Lake Worth's Gulfstream Hotel: Bahraini Petrodollars, the Black Gatsby, and Foreclosure
The fate of the Gulfstream Hotel, the faded crown jewel of Lake Worth's historic downtown, appears at first glance to rest in the hands of the Schlesinger family of Palm Beach and Connecticut. The hoteliers/developers bought the property in 2005 but have fallen on hard times. The hotel is in foreclosure, likewise the family's luxurious Omphoy, on Palm Beach, and Traymore, on South Beach. The Gulfstream's plight is a problem for Lake Worth, whose residents have long dreamed fondly of the day when the hotel, shuttered some years, would reopen and greet fresh streams of visitors to regenerate the town's economy.
But the path to rebirth may prove murkier than a simple restructuring of the Schlesingers' assets. Their mortgage note is held -- Fire Ant has learned -- by an imploding Wall Street hedge fund with roots in the financial black hole of the Cayman Islands. The fund's identity and that of its CEO -- a controversial and combative Wall Street figure -- lies hidden in a maze of property records, court documents, newspaper archives, and regulatory filings.
Less hidden -- though its present ownership interest is unclear -- is the role of a globe-spanning Mideast investment group whose multiple billions, like the Wall Street fund's, are also rendered opaque via the Caymans. The Persian Gulf investors may or may not have washed their hands of the Gulfstream.
Who are these actors, how are they interrelated, and what do they intend for the Lake Worth hotel? New Times repeatedly reached out to all involved -- to their offices, their lawyers, and their media reps. Nobody's talking. So all we know is what we found along the paper trail. Here's what it shows.
HIDDEN HAND ONE/JULY 2005: The Schlesingers announce their purchase of the Gulfstream for $13 million. They promise to renovate the interior, "transforming the popular Lake Worth landmark into a distinctive boutique luxury hotel." They have a partner in the deal, Investcorp, with whom they soon also buy up the Palm Beach Hilton, renaming it the Omphoy Ocean Resort, and Holiday Isles, in Islamorada.
In the Schlesingers' announcement and in news reports, Investcorp is described only as a New York-based "global investment group." Fair enough, but incomplete.
Bahrain-based Investcorp -- with $12 billion in assets -- is basically Mideast petrodollars flowing back through the Cayman Islands and buying up property throughout the Western world -- everything from Italian vending machine manufacturers and French auto parts distributors to Seattle kitchenware retailer Sur La Table and American Banker magazine. Forbes once called its CEO, Nemir Kirdar (an honorary fellow at St. Antony's College, Oxford, no less), "Michael Milken in a burnoose."
Fire Ant finds it unsettling that Bahraini oil wealth depends on a certain amount of stability (AKA crushing pro-democracy protests) in the little island kingdom. But what the heck? Their money's green.
(Investcorp claims to have sold its interest in the Gulfstream in November 2011. But since its arrangement with the Schlesingers is shielded by Delaware corporate registration, we'll just have to take its word for it.)
HIDDEN HAND TWO/APRIL-JULY 2010: The Georgia bank that holds the mortgage note on the Gulfstream, United Community Banks, struggling to stay afloat in the aftermath of the 2008 economic collapse, strikes an unusual deal with a Wall Street hedge fund, Fletcher International. In April 2010, the bank loans the fund $80 million and the fund buys $100 million of the bank's troubled loans, also agreeing to buy a share of the bank. As a kicker, in July 2010, the bank signs over the Gulfstream mortgage note to Asset Holding Company 5 LLC, a Fletcher entity.
(Asset Holding Company 5's corporate structure, like Investcorp's, is hidden by Delaware registration. But its principal place of business is the same as Fletcher's New York hq, and its managing partner, George Ladner, is a Fletcher officer.)
Who's the Mister Big behind Fletcher International, a schmoozer so smooth banks loan him tens of millions, trust him to rescue them from massive losses in real estate, and make him part owner? Alphonse "Buddy" Fletcher, that's who, a man well on his way to becoming the Black Gatsby.
BLACK AND PROUD: A Harvard grad and in the early 1990s the highest-profile African-American trader on Wall Street, Fletcher made his name at Bear Stearns (now bankrupt) and quickly jumped to Kidder Peabody (since dissolved), where he resigned within a year over a pay dispute, filing claims of racial discrimination. The claims were not upheld, but Fletcher walked away with a million-dollar settlement. He started his own firm, with statements soon boasting triple-digit returns, and made a fortune -- an estimated $150 million at one point. He gave away millions (on paper, at least) to Harvard and to civil rights groups and lived a life of extreme luxury -- art, antiques, a country estate.
This dream died at the Dakota, the landmark Manhattan apartment building best-known as John Lennon's last residence, where the former Beatle was assassinated. Fletcher had bought not one but four of the building's über-pricey pads, and when he sought to buy a fifth, in 2010, the co-op building's board of directors examined Fletcher's finances and balked. Appearances notwithstanding, they said, Fletcher didn't have the cash.
In January 2011, Fletcher sued the Dakota, charging (again) racial discrimination. Bad move. The dispute sparked the interest of the Wall Street Journal, and the dominoes started falling. The WSJ concluded that Fletcher's assets were overstated by 150 percent, the SEC launched a probe, and a collection of pension funds that had invested $100 million with Fletcher asked for their money back. Fletcher offered them an IOU.
The pension funds sued. Last April, in the Cayman Islands, where the main Fletcher fund is stashed, a judge ordered liquidation. In June, Fletcher's Bermuda-based "master fund" filed for bankruptcy in New York. High-flying Buddy Fletcher had been grounded.
COLLATERAL DAMAGE: So what's the upshot for little Lake Worth and the Gulfstream Hotel, mere dust in the cosmos of the Fletcher empire? For one thing, soon after the Gulfstream mortgage note was assigned to Fletcher's control, in August 2010, his Asset Holding Company 5 foreclosed on the property. They're still in court, the Schlesingers arguing that the foreclosure is invalid because the original mortgage paper is lost. A common plaint these days, and one that hasn't yet proved much of a defense.
In the meantime, the Gulfstream piles up back taxes and mortgage debt, and the building lacks good care: In February, Palm Beach County cited it for fire code violations.
Whichever party prevails -- and Fire Ant isn't betting on the Schlesingers -- the result will be a hotel owner who's a highly motivated seller, in dire need of funds. That should make for a selling price well within reach of a creative entrepreneur -- a good thing for Lake Worth. If it's a buyer with cleaner, steadier hands than those who've held the hotel before, so much the better.
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