UPDATED, Feb. 22, 5:15 p.m.
The developer of Banyan Cay Resort in West Palm Beach filed for bankruptcy, after facing foreclosure actions from two lenders that seek to recoup $100.4 million.
Banyan Cay’s parent company submitted its Chapter 11 petition last Thursday, the same day U.S. Real Estate Credit Holdings III-A, an affiliate of Los Angeles-based Calmwater Capital, won a final judgment for $94.1 million against the development entity, Banyan Cay Resort & Golf, in Palm Beach County Circuit Court, filings show. The judgment is tied to an unpaid $61 million construction loan for Banyan Cay.
The bankruptcy filing also staved off a UCC foreclosure sale of the yet-to-open hotel-anchored mixed-use project. It was scheduled for last week by Banyan Cay Resort Fund, which is seeking repayment of a $6.3 million mezzanine loan.
Joseph Pack, Banyan Cay’s attorney, said his client sought bankruptcy protection to “circumvent what the project developer viewed as a wrongful foreclosure” by the fund, which is composed of 10 foreign investors.
Banyan Cay will also “pursue their rights and take whatever further steps are necessary to preserve equity in the project,” Pack said via email.
Domenic Gatto Jr. and his development entity Banyan Cay Resort & Golf had proposed building a 150-room luxury hotel at 2020 Banyan Way. They also planned to develop a high-rise condominium, as well as renovate an adjoining 18-hole golf course designed by Jack Nicklaus, 33 single-family homes and 20 villas.
Gatto paid $26 million for the property formerly known as The President Country Club in 2015.
The hotel is nearly completed, but the homes and villas have not been renovated. And construction of the condominium has not begun, court filings state. In its bankruptcy petition, Banyan Cay’s parent company lists assets between $1 million and $10 million, and liabilities in the same dollar range. The filing only shows one creditor: Banyan Cay Resort Fund.
As the developer seeks bankruptcy protection, Banyan Cay Resort Fund and U.S. Real Estate are fighting over which one gets to sell the development site at auction. In a lawsuit also filed last week in New York federal court, Banyan Cay Resort Fund alleges U.S. Real Estate sabotaged the UCC foreclosure sale by failing to provide documents for the auction.
For the past five years, Banyan Cay has been dogged by delays and litigation. In its Palm Beach County lawsuit, U.S. Real Estate alleges the developer failed to obtain a certificate of occupancy so Banyan Cay could open by April 30 of last year. Contractors also have pending lawsuits for nonpayment of work and services at Banyan Cay, court records show.
In addition, Gatto Jr., was federally charged last year with conspiracy to commit health care fraud in connection with an alleged $65 million scheme.
After publication, Banyan Cay’s lawyer Pack said Gatto’s federal indictment “has nothing to do with this development or the finances” of the project.
In a court response to U.S. Real Estate’s lawsuit, Banyan Cay’s developer said it is looking to sell the project and had received five bids, including four that exceeded $100 million.