Investors see fast-bucks plan unravel

It sounded like easy money, a no-brainer.

Hundreds turned out to a Long Island Marriott Hotel to hear one of several presentations that led many northeastern investors into perhaps the biggest financial catastrophe of their lives.

So many people showed up for the monthly meeting of the Long Island Real Estate Investors Association that staff at the Melville, N.Y., hotel had to remove two partition panels to convert the banquet room into a ballroom.

As the historic 2003-05 Florida real estate boom peaked, Seashore Resorts LLC, a South Carolina-based real estate investment firm, and its agents regaled investors with stories about Southwest Florida's magical climate, its low unemployment, its booming demographics and most of all, the potential for 30 percent annual returns on residential real estate.

Seashore pitched "100 percent spec investor pre-construction loans" requiring little or no money down so long as the investor had good credit: a score of 680 or higher.

At that point in the market cycle, the tales of easy money were likely true, but fleeting. By the time most investors were brought aboard, the music had all but stopped, along with the work on their homes. By 2006, the days of easy pickings of low-hanging fruit were over.

The Herald-Tribune interviewed dozens of people who sank their money into the deal. They are mostly working-class people, including retirees on fixed incomes, who, because they were putting little or no cash down, thought they were exposed to limited risk. They were wrong.

About $70 million in pre-construction loans were taken in their names by Construction Compliance Inc., the St. Petersburg company that was building the homes in Florida.

When the builder stopped paying contractors, the investors got hit by liens. When the builder collapsed, the institution financing the loans, Bradenton's Coast Bank, turned to investors for repayment, despite promises from CCI and Seashore that the home builder would carry all interest payments until the nearly 500 homes were completed.

Scores of investors are now preparing to go to court, saying they were swindled and sucked into a deal where they lost control of their credit lines.

They say that Coast, now wrestling for its own survival, did not adequately supervise the loans, allowing large draws by CCI with no proof that work had been done.

CCI ceased construction on the houses last year and transferred assets and contracts to a related company, Florida State Builders Inc., which, as recently as 10 days ago, was still drawing money from Coast.

Coast has fired Philip Coon, the executive vice president who supervised the loan program. Bank directors have hired an investigator to probe how Coast got into its predicament. Coast has suspended the pre-construction residential lending program that CCI and other builders used.

The Long Island real estate club was a key source to Coast for loan clients from the New York and Mid-Atlantic regions.

The deal's unraveling revealed a common thread: Seashore Resorts LLC.

Seashore Resorts

At least 100 Northeast investors were drawn into the arrangement with CCI and Coast Bank by Seashore.

Seashore was founded in 2003 by Joseph N. Carletto, the owner of major New York limousine company U.S. Limousine. Seashore is based in Bluffton, S.C., but also has offices in New Hyde Park, N.Y.; Fairfield, N.J.; Highley, Ariz.; and Fort Myers.

The company's managers searched for communities with strong growth and developed relationships with local builders, contractors, bankers and mortgage loan originators. They arranged to build single-family homes in hot markets such as Florida, South Carolina and Arizona.

The package deal offered investors 100 percent pre-construction financing on their credit. The promised return was a 10 percent slice of the finished home's sale price.

Seashore representatives touted this one-stop-shopping relationship in a pitch that drew investors as well as siblings, parents, friends and neighbors. Sometimes it was in venues like the investment clubs, other times one-on-one to investors, said Sarasota lawyer Alan Tannenbaum, who is representing dozens of CCI customers.

At first, many deals worked out in the booming Florida housing market of the last several years. Investors watched as friends made killings, and those tales of success drew more friends, family and club members into the fold.

George Tannous, a New Jersey resident, and several friends and family put down sums ranging from $2,500 to $7,500. "Each investor very quickly had a credit line established at Coast Bank amounting to as much as $300,000 each," Tannous said.

It was Seashore executive Carl Cirinelli who brought the proposal to Tannous and his circle.

When news of the problems with CCI and Coast broke in January, Carletto, the limousine exec who serves as Seashore's principal, told the Herald-Tribune that he and his managers were as much the victims as the people to whom they sold the deals. Since that first communication, Seashore executives have not returned calls seeking additional comment.

"The six principal owners of Seashore along with our family and close friends are deeply invested in Florida through Coast Bank," Seashore officials said in the Jan. 22 e-mail. "Each of the principal owners of Seashore have homes titled personally in their own names."

Carletto said he bought a home in Cape Coral from CCI. Lee County property records show that Carletto purchased a home from Fort Myers-based Enchanted Homes, another construction company that Seashore listed, along with CCI, as a "preferred builder" on its Web site.

In their e-mail, Seashore executives insisted that "Seashore Resorts has absolutely no affiliation with Coast Bank, nor CCI Builders."

But Tannous and Joanne Inglese, another New Jersey investor, and other investors interviewed by the Herald-Tribune, say that Seashore was clearly the broker for Coast and CCI.

Inglese was told to expect a 10 percent slice of the gross sales price of her home, or about $30,000, for the use of her credit. She has since seen $70,000 drawn from her Coast Bank loan for an uncompleted home, liens from subcontractors who have not been paid by CCI and the prospect of a badly damaged credit rating.

In the most basic outline of the plan, Seashore and/or the builder contributed to operating expenses and interest payments while investors with good credit paid a small fee or down payment and closing costs.

Seashore arranged for the purchase of CCI homes-to-be and got financing with Coast Bank, often through Tampa's American Mortgage Link, a mortgage originator with close ties to both the builder and bank.

Seashore's marketing materials reassured investors that the arrangement protected them from "any unwanted surprises that would potentially hurt their ROI," short for "return on investment."

The company's slogan is "to do it right, we believe we must do it first," a reference to Seashore executives' investment in CCI homes.

For the investors it sounded like there was nothing to worry about.

Networking

The ballroom meeting on Long Island in mid-2005 was the usual monthly gathering of the 500-member Long Island Real Estate Investors Association.

The group is a local chapter of the Real Estate Investors Association, a national network of 230 associations with about 40,000 members.

"Members can learn investment skills but are not really supposed to be pitching deals," said Rebecca McLean, executive director of the REIA, based in Covington, Ky.

Barbara Karnes, the Long Island group's founder, said that no one formally pitches deals but "informally, afterwards, people tend to network, that's what it's about, networking."

Karnes did not recall Seashore executives attending meetings, but other investment club members distinctly do. Because the meetings are open to the public, anyone paying for a $30 admission ticket can join in, she said.

Seashore was the acknowledged conduit for at least 25 of CCI's customers. Through interviews with investors, it became clear that Seashore also used other agents as intermediaries, a factor that would likely boost the total to more than 100.

Paul Matera and Bob Prisco were big movers of Seashore deals at LIREIA gatherings.

Matera, who operates the Shiloh Group on Long Island, said he was paid a fee by the 30 or so investors who he referred to Seashore and who then closed on a house. Matera said he personally invested in two uncompleted CCI homes and some of his family members invested in another two.

"I invested right alongside everybody else," he said.

Matera said that he still speaks with Seashore founder Joseph Carletto on an almost daily basis.

Prisco, who runs Prisco Consulting in Suffolk County, Long Island, also worked as a finder for Seashore, selling about 40 homes to investors, Tannenbaum said.

In an Aug. 24, 2005, e-mailed pitch to members of LIREIA, Prisco identified CCI, U.S. Limousine and Seashore as "my partners." His message was an effort to give investors "a better feel for whom you are doing business with," he wrote.

Prisco and Matera were paid fees of up to $3,000 by each of the 70 investors they brought into the deal, for a total of about $210,000.

The two are no longer members of LIREIA, said Karnes, the group's founder. She described Matera as a friend who had many years of experience in construction and roofing. He only recently got into pre-construction real estate deals, she added.

Matera said he "feels terrible" about the problems that have arisen around the deals he sold to investors.

But he said he warned everyone whom he brought into the Seashore circle that they should "not do this deal, if you can't carry the house."

SEASHORE RESORTS' STATEMENT

This is a text of the e-mailed message that Seashore Resorts LLC sent to the Herald-Tribune on Jan. 22 after news that Coast Bank was dealing with $110 million in problem loans from St. Petersburg's Construction Compliance Inc.

You had asked us to give you a short statement as far as the situation concerning CCI and Coast Bank.

As with most investors involved in this situation, we at Seashore Resorts are similarly troubled, The 6 principal owners of Seashore along with our family and close friends are deeply invested in Florida thru Coast Bank.

Each of the principal owners have homes titled personally in their own names. In addition, each of us have family and close friends that are likewise involved in this situation. Some of us have brothers, fathers and in-laws and all of us have friends that are alongside us in this situation.

Speaking as a group, Seashore has several homes that are titled personally in our names and to date have received liens against them. We are concerned not only with the obvious problem that these liens possess, but also with the thought that our own personal credit might suffer as a result.

As we explained to you on the phone, Seashore Resorts, nor any of the investors from what we have gathered were given any choice with respect to the selection of the builder. Seashore Resorts has absolutely no affiliation with Coast Bank, nor CCI Builders.

We are simply a group of investors ourselves just as any other investor involved in this situation. We struggle every day to find answers to all the questions that any other investor may have on their mind. We are no less troubled; inconvenienced; or frustrated by the recent happenings as any one else might be.

As with every investor involved we hope that CCI and Coast Bank will come to terms that will satisfy each of us involved.

Respectfully, Seashore Resorts

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