The owners of The Peninsula say they’ve been hit by hard times and want Sussex County officials to grant more time before starting construction of an 18,000-square-foot, $5 million clubhouse.
Land Tech Receiver Services LLC has filed an application requesting county officials to amend one of 21 conditions placed on the project when it was approved in November 2002.
The condition stated a clubhouse was to be constructed within two years of the first building permit issued in 2004. A two-year extension granted in 2008 expires next month.
Since then, the development was placed into court-ordered receivership in October 2009, and is now managed by Land Tech Receiver Services. Developer Ribera-Odyssey LLC defaulted on more than $50 million in debt to Wachovia Bank earlier in 2009.
Land Tech is asking for more time to establish financial stability before beginning clubhouse construction. The Peninsula, approved for more than 1,400 units on nearly 800 acres near Long Neck, is one of the largest subdivisions ever approved by Sussex County Council.
Jim Fuqua, attorney for the applicant, said, “Land Tech is working to stabilize a very sick patient and get it past recovery. If we wait until the memberships can support the cost of operation, the funds will be available. With this modification, The Peninsula will survive and prosper. This is very critical to the continued success of The Peninsula.”
Fuqua said construction should be tied to the number of golf memberships, and not a specific timeframe, as was requested in 2008. He said Land Tech estimates that it will take 750 members with 250 full golf memberships at $47,000 each or 950 members overall to cover clubhouse operating expenses. Today, there are 475 members at three membership levels.
By that time, estimated to be 2014, there would be more than enough money in a designated escrow account to cover cost of construction, said Chuck Munn of Land Tech. Munn said all the elements are in place for strong sales and building efforts starting in 2011.
Lawrence Lank, director of county planning and zoning, said his office has received 70 letters and emails from residents in favor of the application to modify the condition.
Not everyone agrees. At the Thursday, Nov. 18 planning and zoning hearing, one property owner asked the county not to approve the request.
Fuqua said if the condition was not modified, homeowner dues would double. That would not only put a financial burden on residents but place future sales in the community at a competitive disadvantage, he said. Residents currently pay from $150 to $420 monthly dues as well as initiation fees ranging from $7,500 to $47,000 for golf memberships. Sales within The Peninsula are contingent on residents joining the golf club.
In rebuttal to that statement, attorney Richard Abbott, representing Dennis Silicato, a homeowner who is against any further delays, said the bank owns the club and the other 900-plus memberships. The costs, according to the covenants, are divided among all members, the attorney said. He said those who are currently paying dues would see a reduction after the clubhouse was built.
He also said county officials should not buy into the proposed timeline. “There should be no extension, or if there is one, it should be very short,” Abbott said.
He said the matter was nothing more than five years of delays while the developer and the receiver did not take care of business. “They ignored it and have manufactured a crisis,” he said.
He said his client purchased a lot in the community with the understanding the clubhouse would be built once the 350-membership threshold was reached; it was surpassed in 2007, he said.
“There is no guarantee of clubhouse completion. It could take five years to nine years, but who knows,” Abbott said.
Escrow account established
Land Tech officials said they are committed to building the clubhouse and have set up an escrow account with nearly $900,000. All new initiation fees will be placed in the account, which can only be used for construction of the clubhouse and nature center. The nature center should be open by May 2012, said Munn, using $200,000 from the escrow account.
Vince Robertson, assistant county attorney, said he was concerned that the county was not a beneficiary to the escrow account, which means there was no security to get the building done.
“This is in the best interest of everyone,” Fuqua said. “For the bank, creditors, homeowners, county and local businesses.”
Fuqua said sales at The Peninsula started in 2004 and continued strong until December 2007, with 425 lots or units sold. He said over a three-year period, the developer invested $48 million in the construction of the community’s amenities, which include 10 miles of trails, fitness center, restaurant, Jack Nicklaus signature golf course, pro shop, indoor and outdoor pools and spas, eight tennis courts, other sports courts, community garden, fishing pier and wave pool.
However, the clubhouse and nature center were not constructed.
Fuqua said in 2008, home and lot sales slowed and eventually stopped with no significant sales in the community since January 2008.
In February 2008, developers requested additional time, tied to golf club membership, to build the two remaining amenities. County officials approved a different modification, allowing another two years for construction to begin with completion within 3 1/2 years
In the meantime, with the housing market slumping, the developer defaulted on more than $50 million in loans from Wachovia Bank, Fuqua said.
After appointed as receiver by Chancery Court, Land Tech discovered significant financial problems, Fuqua said. He said there was no active building or sales program, more than $4 million worth of letters of credit to the county had expired, the county was owed $300,000 in back taxes and fees, 31 stormwater management ponds had not been inspected nor approved, the club was operating at an average loss of $2 million per year and the fishing pier and kayak launch were damaged and not usable.
Since taking over management, Fuqua said, Land Tech has paid back taxes, repaired the docks, reinstated a line of credit, had the stormwater management ponds inspected and reduced the club operating deficit by half to around $1.1 million through a series of cost-cutting and revenue-enhancing measures.
Land Tech has filed for a year’s extension to remain receiver of the property.
Planners deferred on a decision at the Nov. 18 meeting as they await more information on the restrictive covenants and escrow account. Commissioner Marty Ross asked if the bank was accountable for all other memberships as stated by Abbott. “The original owner never had a commitment to pay membership dues,” he said. “Why would the bank?”
“I would assume they are exempted, but I’m not sure. I would think Wachovia has no obligation because they did not foreclose and don’t own anything,” Robertson said.
But, he said, he would review The Peninsula’s covenants and report back to the commission.
He also said he wanted to review Land Tech’s escrow account agreement. “This is a unique situation from the point of receivership on,” Robertson said.
He added the county would probably be restricted to action as deemed proper by the Court of Chancery.