West Palm Beach golf development flubs and Florida lawyers take action.
UPDATE: Just 11 days after Denver-based Westside Investment Partners cancelled its $102.1 million offer to purchase Banyan Cay, on August 11th, an affiliate of Calmwater Capital, the major creditor of Banyan Cay Resort & Golf Club, filed a motion per its bankruptcy case in West Palm Beach federal bankruptcy court to purchase the struggling property through a credit bid in order to seize control of the unfinished mixed-use development. The motion offers the pending $94.1 million foreclosure judgment, $2.4 million in accrued interest, and advances previously provided.
Every serious golf aficionado knows that Palm Beach County enjoys a rich history as well as national fame as one of the most popular golf mecca’s in the world, due in no small part to events like last month’s Honda Classic PGA Tour. While the season opener was taking place before millions of viewers another golf-related event was unfolding, albeit before a much smaller group whose interest leant itself to the more serious business of city development in West Palm Beach. Key players: the Florida lawyers of Real Estate Credit Holdings, Banyan Cay Mezzanine Borrower LLC and U.S. Real Estate Credit.
Upshot. The fate of the new Banyan Cay Resort & Golf, a luxury hotel, resort, and golf club that was scheduled to be completed by late 2021, is up in the air… again.
During its planning stage, the development was to be the biggest project in West Palm Beach since Cityplace, now called Rosemary Square. The resort hotel and renovated 18-hole golf course designed by legendary golfer Jack Nicklaus in 1969—the only private golf course east of Interstate 95 in Palm Beach at the time—had been under construction for over 4 years, and a new setback has stalled the project.
Back story of the West Palm Beach Hyatt golf retreat
For those of you who were looking forward to booking a stay at the only Destination by Hyatt resort in Florida, Banyan Cay Resort & Golf, which began excepting reservations last September, you may have to delay or forgo your plans. While the beautiful venue and its amenities can still be viewed on their website, at this time, a quick Google search for the business will generate the message “Temporarily closed.” This is its back story:
- July 2011, The President Country Club is purchased for $11 million. George T. Elmore, founder of the Hardrive development and construction firm bought The President County Club, a 240-acre property split into two golf courses, which was in financial distress.
- January 2014, West Palm Beach OKs development
The city approves the property, then known as the Patriot Golf Course, to be converted to a 119-acre commercial zone with a three-story, 250-room hotel, 23 resort rental villas linked to the hotel, 94 single-family homes and a 15,000 square-foot spa.
- August 2015, the Banyan Cay Dev. company acquires the property. The property is purchased by a local Palm Beach Gardens company owned by developer Domenic J. Gatto Jr. for $26 million. At that time an 18-hole golf course, a clubhouse and pro shop with related amenities, driving ranges and five tennis courts were in operation. Soon thereafter the redevelopment was renamed the Banyan Cay Resort & Golf Club and more details were released about its $280 million plans. The city approved plans for 145 single-family homes, a 200-room hotel and a 200-unit tower and Noble House Hotels & Resorts was brought on to manage the golf course and future hotel, which planned to open the fall of 2018.
- March 2017, developer pays $10M for part of golf course slated for homes. An affiliate of Boca Raton-based developer SobelCo. pays $10 million for part of the Banyan Cay Resort & Golf Club.
- May 2019, construction of Banyan Bay development halted. Work stops and the concrete shell of the hotel stands without roof or windows, with 14 months of work yet to take place. At that time there were $7.7 million in liens from unpaid bills and workers walked off the job because they weren’t getting paid. West Palm Beach’s development services director, Rick Greene said, “They need funding or they’re in a dispute with their contractor,” as reported by the Palm Beach Post. At that time the hotel was to be managed by Nobel House Hotels & Resorts.
- December 2020, Banyan Bay restarts construction and rebrands. The golf resort announces it will be part of the luxury brand Hyatt’s Destination Hotels and will open in 2021. Construction had resumed in October with added plans for more banquet space and villas for a total of 172 keys, as opposed to the original 150. The expansion also included a spa, a fitness center, three swimming pools, a tiki bar, a wedding pavilion, a tennis pavilion and three restaurants. All of this would be constructed on the country club’s 119-acre northern golf course.
- June 2022, the hotel announces it was accepting group reservations starting Sept. 1, 2022, with bookings already being made into 2024. “I’d say we’re about 75% complete,” said Scott Ward, director of sales and marketing for the resort.
- July 2022, lender seeks to foreclose on property for non-payment. The development partners allegedly failed to repay $61 million construction loan by maturity date of July 1st. Attorneys for developers and lender did not comment, as reported in The Palm Beach Post.
Local News Now Abuzz with New Lawsuit Issues
The West Palm Beach development that had generated so much press since its inception is presented with a new plot twist that once again captured the attention of local journalists.
Last month, on February 16th, U.S. Real Estate Credit Holdings won a $95.1 million foreclosure judgment against the property, which is owned by Banyan Cay Resort & Golf, Banyan Cay Dev LLC, and Banyan Cay Villas and loan guarantor, Domenic J. Gatto Jr. The judgement was based on two loans with more than $83 million in outstanding principle, as well as interest and fees.
On the same day, the lawyer for Banyan Cay Mezzanine Borrower LLC, the resort’s holding company, filed for Chapter 11 reorganization protection. The debtor hadn’t disclosed all its assets and debts, but the company owns all three companies that have a shared interest in Banyan Cay resort, according to the suit filed in U.S. Bankruptcy Court in West Palm Beach.
The creditors include mezzanine lender U.S. Real Estate Credit, which provided the developer with a $5 million loan through the EB-5 visa program on behalf of 10 foreign investors who invested in the project. This program assists immigrant investors who want to finance a U.S. business that will employ at least 10 U.S. workers. Mezzanine financing is a type of business loan that offers repayment terms based on a company’s cash flow. It also gives the lender the right to convert the debt into an equity interest in the debtor’s company in case of default.
Foreclosure Auction Looms
A foreclosure auction is scheduled for next month on April 3rd that includes both the hotel and golf course as well as an adjacent project comprising 33 single-family homes and 22 villas that were to be renovated by the developer, but has not been completed.
The foreclosure lawsuit alleges that the hotel loan wasn’t repaid by its July 1st, 2022 maturity date, and the developer did not obtain a certificate of occupancy for the hotel by its original projected opening date of April 30th, 2022.
The Chapter 11 filing prevents both lenders from foreclosing on Banyan Cay Mezzanine’s equity interest in the other companies but does not halt the foreclosure auction, since those companies are not in Chapter 11.
Also on February 16th, Banyan Cay Resort Fund, which is composed of the 10 foreign investors, filed a lawsuit in New York federal court against U.S. Real Estate Credit, which provided loans to the project’s developer. The suit alleges that the lender violated its intercreditor agreement by increasing the value of its loans to the Banyan Cay real estate companies by $5 million without approval. The suit claims that without this extra debt there would probably be enough money left over from the sale of the property to pay off the mezzanine loan. Banyan Cay Resort Fund is seeking full repayment of the loan.
According to Banyan Cay’s attorney, the bankruptcy protection is meant to stall what Mr. Gatto deems a “wrongful foreclosure.”
Contact Florida Bar Board-Certified Attorneys David E. Klein, Esq. and Guy Rabideau at Rabideauklein.com. They have the expertise and experience you need to ensure that your interests are protected throughout your real estate transactions in Palm Beach County and throughout Florida. Contact Rabideau Klein to discuss the legal implications of your next Florida closing.