at the heart of this argument, which could take a while to resolve. Meanwhile, the club isn’t being maintained to the standards members have been paying millions for.

KeyBank spokeswoman, Laura Mimura, told BankImplode, “There is no current plan for KeyBank or the lender group to ‘take over’ the business of Bonita Bay Group.” Additionally, KeyBank claims that they are only the lead agent on a credit facility provided by seven lending intuitions to Bonita Bay Group. Mimura also points out “Key is legally obligated to adhere to the terms of the loan documents when making any decisions regarding the Bonita Bay Group loan.“ For Key that’s a way of saying they are at the mercy of the lending group. But club members who are familiar with the original loan terms say Key has the majority interest in the loan and thus controls the decision making for the group – which would make Mimura’s argument something of a cop-out.

There is another legal issue here. According to page 19, section E of the original mortgage agreement, club members are senior to the lender in regard to the rights of use of club assets. Even if KeyBank did foreclose on the loan, all it gets is the land and buildings, but the members still control the way the facilities are used. So if the majority of members don’t want the club to be public or increase membership, it won’t happen. The language of the contract actually obviates concerns of members losing their coveted exclusive security.

But Michael Lissack, a Bonita Bay Group resident, points out “KeyBank loses a lot of the value in selling the club to an outside party if the new party can’t control their assets. Who would want to buy it?” Lissack believes KeyBank knows this and it’s just another reason they will not foreclose on the loan. Instead, as reported at Dealbreaker, he says KeyBank is directing BBG to defraud the senior creditor, i.e. the membership tied to club assets. Lissack believes KeyBank is just easing up on loan terms and taking what cash members are paying this year for dues as repayment on their loan.

Meanwhile the club is barely being maintained. Members have told BankImplode that, for example, the heat in the men’s locker room isn’t working and the restaurant is only open a few nights a week.

Whether the courts consider KeyBank’s drive to get money paid back before returning member’s entry fees or maintaining the club is yet to be decided. BBG does have other income streams from real estate sales in its portfolio and even a profitable water facility business. That’s one of the reason members are so outraged that Lucas expects them to pay for his perceived poor debt management.

A Bonita Bay Club resident comment after the Dealbreaker story reads, “We want to see BBG bite the dust in a blazing fire ball on the steps of the Federal Courthouse in Ft. Myers followed by a fire sale to the homeowners of the BBG assets at 10 cents on the dollar. It can and in all likelihood will happen.” We found this sentiment to hold for most residents we spoke with who wished to keep their names out of the press.

There’s one last catch in this complicated showdown that could save members from having to shell out more money for legal fees or to buy the club.

There is currently a separate civil suit pending put forth by Frederick Feldkamp – a Bonita Bay Group member at another club called Shadow Wood – against BBG for not honoring his promissory note when he resigned. The case is currently waiting for a decision by the judge as BBG just turned in its legal response. If these promissory notes are considered an illusory contract and thus turned into a constructive trust, club members could be considered victims instead of creditors. And luckily for club members, victims trump creditors in a bankruptcy. Given that the promissory notes have not been paid back, that becomes a violation of the constructive trust. At that point the court could assume BBG can’t be trusted to run the club or handle members’ money and out they go. The court would then appoint an independent receiver to run the club who can then rule that good ‘ol KeyBank has to return some of the $30 million used from club monies to pay off its loan.

If that scenario plays out, besides KeyBank having to book a loss on its $120 million loan, there will also be questions about the banks’ aiding in the violation of the constructive trust. To say the least, this is a public relations mess for a TARP bank that has thus far managed to stay out of the limelight.

The lesson here simply might be only member-owned clubs prevail as a safe investment, because the current environment is pitting leverage-happy developers and their banks against them. Ironically, in BBG marketing material Lucas credits the values set forth by his father-in-law David Shakarian as the foundation of principles he’s built the development company’s reputation on. Lucas writes, “We have created places where people want to live by striving to do the right thing in every aspect of community planning and development, from caring for the land to caring about our residents’ quality of life through community involvement.”

It looks like it will be up to the courts to rule on how well those family values are holding up now.

UPDATE, 2009-09-30: According to an internal letter seen by BankImplode from Paul DiVito of KeyBank Real Estate Capital, it states the KeyBank lending group never prohibited BBG from refunding golf club member deposits. The Wall Street Journal quoted David Lucas saying KeyBank would not allow him to use money from the credit facility to even refund partial members deposits. DiVito writes, “Also, regardless of what you may have heard or read, KeyBank and the other Lenders have never prohibited BBG from refunding membership deposits. Keybank did not authorize BBG or any other party to make that statement…. The fact is that any issue regarding the refund of deposits is between BBG and the club members…” With contradictions like these, it is no wonder members don’t trust David Lucas to run their club.  But why didn’t KeyBank simply make a public statement denying BBG’s claim instead of hiding behind client privilege? Stay tuned as we continue to follow this story.

Editors Note: The reporter holds no relevant stock positions. Teri Buhl is an investigative journalist who has written for Trader Monthly, The New York Post, Housingwire, and Dealbreaker.

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