Clearwater's Cay Clubs lays off dozens, blames housing downturn

You may not have heard of Cay Clubs Resorts & Marinas. It's a developer based in Clearwater that feverishly expanded in places like the Florida Keys and Las Vegas since its founding in 2004.

Cay sold investors units in condo-hotels, agreed to act as landlord in renting those units to tourists and promised stellar returns to investors.

A sign that it hasn't worked as advertised: Last week Cay laid off many of its employees at its Clearwater headquarters at 18167 U.S. 19. Several of its restaurants in the Florida Keys have been shuttered. Angry investors are filing the first lawsuits.

Cay made $46-million last year but got roughed up in the housing slump. The real estate speculators that fueled the company's growth have mostly gone away.

Incidentally, the St. Petersburg Times wrote about Cay Clubs last year when chief executive Dave Clark announced he was buying Walker's Cay, an island in the Bahamas.

Adding to its string of bad luck, Cay Clubs cancelled the deal when the Bahamian government demanded the prospective owners clean up years of buried waste.

 

Comments

[clearwater livin]

When Cay Clubs found out about the secret waste at Walkers Cay (after hiring engineers for the due diligence), they asked for exactly the amount of a discount to cover the clean-up ($10 million). Sellers refused; Cay Clubs walked. That's smart, if you ask me. Hopefully, they'll get through this real estate nuclear holocaust.

[mike m]

Cay Clubs has been a disaster that goes like this: develop a property & promise investors a great return based on turning the place into a "destination" with shops, hotels, a waterpark, etc... Then - make it a "Condo-tel" & collect nightly rentals. Sell the units at an inflated price ($400- $500/sq ft) based on that "future return". Offer a 2 year lease back program to lure investors into a "can't miss" scenario. Here's where they missed - After 2 1/2 years, it is NOT a destination - they failed to deliver on the nightly rentals - the units are only worth half of the mortgage value in the vacation / second home condo market. It won't help property values once the foreclosures really start hitting in the next few months - you ain't seen nuthin' yet!

[B.]

I believe any company dealing in secondary homes and real estate right now is facing the same battles. Every one I know in the industry has pretty much the same story. Between the years of 2002 and 2006, everything was red hot. Everyone (the buyers) could get financing, easily, and did so, whether or not they could really afford it. I think this is because everyone wants a chance to to make money. It is hard to get ahead on an average salary and this seemed to be the perfect time for people of any means to get the financing to buy properties that had potential to increase in value or be rented out. Many of my friends and family members tried to do the same thing. They all took out financing on their homes to invest into something that could make them better off down the road.

As long as the economic conditions stayed strong, I believe it would have really worked out for everyone. They hired me because it is obvious that Europeans and people in other growing economies want real estate in Florida and many countries currency is much stronger than the US Dollar. People throughout the world love Florida and there is only so much of it that can be had, especially in places like the Keys. The IMG Academy situation also had a lot of potential and if the company had the ability to go public, they probably would have had the funds necessary to keep it together even in the downturn. Cay Clubs is a privately held company so the money needed to move forward is compromised greatly when the market sours and people stop buying. I think these guys were all pretty much on the same team with the last development company they had or worked together in called Earthmark. They developed, managed and sold thousands of properties for about 20 years, I think. I know my manager worked with Mr. Clark for at least 15 years as a salesperson and he did really well for himself. So I don't think that these guys are a bunch of clowns with no abilities. I think they just got into bad timing and luck with todays downward market spiraling and mortgage and economic slumps. If they were the only ones hurting, I would say that it is all their fault, but they're really not the only ones. Even billion dollar companies are going down and fast. I pretty much research everything for my career knowledge.

They were doubly hurt from the negative press, in my opinion. When people research a company online when they are thinking of buying, they always go to the internet. 10 years ago, their short term lease back problems would probably not have been a huge deal but because everything gets blown up and recorded forever on the internet, I don't think anyone could get past that. I think that any company with as much growth as they had would be scrambling to keep up with it all. They had to hire more and more people to take care of all the things necessary for the strong real estate demand. I think the executives were overall good family guys as I am. They all have kids, some have grand kids and it seemed that they were trying to do what was necessary for the future sustainability and growth of the company. They all put all their money into it and I think they are all pretty much broke now since the sales have stopped but the bills keep coming.

I think it is a sad situation because a lot of people loved their jobs and the company but are now out of luck. If you want to hear that I think everything was due to poor management, I am sorry, but I think that is incorrect. They sold thousands of units and handled the paperwork and flow of information as best as they could and everything worked out while the market was good. I think thousands of people did get their lease backs so it was a good plan or so it seems. The business plan was good but I think that the ability to keep the ball rolling when people stop buying, the banks take more than they promised and the press had a way to make more sales from their struggles, are what really hurt them overall.

[mike m]

It's an obvious statement that "the real estate downturn" hurt them. Cay Clubs demise has been caused by two main factors - they were not disciplined with their influx of cash from the original condo sales (ala the "tech boom") - instead of putting the money into their development plans and building the "resort destination" they promised in their sales brochures, they spent it on a lavish corporate lifestyle.

Secondly, at least in the case of Clearwater, they were sbaotaged by the local government. How did the plans for this nightly rental development get approved in local city council meetings and then suddenly fail to materialize in reality?

The city reneged on its promise to deliver the zoning and approval on nightly rentals, thereby dooming any chance for the property to be developed into the resort it was intended to be.

As an investor, there is no way to rent the property on a monthly basis for an amount necessary to pay the mortgage. Since the development was never finished, the values of the units have fallen to 50 - 60% of original cost.

Literally hundreds of these units are or soon will be in foreclosure. Any one left trying to hold one of these units is looking at paying on a mortgage and will never recoup the value of their initial investment.

Lawsuits are flying and the developers & the city of Clearwater are at the heart of this mess - not the real estate market.

[Don]

Mike you need to do a little research. The fact is that Cay Clubs did a horrible job in their research and strategy. They had their VISION as they called it, and they needed laser surgery. They overspent on everything, the profits from last year vanished, they were not developing the properties the way they said they would as far back as three years ago, and they had a poor plan. Most of their employees were grossly overpaid, the bonus' were nuts, and they kept buying properties to spread out the debt. Do a little research. Look at the Edgar data from the merger. They were a train wreck. At the end of the day someone walked with $46 million. They knew things were going the wrong way in Feb. and kept spending other people’s money knowing the merger was dead. The Vegas property is in a horrible part of town and that project was DOA on inception, Orlando bad area, Keys never even started construction, floating homes that tipped over. Go look at the properties, not the drawings. Simple fact is they accepted money for the owners of units on their properties they rented. They never paid those owners the money they collected that was due to be paid out. It was not their money. That is theft plain and simple.

[Truth]

That is simply not true. Not only did the developers take out loans against their own home to save the company- they lost everything. No one saw this economic train wreck coming. The people who made out were the investors like Sunvest and others who were primary partners (capital partners) who now have ownership of them. Everone who bought a condo, got a condo. It may not be worth what you paid for it, but such is the case with EVERY real estate investment nowadays. Zoning was an issue in Clearwater but no one was told by the sales team onsite or anyone who worked for the developer that the zoning was 100% given- but they were trying with all their might. There was no reason for it not to pass- research that- there was someone on the inside in gov't (maybe related to local hotels not wanting the competition)- but all condos these days are worth a FRACTION of what people paid. If this was such a scam on the sales/developers side, why were people on waiting lists to but "over inflated", etc. properties? Because that's how all condos were priced in EVERY market in EVERY city in EVERY state- especially FLORIDA, Las Vegas, and markets where Cay Clubs wasn't at. You have a bunch of bloggers out there pissed because they lost out. Well so did everyone, mister. EVERYONE. And yes it was from the economy- banks stop lending people stop buying, banks go under- stop all credit, then DEMAND STOPS and projects cannot get completed, no matter what but you know what? Go talk to your developer team- the guys who funded the projects- they have the money. Ask them to use it wisely. And stop throwing rocks when you yourself live in glass houses- borrowing more than you should've- with loans that weren't always with correct infor, etc.