Kosene & Kosene could barely keep up with demand before it broke ground on The Residences at Coconut Point, a complex
condos connected to a 1.2- million-square-foot shopping center in Estero, Fla.
The Indianapolis developer had a hot product: Mediterranean-style condos near Fort Myers, connected to a sprawling mixed-use
center with a Super Target, Muvico Theaters and four separate Starbucks stores.
Once the company had wrapped up its portion of the $500 million project in late 2007, it had inked deals for 212 of the units.
But Kosene’s fortunes turned with the market. About half the buyers have refused to close on their condos, and many are fighting
in court to annul the contracts. At least 62 lawsuits are pending.
About two-thirds of the condos at Coconut Point now are vacant, while the retail portion, developed by fellow Indianapolis-based
developer Simon Property Group Inc., is 94-percent occupied.
The outcome of the legal action could determine the fate of Kosene & Kosene, a veteran developer that has left its mark
downtown Indianapolis with luxury condo projects named after classic cars like the Maxwell, Hudson and Packard. The 45-employee
firm launched an aggressive national expansion a few years before the residential market cratered, sending values down as
much as one-third in the hardest-hit markets.
The company isn’t backing down from the legal fight in Florida; in several cases, it has filed its own lawsuits to force buyers
"This is about morality; it’s about integrity," Gerry Kosene, the firm’s managing partner, said in an interview.
these contracts, they personally guaranteed these contracts, and now they’re doing whatever they can to get out of them."
Attorneys representing the buyers don’t see it that way. They describe the Kosene contract as carelessly designed to protect
the developer at the expense of buyers.
Many of the buyers’ lawsuits base their arguments on the Interstate Land Sales Full Disclosure Act, or ILSA, a 1968 consumer-protection
measure crafted to protect northern buyers from shady Florida developers.
It requires developers of over 100 units to either register their project with the U.S. Department of Housing and Urban Development
and provide buyers with a property report, or guarantee in writing that units will be completed within two years of the contract
Kosene claims it made and delivered on a promise to complete the condos in two years. But the contract language was never
valid because it was clouded by hedges meant to protect Kosene if it failed to deliver the units in time, said Richard Inglis,
a Fort Myers attorney who represents seven of the plaintiffs.
"The bottom line is, economics changes everything," he said. "It’s very easy to comply with ILSA, but putting
lawyers in the
game, you start hedging. Shame on them for not watching these contracts."
In July, U.S. District Court Judge John Steele agreed with Inglis’ contention, saying Kosene’s contract "provides little
than a prediction of completion without consequences to the seller for failure to fulfill the prediction."
The judge ruled that Coconut Point is not exempt from ILSA. If the ruling stands, it means Kosene failed to deliver a property
report as required, grounds for buyers to cancel their contract and demand a refund of their deposit (in most cases, 20 percent)
or entire purchase price. The firm that wrote the contract, Fort Myers-based Becker & Poliakoff, also is defending it.
Attorneys all over Florida are pursuing similar strategies to free buyers from the obligation to close on condos that have
depreciated in value. Inglis, the attorney, has no apologies. During the boom, he sued developers who tried their own tricks
to cancel pre-construction contracts so they could sell condo units at higher prices once they were built.
Watching lawyers search for what amounts to technicalities to get buyers out of contracts is sickening to Kosene.
"It’s one of the most difficult times we’ve been through, but it’s also not completely foreign to us," he said.
"We feel very
confident in what’s going to happen."
He said Kosene has paid more than 60 percent of the loans on the project, which wrapped up early and within its $150 million
budget. But court orders to refund the deposits would be devastating since the average buyer put up $100,000 to $150,000.
"They were playing a dangerous investment game and decided not to fulfill their obligation," he said. "A lot
of these people
haven’t even looked at their units."
If the company loses its legal battles, Kosene said, the firm still would be able to sell the remaining units for its loan
The firm has not encountered similar problems at projects it is working on in Houston, Memphis or Denver.
At least 12 of the Coconut Point condos currently are listed for sale, with prices ranging from $299,000 for a 1,000-square-foot
unit to $549,000 for a 1,500-square-foot penthouse. They were initially offered for $400,000 to $875,000.
The number of vacancies in the project should be a big concern for potential buyers, said Jim Neal, a real estate agent with
Sun Realty in nearby Naples.
"On average, I’d say the units have lost $100,000 to $150,000 in value," he said. "It’s still an appealing
property, but I
wouldn’t advise buyers to go in the complex."
One reason he said he’s cautious is the rudeness of the Kosene sales staff on repeated visits. He’s steering clients interested
in Coconut Point toward the resale market, not Kosene.
Some observers say privately that Kosene’s hardball tactics have turned off customers, including some who put down deposits
and still might have closed had the company not taken such an adversarial stance. Rather than just keeping deposits on unclosed
units, Kosene took the contract buyers to court.
Richard Dick, a partner with locally based Mitchell Hurst Jacobs and Dick who represents Kosene, said the firm is simply protecting
"People are taking every opportunity and every possible argument to try and get out of contracts," Dick said. "Had
fulfilled their contracts, the project would be doing great."