Holy Cow! Screwed condo buyers are turning condos into whore houses to get their $$ back???

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For all intents and purposes, Peyeck now owns the complex, and he runs it with help from his associate, Paul Navetta, and executives from the Triton equity investment firm -- Brent Virkus and Stephen Rentz.

Houses of ill repute?

Just days before the loan buyout was finalized, Couch and his wife, Yu Mei Cheng, were arrested along with four other people, accused of running 10 brothels out of massage parlors and acupuncture clinics in Orange County, Calif.

A statement from the Orange County District Attorney's Office said that the arrests were the result of a three-year investigation into a Chinese prostitution ring that the D.A.'s office had conducted in conjunction with U.S. Immigration and Customs Enforcement and the Orange and Anaheim police departments.

The D.A.'s statement said that the ringleaders attracted clients by running advertisements in local newspapers boasting of "Beautiful Girls" and "Young Chinese Ladies."

That statement goes on to say that no medical or acupuncture tools were found during the raid of the clinics, but 7,500 square feet of Kirkland plastic wrap and 12 bottles of 24.5-ounce Vaseline -- used in place of condoms and lubricant -- were discovered on the premises.

Susan Schroeder, public affairs counsel for the Orange County D.A., said Couch and Cheng have been charged with conspiracy to commit the crime of pimping and of running a house of ill fame, and Couch has also been charged with being a felon in possession of a firearm.

They could each be sentenced to six years in prison if convicted, Schroeder said.

Couch did not return repeated calls, but his brother-in-law said the charges will be dropped in a matter of weeks."



In Sarasota, an unusual condo deal

Group snapping up units at prices higher than during boom
By MICHAEL BRAGA

[email protected]
SARASOTA -- As condo owners across the state bemoan a downward slide in values, an unusual situation is taking place at the Bermuda on Osprey condominium complex near downtown Sarasota.

A group of Californians -- two of whom were arrested in March on charges of running a brothel in the Anaheim area -- have been snapping up units at prices that are hundreds of thousands of dollars higher than those paid during the boom.

The buyers, led by John Edward Couch of San Clemente, say they will convert the 46-unit complex into a senior-living center complete with a luxurious clubhouse, communal dining room and limo service.

They believe the high prices they are paying are justified by all the improvements they plan for the flesh-colored, two-story walk-up built in 1969.

Since November, group members have paid $8.5 million, or an average of $566,667 each, for 15 of the units, and they have received $7.2 million, or an average of $480,000 per unit, in loans from a variety of lenders, Sarasota County Clerk of Court records show.

But the owners of the complex -- Sarasota-based Triton Cos. and Michigan-based C.P. Ventures Limited Partnership -- say they have received only about $300,000 for each unit, explaining that the remaining $250,000 or so from each sale has been placed in an "amenity fund" controlled by the buyers to be used for future improvements.

Local appraisers, real estate experts and community leaders say they have never seen deals in which banks are willing to lend more than 50 percent of a condo's purchase price on the promise that the extra cash will be placed in an amenity fund.

They say the deals are reminiscent of transactions in recent years in which buyers bought properties in Southwest Florida for one price, sold them to partners for much more, and got loans that not only covered the cost of their original purchases, but left everyone involved with extra spending money.

Bankers have been the ultimate victims of this activity, but they are not the only ones affected.

"These are the kinds of deals that ruined the market in the first place," said Kerry Kirschner, executive director of the Argus Foundation, a business-centered public watchdog group. "They are phony transactions that artificially inflate the value of property and lead to the fact that people are having to pay higher taxes."

Dennis Black, a Port Charlotte appraiser instructor, agreed: "No one in this market is doing deals in which 50 percent of the purchase price is given back to buyers and placed in some sort of amenity fund. Speaking as a person with 25 years' experience, this stinks like a five-day-old fish."

Both buyers and sellers of the Bermuda units say their transactions are legitimate.

"The key is disclosure," said Will Schlotthauer, an attorney with Williams Parker in Sarasota who represents the Triton Cos. "As long as everyone is aware of all the details, then it is up to the lenders to make sure the deals make economic sense."

U.S. Department of Housing and Urban Development disclosure statements, which are a required part of every mortgage application, clearly show that part of the revenues from sales at Bermuda have been placed in an amenity fund, Schlotthauer said.

But neither the buyers nor the sellers seem to know where that amenity fund is.

Christopher Woods, brother-in-law of Couch -- the leader of the California buyers group -- says Schlotthauer is holding the money.

But Schlotthauer says a California attorney hired by Couch has the funds.

"If I were a buyer, I would want to know the money is there," Schlotthauer said. "I think bankers would want to have the same controls."

Bryan Bond, whose Newport Beach, Calif., mortgage company made seven loans totaling $2.7 million to Couch's group, was so concerned about the amenity fund that he promptly canceled an eighth loan his firm had been processing.

After reviewing the HUD statements, Bond, of Bondcorp Realty Services, acknowledged that they contained a line item about amenity fund payments, but he said he did not know what an amenity fund was.

"I've never heard of one."

Developing a reputation

Even before Couch's group began buying units at Bermuda, the complex had been part of questionable deals.

It was originally bought for $5 million, or $108,696 per unit, in March 2005 by Daniel Prewett, a tax felon who is now awaiting extradition from Italy on money laundering charges connected to a cocaine deal.

Warren Hickernell, a well-known condo converter and longtime Prewett associate, was brought in to manage the conversion. After nine months on the job, Hickernell -- backed by the Brighton, Mich.-based RBS Cos. -- bought the complex for $10.23 million, or $222,391 per unit, financing the deal with a $9.4 million loan from the Bank of Commerce.

The doubling in value of the property in less than a year -- and at a time when demand for converted condos was waning -- raised plenty of eyebrows in the Southwest Florida real estate community, but Hickernell maintains that the price was justified.

His plan was to sell the units for as much as $400,000 each, allowing his group to gross about $6 million in profits. Hickernell sold three in May 2006 for an average of $366,552, but sales stagnated after that.

With the bank clamoring for interest payments, Hickernell began working with an agent in California, Lonnett "Cookie" Williams, to line up buyers there. The first group that emerged was led by Shane Unruh, a resident of Dana Point, Calif.

"It was the strangest group I've ever seen," said Peter Finch, who bought a unit at Bermuda before the California investors got involved. "They did not make me feel comfortable."

Finch said that Unruh and three of his associates lived at Bermuda for about five months while they attempted to raise the money needed to buy the complex and turn it into a senior-living center in which residents would have access to yachts and planes.

During that time, they drove around in rented black Escalades and swore in loud voices as they talked on their cell phones in the middle of the parking lot, residents say.

"The whole thing just smelled funny," Finch said.

Unruh was ultimately unable to buy the complex, and the Bank of Commerce foreclosed on Hickernell's loan in October 2006. Fortunately for Hickernell, Couch picked up where Unruh left off and quickly began buying units.

Court records show that Couch and Woods paid $3.3 million, or an average of $659,200, for five units between November and February, receiving $2.8 million in loans from major lenders, including Countrywide, Lehman Brothers, New York Mortgage and ABN AMRO.

Though Hickernell used the estimated $1.75 million in proceeds to pay down his group's debt, the pace of his payments was not fast enough to satisfy the Bank of Commerce.

Faced with the prospect of losing the property through foreclosure, one of Hickernell's Michigan-based investors -- Chris Peyeck of Shelby, Mich.-based C.P. Ventures -- bought the loan in April.

For all intents and purposes, Peyeck now owns the complex, and he runs it with help from his associate, Paul Navetta, and executives from the Triton equity investment firm -- Brent Virkus and Stephen Rentz.

Houses of ill repute?

Just days before the loan buyout was finalized, Couch and his wife, Yu Mei Cheng, were arrested along with four other people, accused of running 10 brothels out of massage parlors and acupuncture clinics in Orange County, Calif.

A statement from the Orange County District Attorney's Office said that the arrests were the result of a three-year investigation into a Chinese prostitution ring that the D.A.'s office had conducted in conjunction with U.S. Immigration and Customs Enforcement and the Orange and Anaheim police departments.

The D.A.'s statement said that the ringleaders attracted clients by running advertisements in local newspapers boasting of "Beautiful Girls" and "Young Chinese Ladies."

That statement goes on to say that no medical or acupuncture tools were found during the raid of the clinics, but 7,500 square feet of Kirkland plastic wrap and 12 bottles of 24.5-ounce Vaseline -- used in place of condoms and lubricant -- were discovered on the premises.

Susan Schroeder, public affairs counsel for the Orange County D.A., said Couch and Cheng have been charged with conspiracy to commit the crime of pimping and of running a house of ill fame, and Couch has also been charged with being a felon in possession of a firearm.

They could each be sentenced to six years in prison if convicted, Schroeder said.

Couch did not return repeated calls, but his brother-in-law said the charges will be dropped in a matter of weeks.

"All that happened out here is a total mishap," Woods said. "The cops don't want to admit that they messed up. They came to his house to arrest his wife and they found a gun that his Dad gave him when he was a kid."

In the dark

Virkus and Rentz, Michigan transplants who have an equity investment in Bermuda through the Triton Cos., said they had no idea they were selling units at Bermuda to people who had been arrested on prostitution-related charges.

The two executives, who led the investment team that bought the M&I Bank building in downtown Sarasota for $40 million in March, said their only interest has been to sell the units at Bermuda as fast as possible so they can get out from under a bad investment deal.

"I have properties all over the country," Rentz said. "This one looked good at first. But now that the market has blown up, we are trying to protect our investment."

Rentz said the idea of turning Bermuda into a senior-living center is a good one, and he has no problem with the way sales have been executed.

"The buyers are not overpaying," Rentz said. "They are buying from us at the normal price, and the rest of the money is going into an amenity package that is clearly defined in each HUD statement."

Schlotthauer, the Williams Parker attorney, acknowledged that the structure of the deals bothered him at first. But when he saw that major lenders were comfortable with the details, he relaxed.

"You have to assume that the lenders ordered appraisals and they were done by good appraisers," Schlotthauer said.

One of those appraisers, Terrie Moore of Appraisal Tech in Brandon, said she was initially squeamish about appraising the Bermuda units when she saw that other appraisers were coming in with values of $700,000 to $900,000 per unit.

"Other appraisers were trying to appraise the units as if some sort of exclusive club existed," Moore said. "I had the privilege to see their reports, and they were not in line with market values at the time."

Moore said she insisted on appraising the units on an "as is" basis, and ultimately presented a value of $525,000 for one. Critics say that number is still way too high.

"When they told me about the prices being paid there, I was taken aback," said Richard Dear, a Siesta Key hotelier and real estate developer familiar with the Bermuda on Osprey project. "I don't think the units are worth more than $400,000."

Buyers who purchased units before the Californians got involved at Bermuda agree.

"The market dropped after we purchased," said Dona Norton, who paid $359,857 for a unit in May 2006. "We took a loss on our investment. Everyone did."

Party may be winding down

Friction between Couch's group and executives at Triton has been building since this summer's credit crunch and may preclude future sales.

"The Triton people have a lot of money and they are doing everything they can to make it difficult for us to buy the units," said Woods, Couch's brother-in-law. "They are forcing us to sign contracts to buy condos with ridiculous timetables that we can't meet. Then, when we miss the deadlines, they are seizing our deposit money."

Woods said that Rentz, the executive at Triton, keeps making members of his group sign contracts by threatening to turn sales over to Coldwell Banker.

"If Coldwell Banker sells one unit for $300,000, we're dead," Woods said. "All our units would lose value."

Rentz said it is not his fault if members of Couch's group have been unable to buy units within the allotted time frame.

Couch "has a business plan, and we agreed not to take the property to market through a real estate broker," Rentz said.

"But there were certain requirements for him to buy the units and he did not fulfill them."

Rentz said he has not yet turned sales over to an outside brokerage, but he is rapidly losing patience.

"Our objective is to sell the units," Rentz said. "If he wants to buy a unit, he should buy it. I'm a very easy person to deal with."