Suit in vast refi case wends through court

Philadelphia investors Ira Lubert and Dean Adler were the financial muscle behind a high-flying developer of luxury resorts in Florida, North Carolina, and the Bahamas from 1998 until the housing market began its collapse in 2006.

For clients, including two giant Pennsylvania state pension funds, at least 20 colleges and universities, plus dozens of individuals, Lubert-Adler Real Estate Funds invested a reported $800 million in about a dozen projects conceived and marketed by partner Bobby Ginn, who had been through a high-profile bankruptcy in the 1980s.

After the housing market unraveled, many developers and their financial backers lost huge amounts of money.

But with the help of Swiss banking giant Credit Suisse, Lubert-Adler refinanced five unfinished developments for $675 million in June 2006 and used $316 million from that loan to pay back investors and other debt.

The payout included $28 million designated as "profit" from two unfinished Florida projects that filed for bankruptcy in December 2008 and were liquidated for a combined $24.4 million.

Three other developments that were originally part of the Credit Suisse loan - a third development in Florida, one in North Carolina, and one in the Bahamas - did not file for bankruptcy protection.

The 2006 refinancing seemed like a brilliant move that shielded Lubert-Adler from substantial losses. Lubert-Adler says on its website that it has invested $6.5 billion of equity in more than $16 billion worth of real estate in North America. The firm had invested $137 million in equity in the five Ginn developments.

But a court-appointed trustee for projects in Port St. Lucie and Naples, Fla., that filed for bankruptcy in late 2008 had a different idea.

The trustee, Drew M. Dillworth, a Miami lawyer, sued Ginn, Lubert-Adler, and 356 of Lubert-Adler's limited partners for $148 million last December, alleging that they had effectively looted the developments of their value. Dillworth alleged that $148 million was the amount of debt loaded on the developments through the refinancing.

Lubert-Adler has fought to have the suit thrown out, but Chief Judge Paul G. Hyman, of the United States Bankruptcy Court for the Southern District of Florida, decided Tuesday that Dillworth could continue to pursue two of his eight claims.

However, Hyman dismissed all claims against Lubert-Adler investors, including many wealthy residents of the Philadelphia region.

Dillworth remains far from victory, but his suit and others involving Ginn developments shed light on the normally under-the-radar operations of Lubert-Adler, which was founded in 1997 and is based in the Cira Centre.

Dean S. Adler, a Cleveland native and a graduate of the University of Pennsylvania's Wharton School and its law school, is chief executive officer of Lubert-Adler, which is the 18th-largest private-equity firm specializing in real estate in the world, according to Private Equity Real Estate, a trade publication.

Chairman Ira Lubert is better-known, as chairman of Independence Capital Partners, a family of funds totaling more than $11 billion, trustee of Pennsylvania State University, and five-time sponsor of the $100,000 Liberty Medal.

Adler heads Lubert-Adler's investment committee and is responsible for the firm's strategies, according to the company's website. Reached Friday, Adler's assistant said he had no comment.

Ginn's attorney, Charles W. Throckmorton, of Miami, said he was not authorized to comment.

Dillworth, who did not respond to several voice mail messages, is trying to capitalize on what he called a "smoking-gun" e-mail exchange on June 8, 2006, among a top executive of Ginn's development company, an outside lawyer for that company, and a Lubert-Adler managing director. The e-mail was sent immediately after the Credit Suisse refinancing was completed.

The Ginn executive, Bobby Masters, wrote in the e-mail to the lawyer for Ginn's development company, John G. "Sonny" Morris:

"The Credit Suisse deal has closed. Wires on the way. Sonny, please prepare the deed-in-lieu," a document used to turn property over to the lender without a foreclosure fight.

Neill B. Fawcett, the Lubert-Adler managing director in Atlanta who was copied on the e-mail by Masters, replied: "Well said."

Dillworth has had a tough time convincing the judge that he has a case against Lubert-Adler, given the multiple layers of legal entities that enveloped the bankrupt developments, known as Ginn-LA St. Lucie Ltd. L.L.L.P. and Ginn - LA Quail West Ltd. L.L.L.P.

"While the e-mails may be evidence of an intentionally fraudulent act, it begs the question, what can the Trustee recover and from whom," Judge Hyman wrote in a May 2011 order.

Legally, the judge said, the developments that filed for bankruptcy had no control over the proceeds of the Credit Suisse loan even though they were collateral for it.

The claims Hyman did not dismiss last week have to do with fiduciary duty, which is a legal obligation to act in the best interest of another person or entity. Hyman said the proper place to decide whether Lubert-Adler and Ginn owed fiduciary duty to the St. Lucie and Quail West developments was a trial.

In a June 2006 e-mail included in court filings, Adler described the four U.S. developments that were being refinanced as "fodder in order to get financing for the Bahamas," where Ginn and Lubert-Adler were working on the planned $4.9 billion Ginn Sur Mer. The plan was for two golf courses, a private airport, two marinas, a casino, and more on 1,957 acres.

Lubert-Adler still controls about 500 of those acres and has been bringing in new partners to develop them, replacing Ginn, according to newspaper reports in the Bahamas. Credit Suisse and its partners are spearheading the development of the remaining acreage.

A Naples, Fla., real estate investor, Charles Goff, said Ginn was the front man, touting himself as the driving force behind the projects.

As to Lubert-Adler, "You didn't really hear a lot about them. They were just off in the shadows," said Goff, of Goff Fine Properties L.L.C.

"At the end of the day, they [Lubert-Adler] were his [Ginn's] bank," Goff said. "I just don't understand how they got sucked in."