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The nuclear option: Clearwater condo owners push back against bond debt

Grand Venezia condominium resident Don Dwyer looks out over Old Tampa Bay from his second-floor balcony this month. Dwyer is the chairman of the community development district for Grand Venezia and some neighboring commercial property. This month, the district filed for bankruptcy in an effort to recalculate assessments that property owners are charged to pay off bond debt taken on by developers more than a decade ago. [ANGELIQUE HERRING | Times]
Published Jun. 28

CLEARWATER — On sunny days, the Grand Venezia at Baywatch condominiums offer a view of Old Tampa Bay that calms the mind.

"It's just gorgeous," resident Don Dwyer said recently. "One morning I sat on my balcony for two hours. I saw five manatees, 12 dolphins and I can't tell you how many stingrays."

But the history of Grand Venezia is anything but fun or soothing. Instead, it's complicated and contentious, with twists that just keep coming, starting with the two con men now serving 40 years in prison for running a nationwide Ponzi scheme.

Along the way, they talked about turning the Grand Venezia, which is east of U.S. 19 near Belleair Road and Clearwater's southern boundary, into a 5-star resort with a water park, canals with gondoliers, a hotel, spa, convention facilities and shopping to rival Rodeo Drive.

None of those fancy extras ever got built, but the swindlers did borrow nearly $34 million for other expenses from the municipal bond market before their plans imploded. More than a decade later, condo owners are still paying off the bonds to the tune of nearly $1,100 a year.

'ANGRY, CONFUSED AND FRUSTRATED': Developer in prison, but Clearwater condo owners still paying the price

For years, attorneys have argued about whether residents have anything to show for their money.

The answer is no, Dwyer says. Late last year he and a couple of like-minded others gained control of the board of Grand Venezia's community development district, a special purpose government created to set the assessments that pay off the bonds.

This month, the district took the virtually unheard-of step of filing for bankruptcy under Chapter 9 of the federal bankruptcy code, which concerns local government debt. The goal, according to court pleadings, is to recalculate the assessments. That's not as drastic as walking away from the debt, but even its champion says it's an extreme act.

"I call it the nuclear option," says Dwyer, who until this week served as chairman of the board of the community development district for Grand Venezia and some nearby commercial property.

The bonds are owned by OppenheimerFunds, which itself was bought last month by investment giant Invesco. The company declined to comment, but one of its lawyers last year warned the district's board against thinking, "We don't have to pay our debts."

Do that, Oppenheimer attorney Brian Crumbaker said, and "every city, county, School Board, (and) 600 community development districts in Florida … would be doing the same thing."

•••

Grand Venezia was built in 2001, with 12 buildings, 336 apartments and plenty of Italian architectural flourishes.

Several years later, developers Fred Davis "Dave" Clark Jr. and David Schwarz arrived in Clearwater and added Grand Venezia to a string of 14 Cay Club luxury condo-hotel projects they owned from Las Vegas to the Florida Keys and the Caribbean.

Clark and Schwarz converted Grand Venezia's apartments into condos and started selling. Condo prices soared into the $500,000s and $600,000s as they enticed buyers with the prospect of renting out their units and promises that they would receive 20 percent of what they paid as "lease back" payments at the time of closing.

The problem was, Clark and Schwarz were running a $300 million Ponzi scheme. They used money from their last buyers to make lease-back payments to the first.

In 2005, the Clearwater City Council approved Schwarz and Clark's proposed Clearwater Cay Community Development District, which could sell bonds to raise money and require condo owners to pay off the debt through annual assessments that appeared on their property tax bills.

Community development districts are not unusual in Florida. They exist in Westchase and Tampa Palms, for example, and are often set up to build and maintain streets and public areas at a higher standard than is the norm for local governments.

But in Grand Venezia, the infrastructure already existed. This is a key point for residents who question the rationale behind the assessments.

"There was never a shovel put in the ground by the criminals that bought this land," Dwyer said.

With the district in business, a Pinellas-Pasco circuit judge validated a bond issue. In late 2006, the district borrowed $33.8 million on the bond market. The main purpose of the bonds was to retire some short-term debt, fund certain reserves and pay the costs of issuing the bonds.

Because Grand Venezia already existed, the bonds were not earmarked for new construction, according to the district's bankruptcy petition. The plan was to raise funds for the water park and resort amenities later.

In 2007, Clark and Schwarz's scheme unraveled. The real estate market crashed. Many Grand Venezia units went into foreclosure, were taken back by lenders or changed hands in short sales.

But the assessments stayed in place. Grand Venezia condo owners pay part of the debt service on the bonds, and owners of commercial property located inside the community development district's boundaries but outside Grand Venezia's gates pay part.

Subsequent waves of buyers purchased Grand Venezia condos for much less than what initial buyers paid at the peak, and some bought multiple units.

"It was a great investment," former district board chairman Trevor Davison said in an email from northwestern Georgia. "The lowest price paid that I recall was about $32,000."

Dwyer said he didn't learn of the assessments until well after he moved into Grand Venezia. He said that in 2017 he put up $159,000 to buy the second-floor, one-bedroom unit where he lives. But the condo is deeded in his girlfriend's name because, "I have outstanding judgments against me, and that is the reason that today I own nothing."

Dwyer, 61, is a former member of the Maryland House of Delegates, where he made news on two fronts. First, he took hard-line stands against legalizing same-sex marriage, gun control and letting illegal immigrants pay in-state tuition.

Second, in 2012 police said Dwyer's blood-alcohol level was three times the legal limit when he was at the helm in a boat collision that injured seven people, among them a 5-year-old girl. Before final sentencing in that case, he was charged with DUI and pleaded guilty. He was sentenced to 60 days in jail, which he served on weekends during the legislative session. The following year, he was sentenced to six months in jail for violating his probation in the drunken boating case and told a judge he had been ordered to pay $200,000 in connection with the boating accident.

Dwyer said his controversial history in Maryland is in the past. Now, he said, he is trying to help a community he loves.

"The things that I'm doing are above-board, they're for the right reason, and I'm trying to resolve a major conflict in this community," he said, so that "we can correct the wrongs that have been in play for a long time. Because of my experience I have the ability to do that."

•••

So what does the district owe at this point? Its most recent audited financial report, dated last November, said there was $13.9 million in outstanding bond debt as of September 2017, though that's a dispute at the heart of the bankruptcy case.

Whatever the total, opponents of the assessments say condo residents do not have anything to show for the bond debt run up by Clark and Schwarz's companies.

Safety Harbor attorney Bruce Barnes got involved with Grand Venezia condo owners in 2007 and later began representing the Grand Venezia condo owners association, which is separate from the community development district, on issues related to the assessments.

In 2016, Barnes filed a lawsuit on behalf of the condo owners association seeking, among other things, to dissolve the community development district. Last year, Pinellas-Pasco Circuit Judge George Jirotka said no to that idea. He also waved off the idea of invalidating the bonds and most past assessments.

But the judge did order a do-over of the assessments starting in 2015. The reason: In 2016, a sale of vacant land in the district generated $6.45 million for bond holders. Jirotka found that the sale got factored into the assessments in an arbitrary way.

"Judge Jirotka's rulings on the reassessment were monumental," Barnes said.

But a recalculation after the trial barely changed the assessments, which did nothing to satisfy critics like Dwyer.

Now, with a new board in place, Dwyer said an independent firm will come up with a new assessment. In court pleadings, the district said it wants an accounting from U.S. Bank, the trustee for the bond holders' interests, "of monies received and applied during the life of the bonds," so that it can figure out how much the bond holders are owed and propose "a plan to adjust that claim." So far, the district's bankruptcy attorney says, U.S. Bank has refused to turn over the information.

U.S. Bank declined to comment, but an expert on municipal bond finance says the case is extraordinary.

"Certainly in Florida it's rare," said James E. Spiotto, a managing director of Chapman Strategic Advisors, a Chicago-based municipal finance consulting firm. "I don't know of another (community development district) that filed for a Chapter 9 bankruptcy."

Investors see the $3.8 trillion municipal bond market as a relatively safe place to put their money. That, in turn, allows cities, counties and school districts to borrow money at low interest for a wide range of public works projects.

But if the bond market became riskier, Spiotto said, interest rates on such bonds could rise, perhaps as much as 2 percent. That, in turn, could add 25 percent to the cost of a 20-year bond. And those higher costs would either cut into the budgets for public works projects or force communities to take more from taxpayers to repay their bond debts.

"It's of real significance," Spiotto said. "You don't want to increase the perceived risk of government finance."

Barnes said that argument is overblown. The district is not trying to wipe out the bonds, he said, but wants to match what it pays to the actual benefits owners receive.

"It's been grossly unfair how the assessments levied against my people haven't been reduced dramatically over the years," he said. "We had been assessed as if we were going to get all these bells and whistles, and we didn't even get a jingle bell."

MORE: Go here for more business news

This report includes information from the Washington Post, Baltimore Sun and the Capital / Maryland Gazette.

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