Print

Email story

Comment

Letter to the editor

Snell Isle Club deal lets St. Petersburg developers escape $38M of debt

By SCOTT BARANCIK, Times Staff Writer
Published February 16, 2008

Snell Isle Club in St. Petersburg is in foreclosure. A deal left developers owing nothing.
	[Scott Barancik | Times]

Defaulting on a $38-million construction loan is no fun, especially if you promised to repay any shortfall with personal funds.

But a pair of St. Petersburg developers who recently faced that predicament have pulled off an escape worthy of Houdini. Meanwhile, some contractors who were never paid for their work are wishing the duo would disappear.

Court documents tell the story. John Loder, 41, and Steve Spencer, 46, purchased the Snell Isle Club apartments in early 2006 with plans to convert the 272-unit complex to condominiums. Within months, the real estate market began to fizzle and the pair fell behind on loan payments. Wachovia Investment Holdings sued to foreclose on the waterfront property in January 2007.

Other developers might have crumbled. Loder, an inveterate dealmaker who was hit with two other foreclosure suits the same month, searched for an alternate exit. He got his wish soon after when a Tampa broker representing an out-of-state investor called to express interest in the Snell Isle Club. Loder approached Wachovia with the opportunity, and before long, a deal began to take shape. Under the secret plan, Colorado-based Laramar Group would buy the loan from Wachovia for a sum that was eventually whittled down to $31-million, well above the next-best offer of about $25-million. Loder and Spencer, in turn, would let the foreclosure proceed to completion, thus allowing Laramar to obtain the property free and clear of any contractor liens.

And Loder's disposition? Laramar agreed to waive his debt and guarantees as well as Spencer's. It agreed to give them what Loder, in a recent deposition, called "a piece on the back end": that is, a possible share of the proceeds if Laramar should ever sell Snell Isle Club. Finally, Laramar agreed to wire $500,000 to a Loder/Spencer entity called "Evian Mild LLC" after the loan was sold, or half the amount Loder had requested. "I was just happy to get the personal guarantee that was being threatened off my head," he said in the deposition.

Though debtors rarely fare so well in foreclosure cases, St. Petersburg lawyer Michael Keane says it often makes good sense to keep a debtor in the loop.

Not forcing the debtor into bankruptcy can trim months off the foreclosure process. Moreover, debtors can be extremely helpful when it comes time to resume renovations on the foreclosed property, given their knowledge of inspection schedules, underground utilities and copious other details.

Not everyone benefits, adds Keane, who is involved in unrelated litigation with Loder. Unpaid contractors and subcontractors still end up with nothing under such an arrangement. "Typically the guy that's doing the painting is not set up to engage in the war of paper that plays out in the foreclosure case," he says. "When these projects go bad, you'll see subcontractors fail completely, go out of business."

Indeed, general contractor Gannaway Builders of Clearwater, which says it is owed roughly $500,000 for completed work, called the three-way deal a "scheme" to deprive "unsuspecting" lienholders of their claims. "There have been few real estate transactions in modern history that were less orchestrated than this one," Gannaway's lawyer wrote in October.

Gannaway may yet end up with something. Last month, Gannaway and Pinellas Park-based Gulf Coast Painting and Waterproofing convinced Pinellas County Judge Amy Williams to vacate the property's sale. And this week, the various parties appeared close to reaching a partial settlement, though all declined to be interviewed.

Scott Barancik can be reached at barancik@sptimes.com or (727) 893-8751.

[Last modified February 15, 2008, 23:20:38]