Community Develoment District
Attractive new homes -- and ugly pile of debt
ARTICLE COURTESY of St. Petersburg Times
By JOSH ZIMMER
Published September 22, 2002 

LUTZ -- The golf course was supposed to pay the bills. 

The concept was simple: Build an 18-hole layout and other recreational facilities with $7.9 -million in bonds. Revenue generated by golfers would cover both operations and pay back the debt. 

But five years later, the idea is foundering in Heritage Harbor. Play is way off while the debt load is $13.6-million and climbing. The golf course shows no sign of pulling in a profit any time soon, a top manager with owner Lennar Development now acknowledges. 

The dire financial picture is making some homeowners nervous, as they will be responsible for the debt once they take control of the Lennar-controlled community development district in 2004. 

"I would not have purchased here had I known this was going on," said Jeanette McGee, who moved in a few weeks ago. 

McGee and neighbors gathered recently to weigh their options in this community, known for its theme park-style swimming pool and popular among young families. They have raised more than $10,000 to hire an attorney. 

Mike Lawson, president of operations at Lennar's North Florida Land Division, acknowledged that the golf course is averaging half-million-dollar deficits since opening in 1999. The company anticipates another $587,000 shortfall during the next fiscal year beginning Oct. 1, said homeowner Rick St. Pierre. 

St. Pierre is the only homeowner representative on the five-member CDD board, a state-approved entity that collects taxes and controls Heritage Harbor. That includes the common areas and golf course. 

By state law, developers control CDDs during the early years of existence, which means Lennar makes financial decisions. A developer-controlled CDD issued $20.8-million in bonds to build infrastructure and recreational facilities, including the golf course. 

Lennar owns two other similar golf course communities, including Heritage Isles in New Tampa, Lawson said. Business has been so disappointing that Lennar plans to stop using golf courses to fund subdivision development, he said. 

"The golf course (at Heritage Harbor) has not performed as projected," Lawson said. He blamed the problem on stiff competition from other local courses, including two across the street at Cheval, and a nationwide downturn in play. 

Plans went awry from the beginning, St. Pierre said. 

The $7.9-million bond issue was not enough to finish the course, he said. That's when former Heritage Harbor owner U.S. Homes agreed to loan the CDD board up to $5-million to finish construction. In May, the board signed another promissory note allowing it to borrow up to $3-million to cover the bond payments, he said. 

Meanwhile, the CDD burned through a $1.3-million developer's reserve fund and accumulated operations deficits of about $350,000. Adding in the $4.6-million spent from the promissory notes and the remaining $7.3-million recreational bond debt raises the CDD's total liability to $13.6-million, St. Pierre said. 

"If the facility's not making money, what happens when Lennar/U.S. Homes leaves?" St. Pierre asked. "This is debt that's all on the CDD. The value of our homes is tied to these (recreational) facilities." 

Alarmed by the numbers, he and other homeowner leaders handed Tampa lawyer Roberta Colton a packet of materials several weeks ago that included information on Heritage Harbor's finances and records of CDD minutes. Colton said the records would help her determine homeowners' exposure to the debt and whether the CDD acted legally. 

"First thing is we have to explore our possibilities, find out what their responsibilities are," Colton said. "We have to have a plan, we have to have a strategy." 

Lawson downplayed the gravity of the debt, but did not deny that homeowners may someday be liable to repay up to $8-million in borrowed money. 

The $8-million figure only represents the CDD's spending limit, he said. The CDD has to make its recreational bond payments before chipping away at the promissory note debt, Lawson emphasized. So theoretically, Lennar may never recoup what it loaned the CDD for the golf course, he said. 

"We (Lennar Development) only get paid back when the golf course starts to make a total surplus cash flow," he said. 

Or, it could be "20 to 30 years," before the CDD -- by that time under homeowners' control -- must repay the debt, he added. Neither promissory note has a maturity date. 

Lawson described the interest on the debt as "symbolic." The rate on the $5-million note is 8 percent. The most recent note, for $3-million, carries a 2 percent interest rate. 

Colton said the strategy report should be ready in 30 to 45 days. Homeowner Glenn Perry did not mind paying his $200 share of the lawyer's bill, even though he could face higher taxes and fees in the future. 

"I want to protect my property value," he said. 


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