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$10 down and $10 a month! The sad, scandalous story of how General Development Corp. sold Southwest Florida.

$10 DOWN AND $10 A MONTH!

THE SAD, SCANDALOUS STORY OF HOW GENERAL DEVELOPMENT CORP. SOLD SOUTHWEST FLORIDA.

Some 35 years ago, when most of southern Sarasota and northern Charlotte counties was cow pastures and woods dotted with ponds, the founders of General Development Corporation (GDC) had a dream.

It was a simple dream in the beginning. Buy the pastures from the local farmers at $50 per acre. Then divide the land into quarter-acre lots and sell them at prices that would put them within the reach of countless thousands of blue-collar Northerners.

The dream came true, with sales soon outstripping the founders' wildest hopes. Eventually, sales grew to $100 million per year. But earlier this year, the GDC dream crumbled under the weight of thousands of lawsuits, criminal fraud charges and, finally, bankruptcy pleadings.

How could such success lead to such a failure? Much of the answer seems to lie in the techniques the company and its sales force used to sell its dream, techniques that started as early as 1957, when the Miami developers known as the Mackle brothers bought large acreages from farmers and land holders in Charlotte County.

The Mackle brothers divided the land into smaller parcels and began marketing it to Northerners dreaming of eventually retiring to a sunny piece of ground in Florida.

At prices as low as "$10 down and $10 per month for 10 years," those Northerners bought the dream in droves, remembers Monroe G. "Randy" Randol of Port Charlotte.

"Ten-dollar bills came flowing into Miami by the bushel full," says Randol, who became one of the Mackle brother's first 10 Port Charlotte lot salesmen in 1957. The response, Randol says, convinced the founders to start similar projects in eight other areas of Florida, and General Development Corporation (GDC) was formed.

In order to keep profits expanding, the strategy grew ever more ambitious. More and more sections of land were subdivided into residential lots, and prices were increased every year.

To justify the annual price increases, GDC told buyers their properties would soon be part of "planned communities," with state-of-the-art roads and utilities and sites for public parks and schools.

Pointing to the annual price increases that the company itself had arbitrarily imposed, salesmen told prospects they were buying not only a retirement home but a fast-accelerating investment opportunity.

If any hapless buyer tried to put his property back on the market, however, he was likely to discover that instead of appreciating, his property would actually fetch less than he had paid -- in recent years, often as much as a third or even 50 percent less. GDC's sales people knew their prices were inflated; while many figured it was all just part of the real estate game, other salesmen felt uneasy and guilty.

"It bothered me," says one saleswoman who worked for GDC between 1985 and 1987. "It's actually the reason I quit."

The woman, although among those who have testified before a Miami grand jury that investigated GDC, consented to an interview only on the condition she would not be identified.

"I liked all the people I helped buy houses," she said. "You spend a lot of time with these people. It bothered me to turn around and burn them."

And apparently, a lot of people felt they were burned.

In January, the corporation agreed to settle out of court more than 100 suits filed in a Miami circuit court. The suits were filed by home buyers, including some from Port Charlotte and North Port, who alleged they had been defrauded into trading their lots for down payments on houses priced in some cases $20,000 higher than the fair market value.

The corporation also faces pending lawsuits filed by some 3,500 property owners with similar complaints. That suit, filed in a New Jersey federal court, includes some 500 owners from North Port and Port Charlotte who joined it after attending seminars in February, said seminar organizer Mark Binstein.

More than 30,000 lot owners have also sued in a class action alleging GDC failed to fulfill promises that lots would be developed by certain dates in installment-purchase contracts in other GDC communities.

Along with the civil litigation has come criminal investigation -- by the federal grand jury in Miami. On March 16, U.S. attorneys indicted the corporation on 16 counts of fraud, alleging corporate sales staff concealed the true value of properties from buyers and misrepresented the values in mortgages granted the buyers through a GDC subsidiary, GDV Financial.

According to the federal indictment, the home buyers were given mortgages that reflected fraudulent appraisals. The appraisals were based solely on the price of similar GDC properties, not on the general market value.

In late March, the corporation, its former president, Robert F. Ehrling and its former chairman, David F. Brown, pleaded guilty to one count of conspiracy to commit fraud regarding its sales program aimed at out-of-state buyers. The pleas came in an agreement in which GDC pledges to pay $100 million in restitution to some 11,000 people who bought overpriced houses between 1983 and 1990.

But that pledge may be in jeopardy. On April 6, GDC, facing cash shortages, filed for protection from creditors under chapter 11 of federal bankruptcy laws.

Besides those in line for restitution, the bankruptcy also leaves local governments in its nine Florida communities short some $10 million in unpaid property taxes.

IN THE BEGINNING

"There was never an intent to build a city here," says Randol, now the 74-year-old owner of Randol Realty, Inc. in Port Charlotte.

He says the Mackle brothers bought an estimated 100,000 acres in Charlotte County, then sold it to GDC, a company in which they were major shareholders. The company then hired the brothers to turn it into "Port Charlotte," Randol recalls. But he remembers the brothers saying they didn't expect many people to ever move there.

At first, lots were sold surrounding the center of what was to be "the community." When sales slowed down, as was anticipated, the outlying parcels were to be combined and sold as rural estates, Randol says.

But that slowdown never came, thanks to a key marketing decision. "They borrowed money, at 15 percent interest if my memory serves me, to run a full-page ad in Life magazine," says Randol, who was then a 42-year-old GDC lot broker. "The ad said $10 down, $10 a month or $795 to purchase a lot in Florida.

"When they ran this ad, it brought in so many buyers the original plan [to develop only around the community center] disappeared."

Sensing the enormous opportunities, GDC hired brokers in Northeast and Midwest cities to market the lots there. The brokers invited prospects to free dinners and meetings where they would paint a glorious picture of their sunny, affordable Florida communities. Soon thousands of new buyers had signed on, flooding the mails with their deposits and monthly payments.

And prices, of course, kept rising -- generally by $100 per lot per year, said Randol. It helped "to keep last year's buyer happy," he says.

In the first few years, very few promises were made -- only that buyers in 10 years would "own a lot in Florida," Randol says. But as promises of community development and increasing property prices became part of the sales pitch, Randol began to have doubts.

"It got to a point I couldn't sell it anymore. They were making promises I didn't see how they could keep." In the early 1960s, he quit the corporation.

THE SALES SCAM

During the 1970s, the corporation stepped up a program to allow lot buyers to trade their lots in as down payments for houses. Now a real estate broker for another Port Charlotte firm, Ron Struthers was involved in that program for GDC from 1978 until the mid-1980s. He started in Toronto as a GDC sales manager and later moved to Port Charlotte. In both places, he worked with prospective buyers who were flown to Florida on three-day sales trips.

"We were selling the trips -- not the houses," he says. "We were selling them on seeing what their options were. But the key ingredient was to go down and look at it for yourself."

The company would whip up interest with Northern lot owners by devices such as a newsletter that featured stories about rising land prices in Florida. Struthers also remembers sending telegrams about Myakka Estates. "One said the price for a lot went from $4,500 to $18,000 in 18 months on land that was not developed."

Struthers admits he knew the out-of-state buyers were paying much more for GDC properties than they would bring on the local market. "When brokers' commissions were 20 to 22 percent, it didn't take an Einstein to figure that out," he says.

By 1982, however, Struthers says prices really "jumped up." The increases coincided with changes in leadership at corporate headquarters. "They were interested in profit, profit, profit," he says. "There was pressure to produce a greater number [of sales] on a daily, weekly and monthly basis."

In Port Charlotte, it was part of Struther's job to keep prospects away from other agents. "An agent's job was to put them up and show them the community to represent the corporation," he says. "It's no different than the guy in a car dealership who doesn't want his client to see the dealer next door."

And Struthers insists that despite the inflated prices, no fraud was taking place.

"These people who bought houses were all 21 or older. Nobody glued them down so they couldn't check with other agents. They weren't handcuffed and locked in our cars," he said.

That is not, however, the opinion of the Miami grand jury that indicted GDC this spring, nor is it the opinion of the saleswoman who requested not to be identified. She says the sales techniques and corporate policies did amount to fraud.

Like Struthers, her job was to sell houses to out-of-state prospects while they were on three-day visits to Port Charlotte. "You had to keep them busy as long as you could," she says. She would pick them up at the airport when they would arrive in the evening. Then she would drive them to the Ramada Inn in Port Charlotte.

"I'd tell them I'd wait in the lobby while they freshened up. Then I'd take them out to dinner," she says.

Beginning at eight the next morning, she would drive them to see GDC models and local sights such as the Port Charlotte beach complex and Fisherman's Village shopping plaza in Punta Gorda.

"You'd keep them out late and never say anything derogatory about the location," she explained. "You'd tell them how GDC created the community and how without GDC it would not be here."

If she passed by model houses with prices on signs in front or by real estate offices, she'd point in the opposite direction and say, "Oh, look over there," she says. "That worked a lot of the time."

Other corporate policies seemed more devious, she says. These included what was referred to in the criminal indictment as the alleged "monitoring" of phone calls to GDC clients' rooms by hotel staff. At GDC's request, if someone other than a GDC staff member called the client, hotel staff would take messages and pass them on to GDC sales staff, she says.

"I've seen the messages," she says. She also remembers that one new GDC employee could not reach his client at his hotel room because the hotel didn't have the new employee on its GDC employee list yet.

Ramada Inn staff were occasionally honored guests at GDC sales meetings, she says, where they were often given $200 bonds for their "fine service."

What bothered her most, though, were the inflated prices. She cites one waterfront lot, which sold for more than $65,000, although it would have brought only $10,000 on the open market. "They think that's a fabulous deal because you couldn't touch a waterfront lot in New York or New Jersey for that," she says. "But you had to lead them to GDV Financial [the GDC subsidiary that would deliver an inflated appraisal] so they wouldn't find out."

DAYS OF RECKONING

Many of the out-of-state buyers didn't find out the true value of their homes until they tried to sell or refinance them. That's what happened to Port Charlotte's Charles Grizzaffi, who traded a North Port lot in for a house priced at $74,000. After spending another $15,000 on improvements, he decided to sell it.

"When I told the broker what I wanted out of it [about $85,000], he just looked at me. He said, `You have to be realistic.'" Grizzaffi was told the current market price, including improvements, was $58,000. "I felt pretty devastated," he says.

Grizzaffi and his wife Innes have written half a dozen letters to state agencies. Although one agency, the Division of Consumer Affairs, sent a request for resolution to GDC, other agencies told the Grizzaffis their complaints fell outside their jurisdiction.

In fact, GDC's problems have raised questions about the integrity of at least one state agency. Over the past five years, about 500 complaints against the company were filed with the state's division of land sales in Tallahassee. The division placed no administrative sanctions against the company.

By March, however, both the director of the division, James Kearney, and the chief of the bureau where complaints are filed, Samuel Griffis, resigned.

In an interview this spring before he left office, Kearney said he failed to understand how GDC had kept potential customers from evaluating the deals they were signing. "It's hard for me to envision someone being so incarcerated," he said. The property buyers would have thoroughly investigated purchases in their home states, he said. "All of a sudden they come to Florida and they don't call a realtor, they don't call an appraiser, they don't call an attorney. It's frightening."

The divison's new director, Matthew Carter, has launched a review of the hundreds of complaints filed against GDC.

"We must restore the integrity of the division," he says. "We must reassure the home buyers that what they're getting has value. It's not going to be like the old days in Florida -- a pig in a poke. There are going to be safeguards."

Yet GDC has it supporters, including some former salesmen who like to emphasize the accomplishments of the company. Without GDC's contributions there wouldn't be a Ranger Stadium, a Port Charlotte beach complex or a cultural center, several say.

Many people of moderate incomes who bought lots years ago were able to trade them for homes in Florida they probably would not have otherwise been able to afford, notes Struthers.

But Randol, the former salesman who now owns his own real estate company, sees another side of the story. Clients come to him expecting to sell their properties at a profit and he has to tell them that instead they will probably lose money. "Have you ever seen an old person cry?" he asks. He believes GDC may weather its current crisis. But about some of the buyers, he's not so sure: "Those who have been hurt, I don't think can be unhurt."

PHOTO : In the mid-'50s, advertisements and stories in the national press glorified Port

PHOTO : Charlotte's retirement lifestyle and fed GDC a steady stream of prospects.

Greg Martin, a reporter for The Charlotte Sun-Herald, has spent months investigating the GDC story.
COPYRIGHT 1990 Clubhouse Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1990 Gale, Cengage Learning. All rights reserved.

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Title Annotation:also includes article on the sale of Cape Coral in the 50s and 60s
Author:Martin, Greg
Publication:Sarasota Magazine
Date:Jun 22, 1990
Words:2583
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