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Cay Clubs stricken by a financial crisis

The real estate slump slammed the company.

By JAMES THORNER Times Staff Writer
Published September 15, 2007


A year ago Clearwater's Cay Clubs Resorts & Marinas was so cash heavy it contemplated buying an exotic Bahamian island.

This year, Cay Clubs, having shed hundreds of employees as its main business withered, is contemplating merely staying alive.

A fast-growing private company founded just three years ago by developer Dave Clark, Cay Clubs successfully rode the real estate wave through 2006.

It made most of its money selling condo-hotel units to 1,600 investors at 14 separate luxury destinations from Las Vegas to the Florida Keys. Profits totaled $46-million last year.

But the real estate rollback, combined with tightening credit for its million-dollar properties, has clobbered business this year. Condo sales are off 57 percent, a slump that has also afflicted the 400-plus unit Clearwater Cay Club.

After a first round of layoffs in May, when hundreds lost their jobs, Cay Clubs released dozens more employees last week, including staffers at its bayside headquarters at 18167 U.S. 19 in Clearwater.

The company is juggling $74-million in loans it may have trouble repaying over the next year and was hit last month with a lawsuit from disgruntled investors. It hopes to ease the cash crisis by merging in October with publicly traded Key Hospitality Acquisition Corp.

Corporate spokesman Chris Brown placed Cay Club's problems in the context of the overall weak housing market.

"Right now in these challenging times every real estate company is facing a cash crisis," Brown said. "If you look at Lennar or WCI, they're continuously laying people off."

A large source of Cay Clubs' pain has been investors owed money as part of company's "lease back" program. After selling the units, Cay agreed to rent units back for two years, rebating buyers up to 15 percent of the sales price.

The company said it owed about 120 buyers millions of dollars in back payments. To stave off foreclosure against some buyers, Cay is making "Band-Aid payments" to those in "financial despair," Brown said.

As for buying that island in the Bahamas, a former pirate's haven called Walker's Cay that the company planned to make into a resort, the money's just not there.

"It's off the table," Brown said.