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Troubled Waters, Troubled Assets

Seven big deals rocked by the bust (and the spill)

Turquoise Place, in Orange Beach

Turquoise Place, in Orange Beach

Dueling Condos Still Contenders

Two of the most ambitious beachfront resort developments on the Alabama Gulf coast hit the recession like a brick wall. They’ve stirred back to life this year, giving local realtors signs of hope for a reborn market. But reports of their recovery include deeply discounted prices and a lot of bad blood flowing from the BP oil spill—a dispute over who got paid and what Alabama governor helped oil the payment.

The developer of the $375 million Turquoise Place condo tower in Orange Beach is hoping an appeals panel this month will approve a claim of over $30 million in damages from the BP spill. He says that will help him get back up to speed against competitor Phoenix West, a $245 million condo project just down the road in the same town, which received a $37.2 million BP settlement in December 2010.

Turquoise developer Larry Wireman, of Jackson, Miss., went on the offense in April, complaining to the Mobile Press-Register that Phoenix West gained an unfair advantage by getting then-Gov. Bob Riley to influence the Gulf Coast Claims Facility to agree to the development’s damage claim. 

Phoenix West, in Orange Beach

Riley hasn’t commented on the matter, and Tillis Brett of Brett-Robinson Realty—developers of Phoenix West—says Riley acted as a consultant not a lobbyist. Riley registered with the state as a lobbyist in August 2011, listing Brett-Robinson as one of five clients.

Riley’s influence on behalf of Phoenix is contrary to the code of conduct BP posted on its oil spill claims website, says Stephen King, executive vice president for Turquoise Properties Gulf Inc.—a contention the company made a part of its claim before the GCCF review panel.

“BP’s counsel explicitly stated in its September 2011 reply memo in support of its appeal that ‘BP made a voluntary decision, at the request of the Governor, to assist with the completion of the construction of Phoenix West,’” says King.

King says he can’t disclose the exact amount Turquoise is asking for but that it is comparable to the $37.2 million Phoenix West received.

Brett says Phoenix condos are selling at 30 percent below pre-recession prices, with 120 units remaining out of a total of 358. King says 173 out of 400 units remain unsold at Turquoise Place, at prices about 21 percent below their peak.

Hard Road Down to Mandalay

The tallest if not the largest real estate dream on the Alabama coast was conceived in 2004—a pair of 36-story towers housing 500 condos, called Mandalay. Two years farther down the road to this dream, the bubble burst on the irrational exuberance of the post-Hurricane Ivan condo world.

A group of Mobile and Baldwin county developers assembled 15.5 acres on the Gulf and $100 million in loans when presales started in 2005, a week after Hurricane Katrina. That one week, developers told the Mobile Press-Register they sold 100 condo units at prices of $900,000 and up. But they also said they needed to sell 175 units to secure a $300 million construction loan. And that’s when the music stopped.

Sales slowed, banks tightened up, and by 2007, foreclosures and lawsuits tumbled. The largest lender, at $29 million, was Oxford Investments LLC, headed by Jim Mattei—a legendary Midas of business, Mobile native, founder of the Checkers fast food chain. Bank lenders were Colonial BancGroup, at $23 million; BankTrust, $7.5 million, and Compass Bank, $12.75 million. Compass and BankTrust had to buy back their land collateral in foreclosure auctions. Compass paid $4.3 million, BankTrust $7.5 million. Colonial’s cratered assets entered the labyrinth of the second largest U.S. bank failure of 2009. Mattei got a judgment against the developers for $13.2 million and five acres of non-bank-owned land that he bought back in a foreclosure auction for $15 million.

Leading the group of developers were John Case, a Mobile contractor whose Coastal Builders was an active builder in the condo boom; Rick Phillips, owner of Ono Properties in Gulf Shores, and Robert Williams, a Mobile businessman who had recently cashed out of Terminix franchises in eight states. 

Prattville Mayor Bill Gillespie (far left) and others listen as Bobby Rives (far right) conducts the auction of the High Point Town Center property during a mortgage foreclosure sale in July 2011. 

Photo by Peggy Blackburn/Wetumpka Herald

Bass Pro Shop Hits Shallows

The city of Prattville was one of the investors hit by the real estate collapse, after betting on sales tax returns from High Point Town Center, the grandly conceived retail center that lured anchor tenant Bass Pro Shop in 2006. Bass Pro was hooking municipalities across the country into such incentives packages—creating a virtual bidding war among U.S. cities. Birmingham-based developer AIG Baker and Bass convinced the city of Prattville, population 30,000, to take on $43.4 million in bonded debt to build infrastructure for the development.

Since the recession, occupancy stalled and the development went into bankruptcy. The shopping center was sold in foreclosure on the courthouse steps in July 2011, going for $33.8 million to the mortgage holder, Cobbs Ford Road Syndicated Holdings LLC. In May, the development was bought by Clearview Investments Ltd., a privately owned real estate investment firm based in Dallas with assets of $800 million. Terms of the deal were not disclosed. Montgomery-based Jim Wilson & Associates was contracted to act as property manager, leasing and sales agent.

Bass Pro, a J.C. Penney, Belk and a handful of smaller tenants continue to do business, but much of the development remains unoccupied. It’s enough business, says Doug Mosley, Prattville’s finance director, that “sales taxes and business licenses are paying the debt, but they’re not generating the revenue we had hoped for.” Yearly debt service owing to the development, he says, is $5 million and will continue at that level through 2016. 

Spanish Fort Town Center, in Baldwin County

Another Bumpy Bass Ride

A Bass Pro Shop is the jewel in the crown of another troubled retail center, this one in Spanish Fort, in coastal Baldwin County. In 2005, Atlanta-based Cypress Equities and Dallas-based Staubach Retail Services (co-founded by Roger Staubach) paid $10.8 million for 250 prime acres at the intersection of Interstate 10 and U.S. 90, planning for an 800,000-square-foot retail center called Spanish Fort Town Center.

A portion of phase one was completed, including the home of the still-operating Bass Pro Shop and an apartment complex, but construction stalled when leasing fell behind construction loan benchmarks. Work began again in 2007, with creation of a cooperative district to implement tax incremental financing.

Last year, Bank of America took over the development on its defaulted loan and a receiver was appointed. In March, the bank and the receiver appealed to the Alabama Supreme Court a Baldwin County judge’s ruling that allowed the cooperative district to impose fees on the apartment complex. 

Retail and restaurant strip and Levin’s Bend condo tower, components of The Wharf, in Orange Beach

Low Tide at the Wharf

Birmingham developer AIG Baker Shopping Center Properties, in 2004, began presales of a planned 1,000 condos that would be a part of The Wharf—an ambitious mixed-use development on 220 acres of the coastal resort city of Orange Beach. The original plan matched the manic high of the coastal real estate bubble—1 million square feet of retail and restaurant space, 1,600 condos, a hotel, a 208-slip marina, a 10,200-seat amphitheater and a 112-foot Ferris wheel.

Short of that grand goal, what got built before the recession intervened, are two condo towers totaling 400 units, 367,000 square feet of retail and restaurant space, the amphitheater, marina and Ferris wheel. And it’s all under new ownership.

Original financing hit the wall beginning in 2007, when condo buyers began balking on their contracts. By 2010, Regions, BBVA Compass and J.P. Morgan Chase had liens on various parts of the development and began splitting up the whole. Regions swallowed the biggest chunk, buying its collateral at foreclosure auctions, property totaling over $18 million, including the amphitheater, marina and 178 undeveloped acres. 

Much of the original development has now been reassembled by new owner Art Favre, president of an industrial construction company, Performance Contractors, based in Baton Rouge, La. For $14 million, he bought from the banks the undeveloped acres, the amphitheater, the marina and the retail space.

Only about half of the condos that were built in phase one were sold by the original developer, and the remainder were bought and resold by Charter Landing, the Point Clear company that has also taken a plunge into recycling the discounted acreage of Bon Secour Village.

The city of Orange Beach bought the Wharf’s conference center from the bank for $1.6 million. 

Unfinished marina of Bon Secour Village, on the Intracoastal Waterway, Baldwin County

Paradise Split up, for Sale

Beginning in 2003, three intrepid developers from central Alabama were among a group of five that began assembling property for the launch one of the most ambitious resort developments in the state’s history—a 900-acre planned community called Bon Secour Village. The master plan was designed by “new urbanism” architects Duany Plater-Zyberk & Co., who also designed Seaside and Rosemary Beach in the Florida panhandle.

Located between the Intracoastal Waterway and Alabama Highway 59 just west of Gulf Shores, developer Harbor Bay Resort LLC planned retail, homes, condos, a marina, a Jack Nicklaus-designed golf course, a resort hotel and a conference center.

Sales slowed to a halt in 2008, and in 2009 Wachovia Bank won a $20.4 million judgment against the project’s developers and later took ownership. The bank sold most of the property to Charter Landing Inc. of Point Clear, which has discarded the planned community concept and has been carving up and selling the property in chunks of 40 acres or more.

Harbor Bay Resort LLC partners included Atlanta developer Rick Skelton, Birmingham developer Clint Guthrie; Eddie Canaday and Josh Canaday of Cullman and Michael Knight of Destin.

Chris McFadyen is the editorial director of Business Alabama.

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