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Bon Secour Village Bankruptcy

June 8th news from the Mobile Register does not look good for the upscale settelment along the Intercoastal Waterway here in Gulf Shores.

Money troubles muddy future of Bon Secour Village


Sunday, June 08, 2008
By RYAN DEZEMBER
Staff Reporter

GULF SHORES — Along the northern banks of the Intracoastal Waterway, the 1,000-acre Bon Secour Village appears paused in early gestation. There are a large, ornate sales center no longer open on a regular basis, a manmade harbor and a half-dozen homes in various stages of completion.

The residences stand scattered in a platted neighborhood with brick sidewalks and an iron-fenced courtyard.

The village has been touted as a town-within-a-town that would usher the piney woods along the shipping channel from a relative backwoods to one of the toniest off-beach addresses in Alabama.
Bon Secour Village's developers said from the onset, however, that it could be decades before demand would allow their vision of a
$500 million community with residential offerings spanning the economic spectrum to materialize fully.

Already facing legal hurdles and mounting debt, the project's future has been made increasingly murky with the May bankruptcy of three of its five developers. Michael Knight of Destin and Cullman brothers Josh and Eddie Canaday, along with their companies, Midnight Properties and Midnight Management & Investments, filed for Chapter 11 bankruptcy protection in northern Alabama's federal court. In filings, they claim debt that exceeds

$160 million in the case of each of the Canadays and more than $120 million for Knight.

Together, Knight and the Canadays hold a 40 percent stake in the company, Bon Secour Village LLC., that is developing the mixed-use project, according to court papers. Their partners, Rick Skelton, a developer and race car driver from Atlanta, and Birmingham-based builder Clint Guthrie, own 40 percent and 20 percent stakes, respectively.

Despite the bankruptcy filings that will likely sideline three of his partners, Skelton said in an interview that he, Guthrie and Bon Secour Village's lenders are trying to pull the project back on track.

"It's by no means a dead issue," Skelton said. "We just have to figure out in this really difficult economic and lending time how to make it survive."

A month ago, Skelton said, he assembled Bon Secour Village's creditors and persuaded them that the 1,000 acres are far more valuable together than they would be if the various banks peeled away the pieces they loaned against.

Now he is shopping for new investors to infuse the project with capital or simply buy it. Skelton said he met with New York investors May 29 in Atlanta, and the week before, he traveled to the West Coast to meet with prospective partners.

The key to selling homes and condos at Bon Secour Village, Skelton said, will be to deliver the amenities — boulevards, walking trails, the marina, an Old World town center — up front, so that purchasers see themselves buying into a bustling hub and not merely a wooded tract along the Intracoastal Waterway.

Last spring, the developers approached the Gulf Shores City Council to ask for help financing about $40 million worth of roads, sewers and other public improvements. At the time, elected officials expressed interest in doing so, and Gulf Shores Mayor G.W. "Billy" Duke III said that despite the project's financial woes, city officials would still consider creating a special tax district or rebating revenue "as long as the city is not on the hook or liable for anything,"

Increasing tourism numbers show that Gulf Shores is more popular than ever, and it's possible, Skelton said, that the excesses of the last real estate boom will have been absorbed within two or three years. When that happens, he said, the market will be ready for a project like Bon Secour Village, slightly recast and refinanced.

"The Canadays' and Michael Knight's bankruptcy was obviously a blow to the partnership," Skelton said. "It's very difficult, but this will reforge the steel."

Bankruptcy filings show deep debt of coastal investors


Sunday, June 08, 2008
By RYAN DEZEMBER
Staff Reporter

Three of Bon Secour Village's five developers have filed for bankruptcy, putting the already imperiled Gulf Shores development at further risk and illustrating how south Baldwin County's burst real estate bubble has hit even the most moneyed investors.

Cullman brothers Eddie and Josh Canaday — along with their business partner Michael Knight and a pair of their companies, Midnight Properties and Midnight Management & Investments — have asked for Chapter 11 bankruptcy protection in northern Alabama's federal court. Such protection is generally used by debtors to stave off lawsuits from creditors while they reorganize their finances.

Messages left with the men's Cullman office and their Decatur bankruptcy lawyer, Garland Hall III, were not returned.

The men are saddled with debts, according to the bankruptcy filings, including some related to Bon Secour Village and many that are shared among the three investors. The total amounts to more than $120 million in Knight's case and in excess of $160 million for each of the Canadays.

Midnight Properties — through which the trio owns 31 condominiums in Alabama and Florida, a farm in Blount County and a $2.8 million home at the AQUA development on Miami Beach's private Allison Island — listed about $29 million in debt. And Midnight Management & Investments, a separate arm of their real estate enterprise, claims more than $104 million in liabilities.

Others file, too

The three are not alone in south Baldwin in seeing their expansive holdings and multimillion-dollar investments turn to tremendous debt in the deflated market.

Prominent condominium developer and real estate company owner Rick Phillips, for example, filed for Chapter 7 bankruptcy protection last month in federal court in Mobile, claiming more than $124 million in debt. Last August, Joan Teeters, the owner of a Gulf Shores real estate company that ran television commercials touting the riches to be found in the coastal market, filed for Chapter 13 protection with about $3.6 million of debt.

"I've had more bankruptcy notices come across my desk in the last month than I had in the 12 years before," Gulf Shores lawyer Daniel Craven told attendees of a February symposium sponsored by Condo Owner magazine.

The men are saddled with debts, according to the bankruptcy filings, including some related to Bon Secour Village and many that are shared among the three investors. The total amounts to more than $120 million in Knight's case and in excess of $160 million for each of the Canadays.

Midnight Properties — through which the trio owns 31 condominiums in Alabama and Florida, a farm in Blount County and a $2.8 million home at the AQUA development on Miami Beach's private Allison Island — listed about $29 million in debt. And Midnight Management & Investments, a separate arm of their real estate enterprise, claims more than $104 million in liabilities.

Craven was talking about the difficulties experienced by condo owners' associations in collecting delinquent dues. Some buyers, he said, couldn't afford the rising costs of coastal property insurance and taxes. Others never intended to actually own condos and wound up walking away when they were unable to sell at a profit. And then there were big-time investors who had spread themselves too thin during the prosperous times.

Of the latter, Craven offered Midnight Properties as an example.

Mostly bank loans

The debt of the three men and their companies is generally in the form of bank loans, although they also owe money to business partners, investors, construction companies and even landscapers, according to filings and related civil court cases.

In the case of Eddie Canaday, an accountant who went on to manage a trucking company before moving into real estate, all but five of the creditors holding his 20 largest unsecured debts are banks.

Among those top 20, five seek at least $10 million from the older of the brothers and even the 20th creditor in line, Cullman's Peoples Bank, seeks $1.5 million.

Because most of the liabilities are shared, the debt sheets of Knight, who is from Destin, Fla., and Josh Canaday, who is also an accountant, are very similar to Eddie Canaday's.

The largest creditor on each man's books is Wachovia Bank. The North Carolina-based lender seeks repayment of $20.36 million that Bon Secour Village LLC borrowed to buy about 900 acres along the Intracoastal Waterway and pay for the construction of the town-within-a-town development's marina and 3,500-square-foot sales center.

Wachovia sues

Wachovia sued the Bon Secour Village developers, which include Birmingham builder Clint Guthrie and Atlanta-based developer Rick Skelton in December claiming they hadn't made any payments since last June. In its foreclosure suit, filed in federal court in Mobile, the bank said that the developers owed $21.2 million, an amount that interest was inflating at a clip of about $4,000 a day.

A judge has since granted the bank's request to have an executive with a Tampa, Fla.-based turnaround firm appointed to oversee Wachovia's interests at Bon Secour Village.

Bon Secour Village was conceived as a $500 million community along the north shore of the Intracoastal Waterway. Its first 50 residential lots — about $450,000 for parcels as narrow as 36 feet — and 50 condos, which averaged $560,000, were auctioned off amid great fanfare.
As late as last fall, Bon Secour Village, unlike several other resorts planned in the boom's waning days, presented the image of a healthy project that was merely adjusting its construction timeline to the slowed market. The development, for example, bought a $15,000 lead sponsorship in the National Shrimp Festival. And its first completed home — a $1.9 million, 3,500-square-foot Acadian-style spec house owned by one of the bankrupt trio's side businesses — was featured in Coastal Living magazine as one of the publication's "idea cottages."

Despite appearances, the development was foundering financially.

In September, Guthrie sued the Canadays and Knight when they stopped making payments that were owed to him in exchange for a 10 percent stake in a Panama City, Fla., resort project that he sold them for $1 million.

In a late August/early September e-mail exchange between Guthrie and Eddie Canaday filed as evidence in the case, Guthrie threatened to sue over the unpaid note. (Guthrie said in a later affidavit that the $10,000-monthly payments were his primary source of income.)

"Clint, we are not choosing to not pay you, we are not paying any ... creditors," Eddie Canaday replied. "We are making headway in search of investors and feel we might have something worthwhile to discuss.

"I have a friend from college that might provide us some funding if we can come to some agreement."

That agreement never Came, and Guthrie has since been awarded a $935,000 judgment against his former partners.


Net worth questioned

In his suit, Guthrie maintains that the Canadays told him their net worth was about $200 million when they became partners in Bon Secour Village. Whether that figure was accurate — Guthrie now claims it was not — what money the brothers did have appears to have run out last summer. Court records in several suits involving the Canadays and Knight generally show that they stopped paying their bills last June.

Through Midnight Properties as well as interests in various other limited liability corporations, the trio has owned numerous condominiums — 150, by some estimates — along the Gulf Coast.
Though bankruptcy filings indicate that Midnight Properties was perhaps even more active in Florida than it was in Alabama, Baldwin County Probate Court records show the company was a prolific condo buyer and seller along local beaches. Between 1999 and 2006, for example, Midnight Properties bought 51 condos, selling 35, probate records show.

Associations file liens

Early this year, owners' associations at various complexes began filing liens against Midnight for unpaid dues and the investors' creditors began foreclosing on condominiums.

Craven, acting as attorney for owners at The Beach Club, for example, filed liens on 18 condos at the Fort Morgan resort seeking unpaid monthly dues and special assessments totaling more than $88,000, according to Baldwin County probate records. Owners' associations in two other Baldwin complexes where the men owned multiple condos did the same.

A Connecticut-based company called Steamboat of Alabama sued the men in April, foreclosing on five condos — three of which were also at The Beach Club — and seeking $4.6 million, which is the amount of debt left over after the condos were auctioned off for a total of about $1.8 million, court records show.

 

 

 

 

 

   
 

Click here to see photos taken on February 8, 2007

Coastal Living Idea House

July 29, 2005 Newspaper Report on Sales.

 

 
   

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