This article, originally published by Al Zucaro on BocaWatch.org, is preserved for historical purposes by Massive Impressions Online Marketing in Boca Raton.
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Publisher’s Comment: Attorney Kanouse has been following the Ocean Breeze matter with more than just a passing interest. He has been involved with developing the legal arguments for a class action lawsuit as presented by Mr. Don Huber, Ocean Breeze Neighborhood Association, and reported on by BocaWatch last week. Below, Attorney Kanouse provides a historical prospective on the Ocean Breeze property and the rationale opposing the Greater Boca Raton Beach and Park District’s efforts to acquire this property.
Al Zucaro, Publisher
I think the real question is why the Beach and Park District would pay $24M for a golf course having a real value of around $4M? In 1967, the original developer of the Boca Teeca Subdivision, Boca Teeca Corp. (the “Original Developer”) acquired property totaling several hundred acres located in the northeast portion of the City of Boca Raton, Palm Beach County, Florida including the Hotel Property and Golf Course Property. In 1973, the Original Developer obtained the approval from the City of Boca Raton to develop single-family homes and condominiums on the property. As an inducement to obtain the City’s approval and to facilitate the sale of single-family homes and condominiums, the Original Developer also promised to develop 208 acres of the property as a 27-hole championship golf course (the “Golf Course Property”). .
The Golf Course Property was developed as a 27-hole championship golf course known as “Boca Teeca Country Club” and became open for play to not only property owners within Boca Teeca but also other residents of the City of Boca Raton and other golfers. To assure the City and present and future property owners in Boca Teeca that the Golf Course Property would be continuously operated as a 27-hole championship golf course, the Original Developer dedicated to not only to the property owners within Boca Teeca but also to “The Public” by signing on September 10 and recording on September 25, 1974 in Official Records Book 2353, Pages 653 of the Public Records of Palm Beach County, Florida the Declaration of Restrictions (the “Restrictive Covenant”). The Restrictive Covenant states in Section 2 that “The subject tract of land [Golf Course Property] shall be used only for the purpose of a golf course facility.” The Restrictive Covenant states in Section 3 that it is a covenant “running with the land” and is binding upon all future owners of the Golf Course Property. The Restrictive Covenant states in Section 4 that “These restrictions are imposed in perpetuity.” While Section 5 of the Restrictive Covenant states that it may be amended only with the consent of the owner of the Golf Course Property and a majority of the Boca Teeca property owners, no such amendment has been obtained by Lennar Homes and recorded. Section 6 of the Restrictive Covenant grants each property owner, jointly and severally, the “right to proceed at law and in equity to compel compliance with the terms hereof…”
The Golf Course Property and the Hotel Property were eventually acquired by Boca Teeca Country Club, Inc. that changed the name of the golf course to “Ocean Breeze Country Club” (“Ocean Breeze”) on January 23, 2001. The Golf Course Property and the Hotel Property were subsequently acquired by MCZ/Centrum Florida V Owner, LLC, an Illinois limited liability company (MCZ”). On November 30, 2004, MCZ obtained a loan from Wachovia Bank, National Association (“Wachovia”) to acquire the Golf Course Property in the original principal amount of $7,000,000 (the “Loan”). The Loan was secured by, among other things a first mortgage on the Golf Course Property and the Hotel Property (the “Mortgage”). On October 30, 2008, Wells Fargo acquired Wachovia. Eventually, the Loan amount became nearly $12,000,000.
The Loan became due on May 31, 2009 and MCZ failed to repay the Loan. On March 9, 2010, Well Fargo filed a mortgage foreclosure action against MCZ. On October 20, 2010 Wachovia was merged into Wells Fargo and Wells Fargo succeeded to Wachovia interest under the Loan and Mortgage. A Final Judgment of Foreclosure was entered on November 25, 2015 for $17,609,723. On December 23, 2015 Wells Fargo assigned its Judgment to its wholly owned subsidiary, Redus EL, LLC (“Redus”). The Clerk of the Court was ordered to sell the Golf Course Property at a public auction on January 8, 2016. One bidder offered $4,000, 000 at the auction but Redus was the successful bidder for the Golf Course Property and the Hotel Property purchasing it for $4,000,100, far below the Judgment for $17,609,723 Judgment and became the owner of the Golf Course Property subject to the Restrictive Covenant.
Several months ago, Redus entered into a contract with Lennar Homes to sell the Golf Course Property and the Hotel Property. Lennar intended to convert the Golf Course Property into additional homes and condominiums with all 27 holes of the golf course ceasing to exist. While I do not have a copy of the contract, I assume that it has at least 2 contingencies: (1) obtaining the consent of a majority of the Boca Teeca property owners to amend or terminate the Restrictive Covenant (highly unlikely); and (2) obtaining the approval of the City of Boca Raton to the rezoning of the Golf Course Property to residential.
On June 30, 2016, Wells Fargo decided to close the Golf Course Property and ceased operating the Golf Course Property knowing that the closing of Ocean Breeze Golf Course would violate the Restrictive Covenant as the Golf Course Property ceased to be a “Golf Course Facility”. As reported to the South Florida Business Journal on July 29, 2016 “ In a statement, Wells Fargo noted that it had been subsidizing the operations of the golf course and club for nearly five years during the foreclosure process. Unfortunately, costs associated with running the property’s extensive facilities far exceed revenues,” Wells Fargo said.” However, the closing has damaged the Boca Teeca property owners.
While Wells Fargo tried many times between 2010 and 2016 offered to sell the Golf Course Property to the City of Boca Raton, the City was not interested. However, after Lennar had signed the contract, curiously the City decided that it wanted to sell Boca Municipal Golf Course (Boca Municipal”). Lennar offered to buy Boca Municipal for $41M cash plus “donate” Ocean Breeze to the City for $10,000,000. When news of the City’s interest in sell Boca Municipal became public knowledge, several other home developers became interested in buying it. The highest and best offer has come from GL Home for $73M without any contingencies and without dealing with Ocean Breeze. I believe that Lennar has come back to offer the City $74M cash for Boca Municipal but this includes selling Ocean Breeze to the Boca Raton Parks and Recreation District for $24M but keeping the Hotel Property. Since the Golf Course Property has been closed for so long and Mother Nature has taken over, to return the Golf Course Property to a championship course with excellent playing conditions requires the complete renovation at a cost of approximately $15M.
The true valuation of the Golf Course Property has to include the fact that it has to be operated as a “Golf Course Facility.” I was one of the 3 bidders to purchase The Country Club of Boca Raton formerly Boca del Mar Country Club 4 years ago. I was a member of the club for many years. The club included an 18-hole golf course on 124 acres between Palmetto Park Road on the north, Camino Real on the south, Powerline Road on the east and Military Trail on the west. It also included a 30,000 sq. ft. clubhouse, 6 tennis courts and 400 parking spaces. However, the property is subject to a similar restrictive covenant that the property can only be used as a golf course. The club was indebted to PNC Bank for $2.1M. I budgeted that the mortgage could be purchased for between $1M and $1.5M. My plan was to remodel the golf course and become the only golf course in the country that specialized in hosting charity, corporate, junior and other amateur golf tournaments but run them like a PGA Tour tournament. Unfortunately the members wanted it to continue to operate it as a private club. Penn Florida was the successful bidder promising the members that it would continue to operate the club as a private club for at least 2 years, incurring operating losses I estimate to be at least $1.5M a year. All of the members lost their equity in the club including me. Penn Florida purchased the PNC Mortgage for $1M and will be renovating the golf course for $7.5M with Jack Nicklas. I have heard from existing members that it will be closed this summer until March 31, 2018. It will then remain private but will also be the golf course amenity for guests staying at the Mandarin Oriental Hotel currently being developed by Penn Florida.
Based on the fact that the Ocean Breeze has to be operated as a Golf Course Facility, a fair valuation is between $3M to $5M. Then you have to add another $15M for the renovation costs. To pay $24M and then incur another $15M is ridiculous. I understand that the Beach and Park District is obtaining its own appraisal. You can’t use land comparables such as the Wild Flower tract that’s only an acre or so and right on the Intracoastal or other land purchased for parks that were not subject to such a restrictive covenant. Boca Municipal is not being purchased to continue to be a golf course but for residential development.
Does the $24M include a renovated Golf Course Facility?