I-Team: Legal expert says bond proceeds were diverted to developer
Some have new hope for New Port Tampa Bay
6:18 PM, Mar 4, 2013
9:14 AM, Mar 5, 2013
TAMPA - On the east side of the Gandy bridge, a local real estate developer and his investors had dreams of grossing more than $1 billion from a glitzy condominium and marina project on the shores of Tampa Bay.
"It was a grandiose plan," said Gandy/Sun Bay South Civic Association President Al Steenson. He has closely followed the project, New Port Tampa Bay, which was supposed to break ground in 2006.
But Steenson says seven years and $50 million in tax-exempt bond financing later, his neighborhood has nothing to show for all the snazzy architectural renderings.
"I'm looking out at a 58-acre wasteland that isn't bringing in any tax revenue into the county or the city," Steenson said.
Florida law allows developers to create taxing authorities called community development districts, or CDDs, to issue tax-exempt bonds to pay for roads, parks and other infrastructure for residential projects. But there is little state oversight of what, at least at the outset, are essentially developer-run municipal governments.
Last summer, the ABC Action News I-Team showed you one Hillsborough County CDD that left homebuyers without the clubhouse and recreational park they were promised. But what happens when nothing at all gets built in a CDD project?
The collapse of the New Port Tampa Bay CDD could be chalked up to Florida's real estate boom and bust of the past seven years. But the I-Team has uncovered documents that suggest the project was destined to fail, regardless of whether or not credit dried up and real estate prices took a nosedive.
Deland attorney Thomas G. Wright says he helped write Florida's CDD law. After New Port Tampa Bay fizzled and lawsuits started, Wright was asked to review the project for an investor who was sued. Wright was willing to discuss his findings with the I-Team, but the investor's lawyer advised against it.
Nevertheless, Wright says he stands by a report he compiled about the project. In the report, Wright questions how the CDD, which was run by the developer's employees, spent the $50 million that was raised from the sale of the tax-exempt bonds.
"The primary purpose of the 2006 CDD bonds was not for the New Port CDD to provide public facilities and services but to fund the developer," Wright wrote of the project's financial structure. "This structure prematurely and illegally put $24 million of CDD bond proceeds into the hands of the developer before any CDD infrastructure had even been started."
Wright stated the developer sold land along Gandy Boulevard to the CDD for more than $1 million an acre. "No third party would have paid $24 million for the land," Wright wrote, "even with the sham valuation ascribed to it by the appraiser."
The bonds never should have been sold, in Wright's opinion. "This development and the CDD were fatally flawed," wrote Wright, blaming the developer and his finance team. "They should have singly or collectively taken action to cause the sale of the CDD bonds to be canceled."
Andrew E. Sanford says CDDs are ripe for abuse in their initial stages because developers control the districts through their employees at that point. "It's a blatant conflict of interest," said Sanford, who analyzes distressed assets like insolvent CDDs for ITG Holdings LLC in Naples.
Sanford, who has examined the tangled history of New Port Tampa Bay and other CDDs that went broke, says the Tampa project is hardly unique in the Sunshine State.
"Essentially, the game became how developers could get money out of the project as fast as possible," said Sanford. "You could use the CDD, which is a landowner/developer-controlled-and -created board, at least during its infancy, to extract that money."
The I-Team requested an interview with New Port Tampa Bay developer Edward R. Oelschlaeger. But Oelschlaeger, whose companies were sued after the New Port Tampa Bay debacle, didn't respond.
The bond default rate for CCDs is 17 percent, according to Municipal Market Advisors, which monitors municipal debt obligations. The next highest default rate is for assisted-living facilities at 4.5 percent.
Clearwater certified financial planner Steve Csenge says CCD bonds are inherently risky. "There's no assurance that the development will actually be completed as projected," said Csenge, who sits on the Financial Planning Association of Tampa Bay's board of directors.
Securities filings show the New Port Tampa Bay bonds were originally purchased by mutual funds that buy and sell municipal debt issues. By last year, one of those funds, Oppenheimer Multi-State Municipal Trust, was carrying the New Port Tampa Bay bonds on its books for about 25 cents on the dollar. The CDD stopped making interest payments on the bonds in 2009.
Hollywood, Fla.-based BTI Partners LLC and Tampa automobile dealer-turned-real estate investor Carl Lindell Jr. are among those who recently have acquired most of the New Port Tampa Bay bonds at a steep discount. They are clearing the Gandy Boulevard site of legal impediments so they can sell it to a new developer.
"I don't think you're going to have to wait more than 12 months," said Lindell. "BTI is not going to want to sit on that stuff for long. And developers are starting to look for great deals. And this is certainly a great deal."
Except perhaps if you bought those New Port Tampa Bay bonds back in 2006. CDD expert Wright suggested in his report that the Internal Revenue Service look at whether the bonds still deserve tax-exempt status since they appear mainly to have benefited a private developer.
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