An Open Letter to the Community on the Ocean Breeze Acquisition

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Publisher’s Comment: Attorney Kanouse has been following the Ocean Breeze matter with more than just a passing interest. He has been involved with developing the legal arguments for a class action lawsuit as presented by Mr. Don Huber, Ocean Breeze Neighborhood Association, and reported on by BocaWatch last week. Below, Attorney Kanouse provides a historical prospective on the Ocean Breeze property and the rationale opposing the Greater Boca Raton Beach and Park District’s efforts to acquire this property.

Al Zucaro, Publisher

I think the real question is why the Beach and Park District would pay $24M for a golf course having a real value of around $4M? In 1967, the original developer of the Boca Teeca Subdivision, Boca Teeca Corp. (the “Original Developer”) acquired property totaling several hundred acres located in the northeast portion of the City of Boca Raton, Palm Beach County, Florida including the Hotel Property and Golf Course Property. In 1973, the Original Developer obtained the approval from the City of Boca Raton to develop single-family homes and condominiums on the property. As an inducement to obtain the City’s approval and to facilitate the sale of single-family homes and condominiums, the Original Developer also promised to develop 208 acres of the property as a 27-hole championship golf course (the “Golf Course Property”). .

The Golf Course Property was developed as a 27-hole championship golf course known as “Boca Teeca Country Club” and became open for play to not only property owners within Boca Teeca but also other residents of the City of Boca Raton and other golfers. To assure the City and present and future property owners in Boca Teeca that the Golf Course Property would be continuously operated as a 27-hole championship golf course, the Original Developer dedicated to not only to the property owners within Boca Teeca but also to “The Public” by signing on September 10 and recording on September 25, 1974 in Official Records Book 2353, Pages 653 of the Public Records of Palm Beach County, Florida the Declaration of Restrictions (the “Restrictive Covenant”). The Restrictive Covenant states in Section 2 that “The subject tract of land [Golf Course Property] shall be used only for the purpose of a golf course facility.” The Restrictive Covenant states in Section 3 that it is a covenant “running with the land” and is binding upon all future owners of the Golf Course Property. The Restrictive Covenant states in Section 4 that “These restrictions are imposed in perpetuity.” While Section 5 of the Restrictive Covenant states that it may be amended only with the consent of the owner of the Golf Course Property and a majority of the Boca Teeca property owners, no such amendment has been obtained by Lennar Homes and recorded. Section 6 of the Restrictive Covenant grants each property owner, jointly and severally, the “right to proceed at law and in equity to compel compliance with the terms hereof…”

The Golf Course Property and the Hotel Property were eventually acquired by Boca Teeca Country Club, Inc. that changed the name of the golf course to “Ocean Breeze Country Club” (“Ocean Breeze”) on January 23, 2001. The Golf Course Property and the Hotel Property were subsequently acquired by MCZ/Centrum Florida V Owner, LLC, an Illinois limited liability company (MCZ”). On November 30, 2004, MCZ obtained a loan from Wachovia Bank, National Association (“Wachovia”) to acquire the Golf Course Property in the original principal amount of $7,000,000 (the “Loan”). The Loan was secured by, among other things a first mortgage on the Golf Course Property and the Hotel Property (the “Mortgage”). On October 30, 2008, Wells Fargo acquired Wachovia. Eventually, the Loan amount became nearly $12,000,000.

The Loan became due on May 31, 2009 and MCZ failed to repay the Loan. On March 9, 2010, Well Fargo filed a mortgage foreclosure action against MCZ. On October 20, 2010 Wachovia was merged into Wells Fargo and Wells Fargo succeeded to Wachovia interest under the Loan and Mortgage. A Final Judgment of Foreclosure was entered on November 25, 2015 for $17,609,723. On December 23, 2015 Wells Fargo assigned its Judgment to its wholly owned subsidiary, Redus EL, LLC (“Redus”). The Clerk of the Court was ordered to sell the Golf Course Property at a public auction on January 8, 2016. One bidder offered $4,000, 000 at the auction but Redus was the successful bidder for the Golf Course Property and the Hotel Property purchasing it for $4,000,100, far below the Judgment for $17,609,723 Judgment and became the owner of the Golf Course Property subject to the Restrictive Covenant.

Several months ago, Redus entered into a contract with Lennar Homes to sell the Golf Course Property and the Hotel Property. Lennar intended to convert the Golf Course Property into additional homes and condominiums with all 27 holes of the golf course ceasing to exist. While I do not have a copy of the contract, I assume that it has at least 2 contingencies: (1) obtaining the consent of a majority of the Boca Teeca property owners to amend or terminate the Restrictive Covenant (highly unlikely); and (2) obtaining the approval of the City of Boca Raton to the rezoning of the Golf Course Property to residential.

On June 30, 2016, Wells Fargo decided to close the Golf Course Property and ceased operating the Golf Course Property knowing that the closing of Ocean Breeze Golf Course would violate the Restrictive Covenant as the Golf Course Property ceased to be a “Golf Course Facility”. As reported to the South Florida Business Journal on July 29, 2016 “ In a statement, Wells Fargo noted that it had been subsidizing the operations of the golf course and club for nearly five years during the foreclosure process. Unfortunately, costs associated with running the property’s extensive facilities far exceed revenues,” Wells Fargo said.” However, the closing has damaged the Boca Teeca property owners.

While Wells Fargo tried many times between 2010 and 2016 offered to sell the Golf Course Property to the City of Boca Raton, the City was not interested. However, after Lennar had signed the contract, curiously the City decided that it wanted to sell Boca Municipal Golf Course (Boca Municipal”). Lennar offered to buy Boca Municipal for $41M cash plus “donate” Ocean Breeze to the City for $10,000,000. When news of the City’s interest in sell Boca Municipal became public knowledge, several other home developers became interested in buying it. The highest and best offer has come from GL Home for $73M without any contingencies and without dealing with Ocean Breeze. I believe that Lennar has come back to offer the City $74M cash for Boca Municipal but this includes selling Ocean Breeze to the Boca Raton Parks and Recreation District for $24M but keeping the Hotel Property. Since the Golf Course Property has been closed for so long and Mother Nature has taken over, to return the Golf Course Property to a championship course with excellent playing conditions requires the complete renovation at a cost of approximately $15M.

The true valuation of the Golf Course Property has to include the fact that it has to be operated as a “Golf Course Facility.” I was one of the 3 bidders to purchase The Country Club of Boca Raton formerly Boca del Mar Country Club 4 years ago. I was a member of the club for many years. The club included an 18-hole golf course on 124 acres between Palmetto Park Road on the north, Camino Real on the south, Powerline Road on the east and Military Trail on the west. It also included a 30,000 sq. ft. clubhouse, 6 tennis courts and 400 parking spaces. However, the property is subject to a similar restrictive covenant that the property can only be used as a golf course. The club was indebted to PNC Bank for $2.1M. I budgeted that the mortgage could be purchased for between $1M and $1.5M. My plan was to remodel the golf course and become the only golf course in the country that specialized in hosting charity, corporate, junior and other amateur golf tournaments but run them like a PGA Tour tournament. Unfortunately the members wanted it to continue to operate it as a private club. Penn Florida was the successful bidder promising the members that it would continue to operate the club as a private club for at least 2 years, incurring operating losses I estimate to be at least $1.5M a year. All of the members lost their equity in the club including me. Penn Florida purchased the PNC Mortgage for $1M and will be renovating the golf course for $7.5M with Jack Nicklas. I have heard from existing members that it will be closed this summer until March 31, 2018. It will then remain private but will also be the golf course amenity for guests staying at the Mandarin Oriental Hotel currently being developed by Penn Florida.

Based on the fact that the Ocean Breeze has to be operated as a Golf Course Facility, a fair valuation is between $3M to $5M. Then you have to add another $15M for the renovation costs. To pay $24M and then incur another $15M is ridiculous. I understand that the Beach and Park District is obtaining its own appraisal. You can’t use land comparables such as the Wild Flower tract that’s only an acre or so and right on the Intracoastal or other land purchased for parks that were not subject to such a restrictive covenant. Boca Municipal is not being purchased to continue to be a golf course but for residential development.

Does the $24M include a renovated Golf Course Facility?

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Kanouse & Walker is a law firm concentrating in franchise law. Keith Kanouse represents franchisors in complying with U.S. and state law and individuals and companies purchasing single unit franchises, area development rights and master franchise rights in all 50 states and internationally including business entity formation, review and negotiation of franchise agreement and real estate acquisitions and leases. Mr. Kanouse is the author of 3 books relating to these issues and co-author of 2 others.

12 COMMENTS

  1. I never knew the full story of the North course so this article is interesting to me. It seems to me that the developers are right – golf is dead and there are too many courses. As someone who fought the development of Mizner Trail for 10 years, developers know how to get around deed restrictions and other legal stuff especially when PBC is so willing to help.

  2. Mr Huber is a complete idiot. He just want to argue and get the spot light w things. The last meeting everyone walked out. First of all the City of Boca need to do right for Boca Tecca residents. We don’t need more traffic in the area I bought my place because of the view. There is no golf course in East Boca. There is too many golf course in West Boca. I think the City should make the swap for the land I. West Boca The city shouldn’t be force to pay the 24 million dollars. They should get an appraiser and then make an offer. This is my opinion w things. I didn’t move to East Boca to live in area like Mizner Park. If we allow GL Homes or Lenar Homes in our community. They don’t care about E Boca residents. I am also concern about the arsenic in the ground and the hazardous chemicals that we will breathe if they do construction. Our health is worth the $$$ and less traffic for our community

  3. Anyone following this already knew the background on the land and deed. The comparisons in this article do not have merit to the Ocean Breeze purchase and I fully support the city of Boca and the Beach and Park district if they choose to purchase this land and bring the golf course back. This is a great opportunity for east Boca to provide recreational green space for the public to attract more visitors, create jobs, enhance the northeast Boca area, and prevent developers from adding more townhomes or condos. This course has the potential to offer the public a great affordable golf course in Boca when all that is left are the dying PRIVATE courses.

  4. Golf is not dead, its decline has leveled off and a City golf course is a quality amenity; fortunately Boca Raton has one. Mr. Kanouse’s numbers are spot on and I can’t believe there is even a discussion about paying $24 million for what is at best a $5 million property. I’ve just seen the promotional video on what Ocean Breeze can be and I think it’s absurd The course has laid dormant for years and the hotel has failed, and the premise that the Beach and Parks District can pay many times the market value for the property and turn it around is so silly I can’t believe it’s even being discussed. Imagine taking that plan to a bank to get financing.

  5. Oh , the choice would be horizon to horizon development and the stand still traffic that goes with it. The golf course can work due to other courses considering future closures. I have seen parents with children on the course and the tennis courts have been active. Our city needs this breathing space for now and the crowded future.

  6. Great article. When I first saw the GL Homes offer I thought selling to them was a no brainer. The fact it wasn’t pursued immediately has to leave a rational human being scratching their head. Something stinks! When the Boca Teeca community levels a lawsuit demanding the fulfillment of the restrictive covenant Lennar Homes will be begging the City to buy the property! Make em squirm.

  7. I’m all for buying Ocean Breeze, but I’m not too thrilled with how it’s happening.

    1. We can afford both properties. There is no reason to sell the muni. It’s a great open space and as they say “They ain’t making any more of it”.

    2. The argument that B&P millage will not increase is not a reason to pay way more than the property is worth. Over the next 20 years, it will be impossible to determine if B&P millage rate changes are driven by the golf course financials. And any business person will tell you it’s impossible to predict revenue, expenses, etc. this far in the future.

    3. Why would the city loan B&P the money to begin with? If the cash flow is what B&P says it is, why don’t we simply buy it for ourselves with the money we would loan B&P? Why put city taxpayers at risk on a loan and then end up with nothing to show for it?

  8. The Beach and Park District has a great plan and vision for the Ocean Breeze property which the overwhelming majority of the nearby residents, homeowners, golfers, golf programs at our communities schools and universities, and citizens of Boca fully support. At the May 8th joint meeting of the City Council and the Beach and Park District the auditorium was packed with supporters, many who spoke to show their support for a great plan and vision put forth for Ocean Breeze.

    I don’t think either Mr. Huber or Mr. Kanouse spoke at the May 8th meeting and I don’t know if they bothered to attend. Mr. Huber has asked owners in the Ocean Breeze community to contribute financially to his efforts to file a class action lawsuit against Wells Fargo, claiming that Boca Teeca owners have lost property value because Wells Fargo closed the golf course. At a recent meeting held by Mr. Huber very few people bothered to attend and the majority of those who did opposed Mr. Huber’s lawsuit efforts and asked him not to file such a frivolous suit. If Mr. Huber is truly concerned about the community’s property values and blames a declining value on the closed golf course, one would expect him, his attorney and anyone thinking of participating in such a lawsuit to realize that the plan by the Beach and Park District to purchase and renovate the Ocean Breeze course and provide great amenities would increase surrounding property values substantially. I must say as the president of Boca Teeca Condo 7 we have not experienced a decline in our property values. As a matter of fact the sale price for units in our Association are the highest they’ve been since the real estate market crashed about 9 years ago.

    Also Mr. Kanouse states that he was a bidder, “to purchase The Country Club of Boca Raton formerly Boca del Mar Country Club 4 years ago.” But his bid attempt was unsuccessful. Does Mr. Kanouse now hope to kill the plan for the Beach and Park District to purchase Ocean Breeze in hopes he can then purchase it for himself or some other interested party, since he works in real estate acquisitions. Surely Mr. Kanouse understands real estate pricing, foreclosures and judgments so to claim the Ocean Breeze property is only worth $3-5 million leads one to believe he has not done the math.

    The City was not interested in purchasing Ocean Breeze because they, and all the Boca Teeca residents, knew that Lennar planned to buy the course, and proceed with the original plan which had been approved for the previous owner, MCZ, which would have KEPT 27-holes of golf while allowing for approx. 200 townhomes to be built at the western side of the South course along I-95. It was only after Lennar did not diligently pursue approval by the City for an extension of the original MCZ permits that Boca Teeca owners were told by Lennar that they intended to construct homes on the entire 200-acre property and would eliminate the golf course. This was March 2016. A number of Boca Teeca residents were shocked and appalled at this decision. Because Boca Teeca owners have a deed restriction, a group called Keep Golf in Boca mobilized and collected signatures from an overwhelming majority of the owners for a petition stating we would not lift the deed restriction to allow for development or anything other than a golf course. I spoke at the Beach and Park District in April 2016 and asked them to look into the Ocean Breeze situation to find out if they could purchase it. I explained to the Commissioners and the City Council the potential of the Ocean Breeze property at numerous meetings and though letters and emails. We encouraged residents to contact them and ask for their support in acquiring this property. Many of us have worked very hard convincing the Beach and Park District of the value, potential and unique opportunity available at Ocean Breeze. We are very fortunate that the Beach and Park District Commissioners listened to us, worked tirelessly to put in the time planning and negotiating to finally be offered a contract to purchase Ocean Breeze.

    To those few people working to see Ocean Breeze fail I ask you to get out of the way and stop being so shortsighted. There is no other 200+ acre tract of open space within the City of Boca where the City could have a 27-hole Municipal golf course. I will remind everyone, the existing Municipal golf course on Glades is outside the Boca city limits and competes with numerous other golf course west of I-95. This is such a great opportunity for the City and its’ residents and many visitors. Keep in mind most seasonal residents who come to our City to golf and enjoy the beaches and other outdoor opportunities stay in the eastern part of the City. They would certainly prefer to golf at Ocean Breeze rather than driving 30-45 minutes to golf at Osprey, Southwinds or other courses built out west, because that was the only open land available. That is also the reason why the Boca Municipal golf course is currently located on Glades, west of the Turnpike. There was no property available within the City of Boca when they decided to build the course and the City has been hoping to sell the Municipal course for years. Now the City does have this opportunity to have their Municipal course IN the City. If they pass this up they will NEVER have this opportunity again.

    While Wells Fargo claims they subsidized Ocean Breeze’s operation the last few years, anyone who golfed there will tell you they did a very poor job of maintaining the facility. The management company who ran the course for them was given the bare minimum of funds to keep the course open. Some of the managers, not all, were inexperienced and knew nothing about running a golf course. They literally ran it into the ground and allowed it to fall apart. They had no reason to maintain it as a golf course since they knew they were selling it to a developer who had no intention of keeping a golf course. Golf is not a dying sport but golfers want a course worth playing. A quality, well maintained course will attract many golfers, golf leagues, and events. A golf learning facility, as envisioned by Mr. Koski and the Beach and Park District, will bring new players to the game. To have programs that will get young people interested in golf will assure us of future generations of golfers. I will remind you that golf is a sport that can be played at any age. Golf is not dying, but I am dying to golf again at Ocean Breeze. The Beach and Park District has a great vision for the Ocean Breeze golf course and if you have not attend their meetings or listened to what they plan to do I urge you to find out before you say things like “just mow it.”

  9. Golf is far from being dead the Ospray golf course out west run by the county in 2015 made $1,5 million dollars and 2016 since the Ocean breeze was close an astonishing $1.9 million dollars profit and over 100,000 thousand rounds of golf played at that one golf course and the municipal had 50,000 thousand rounds and lost to the tax payers over $300,000 thousand dollars thats why the course is up for sale . The big differance is location and quality of the golf course . Move it into the city limits upgrade the course make it the same or better Then Ospray did and you create competition and a winner for the city and the residents and after the bond is paid off it will bring in over $1 million into the coffers of the BPD and will give them the money to buy up more green space for you and everyone to enjoy

  10. Save the Municipal Golf Course! Do not sell to developers. People still use and love the Municipal Course. My family uses the Municipal Course several days per week.

  11. Thank you Mr. Kanouse for taking the time to bring this issue to light. Has there been a study of the traffic impact of adding an addition 1000+ home on Glades road? The traffic is bad enough already, without an impact study and some plan to elevate the congestion, it seems like and ill conceived plan hatched by greedy developers. Regarding the perpetual use agreements, what’s the point of having one if they can be circumvented?

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