Investors in the failed multi-billion-dollar Ginn Sur Mer project in Grand Bahama allege that developer Ginn-LA West End Ltd., Lubert-Adler Management Company and related entities committed appraisal fraud, failed to deliver on amenities and committed fraud related to a loan transaction that had a negative impact on the planned resort.
In essence, buyers contend the developer looted the resort project by inflating estimates of future lot sales to secure a loan from Credit Suisse. The developer allegedly took a distribution of $333 million from the loan proceeds, according to court documents.
The project was originally intended to include a “20-story grand palace, two signature golf courses and a mega-yacht marina”, according to documents filed in the U.S. Court of Appeals for the Eleventh Circuit.
Many of the buyers financed the purchases with mortgage loans from Bahamas Sales Associate.
But when the property market tanked, the buyers sued Bahamas Sales in May 2010 for appraisal fraud, the documents stated, along with the developer in relation to a $675 million loan from Credit Suisse.
“The appraisal-fraud claims allege that the mortgage entities fraudulently inflated the appraisals of their lots and used the inflated appraisals to set the amounts on the mortgage loans,” the document read. “Because of the inflated appraisals, the buyers allege that they closed on the mortgage loans for amounts that far exceeded the market value of the lots.”
The appraisal-fraud claims assume that if proper appraisals had been done, the investors would not have foreclosed on the loans.
The investors also believe that they would have “simply walked away” from the lot purchase contracts and only paid liquidation damages for their failure to close.
In regards to the fraudulent loan, the investors allege that the developer and Credit Suisse entered into an arrangement to take on a $675 million loan prior to the purchase contracts.
“The repayment schedule on the loan required that all the cash flow produced by the five Ginn resort communities be used to pay the Credit Suisse loan. As a result, Ginn-LA could not complete the marketed, but not contractually required, amenities. The buyers further allege that if they had known about the Credit Suisse loan, they would not have purchased the Ginn Sur Mer lots,” the legal document continued.
The defendants moved to dismiss the investors’ complaints, claiming improper venue in the U.S. given the Bahamian purchase contracts. The District Court agreed, although the three-judge panel’s decision late last week reversed this decision.
Credit Suisse is not party to the suit and has since foreclosed on the loan for the partially-built resort.
Lubert-Adler recently settled with the bankruptcy trustee in cases alleging fraudulent transfer as a result of the same Credit Suisse loan, according to court documents.
In 2005, Ginn and the Bahamian government signed on to develop 2,000 acres of land. The government provided concessions on import duties and stamp tax to stimulate growth.
The development was originally envisioned to conclude 900 homes, two championship golf courses, 4,400 condominium hotel units and a casino, among other amenities.
In November 2011, the controlling title of Ginn Sur Mer was acquired by G-LA Resort Holdings (Bahamas) Ltd. The firm received 1,500 acres of land, an airport, helicopter pad, 632 unfinished lots and associated development rights.
Replay Resorts, a Canadian developer, was hired to move forward and “engage the market and continue development of the residential component of the resort”.
By Jeffery Todd
Guardian Business Editor