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Article Courtesy
of The Tampa Bay Times
By Richard Danielson
Published July 2, 2019
CLEARWATER — On sunny days, the Grand Venezia at Baywatch
condominiums offer a view of Old Tampa Bay that calms the mind.
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“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.
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. |
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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.
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"I call it the nuclear option,” says Dwyer, the 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."
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