Whether the command came from billionaire Carl Icahn or the executives running one of his subsidiaries, the development company that owns and operates Grand Harbor has made club members an offer they can’t refuse – and not because the deal is too good to turn down.
It’s not the feel-good deal Grand Harbor members were hoping to get earlier this year, when they embarked on negotiations to assume ownership and management of the club’s facilities and operations from Icahn-affiliated Bayswater Development LLC, which has managed Grand Harbor since 2004.
Members sought $4.5 million in cash and ownership of lots and model homes with a combined value of $6.5 million but the developer flatly rejected that demand earlier this month.
In place of that agreement, Icahn’s henchmen last week presented members with a take-it-or-leave-it ultimatum that read more like terms for surrender than a business proposal.
Yet they’ll probably take it.
They’ll probably take it, even though they’ll get none of the cash, real estate properties or capital improvements they had demanded and be forced to settle for 500-plus unsold memberships that aren’t worth anywhere near their face value of $28 million.
They’ll probably take it because they have no real leverage and no good alternatives, given the club’s current state of affairs:
nMore than 150 members resigned in the past month and many others have withheld their annual dues payments, resulting in a crippling dearth of revenue needed to fund the club’s maintenance and operations.
nCiting a lack of funds, the developer closed the beach club, suspended all dining services at the main clubhouse and began furloughing employees last week.
nAll club facilities and services will be shut down by the end of this week if the members refuse to accept the developer’s offer, or at least agree in principle to the terms presented.
“The available cash on hand has dwindled to an amount that is grossly insufficient to continue normal operations,” the developer wrote in a letter to members last week, adding that the company “does not have the financial resources to continue funding annual deficits and will not be providing any funds to the club to deal with the current cash shortage.”
Bayswater also has threatened to declare the management company “insolvent” and seek Chapter 7 protection in bankruptcy court, a move that could result in the club’s assets being purchased by a third party.
It’s possible, of course, the members could find a better deal in court, but there would be plenty of legal fees and too much uncertainty.
That’s why the Grand Harbor Members Association, which represented club members throughout the frustrating and sometimes-contentious negotiations, is now recommending they accept the developer’s final offer.
In an email to members last week, the GHMA wrote:
“We have long held that a negotiated settlement is preferable to litigation because it will afford us a better opportunity to keep the club open and functioning and its employees retained. It gives us a quick start in revitalizing the Grand Harbor experience and will save both time and money.
“We need a quick resolution so that we can safely collect and hold our dues, protect them from any bankruptcy action and put them to good use in our member-driven club,” the email continued.
“We know we have lots of details to work out, but if the members approve this deal in principle, we will have made a significant leap forward towards our collective goal of member control.”
If they accept the deal, the members will benefit by taking ownership of all the club’s assets – the main clubhouse, two golf courses, tennis complex, swimming pool and beach club – as well as approximately 580 unsold memberships.
At the same time, Grand Harbor’s developer-created Board of Governors would be replaced by a member-elected board that would govern the club.
And Bayswater did relent on one of the GHMA’s demands: After initially seeking a release from any legal claims, the developer agreed to allow a member-elected board to sue for past maintenance or operations obligations, if the panel chose to do so in the future.
“This is what’s new and a big deal,” the GHMA’s email stated, though taking Icahn to court likely would be a long and costly process.
Besides, if the members accept the offer, they’ll confront more immediate challenges, none more daunting than raising the revenues needed to operate the currently cash-poor club.
According to the developer, the exodus of members and withholding of dues left management with only $300,000 to fund the club’s operations, creating a $6 million budget shortfall that almost certainly will require outside financing.
While it’s likely most of the members who withheld their dues would pay them once the deal was finalized – and some of the members who resigned likely would opt to return – there’s no way to know how much damage has been done to one of the largest and most popular country club communities in the Vero Beach area.
The dispute between members and management dates back to 2017, when members sent a letter to Bayswater complaining about deficiencies in the club’s operations and the developer’s failure to follow through on promised improvements to club facilities.
Bayswater responded in a cooperative way at that time and the situation improved, but the relationship deteriorated again when management shut down all facilities in response to the pandemic’s arrival in Florida in March, then kept them closed even after other local clubs began reopening later in the spring.
A member-owned Grand Harbor can expect to endure a rough first year, at least fiscally. But the members, particularly those concerned about the impact of all this turmoil on their property values, have no real choice.
Homeowners in Grand Harbor aren’t obligated to join the club, but the club’s amenities add to the community’s appeal and to the value of property within it.
The developer’s refusal to budge, along with the harsh rhetoric directed toward the GHMA board, has left some members feeling so disenchanted they don’t want to accept what they consider an insulting offer.
The hard truth, though, is that no better offer is coming.
“By overplaying its hand, GHMA has brought the club to the brink of self-destruction,” Erica English, the developer’s lawyer, wrote last week in a letter to Robert Giesen, the members’ attorney.
Actually, both sides contributed mightily to this mess. Only one, however, was given an offer it can’t refuse.