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Real Estate - Residential

Distressed Carolina Beach timeshare Condos To Be Sold In Auction 

By Johanna F. Still, posted Feb 15, 2022
The 42-unit North Pier Ocean Villas, a two-building timeshare condominium in Carolina Beach, will appear in an auction on April 7 as part of the HOA’s Chapter 11 bankruptcy proceedings. (Photo by Johanna F. Still)

With one building stripped to its aging bones, the North Pier Ocean Villas sits vulnerable to whipping salty winds  – the fate of the once-popular Carolina Beach timeshare condominium is in flux. 

Its homeowners association is stuck in debt and lacks the cash necessary to make the repairs necessary ward off a condemnation notice lingering for the first phase of the two-building condominium. One building is inhabited, while the other remains occupied.

The HOA filed for Chapter 11 bankruptcy protection in August. Earlier this month, the court approved the HOA’s liquidation plan, teeing the tattered property up for a public auction. And Thursday, the court OK’d the HOA’s auction plans, which prepare the property for a potential new owner by the end of April. 

Bruised from hurricane-related damage, rising maintenance fees and waning owner interest, the nearly four-decade-long era of the North Pier Ocean Villas appears doomed to close. Once all of the HOA’s debts are settled using auction sale proceeds, hundreds of timeshare owners stand to receive a payout. Whether owners get anywhere close to what they originally purchased the weekly units for hinges on how high bidders are willing to bet on the weathered real estate that boasts oceanfront views. 

At a minimum starting price of $3.95 million for both buildings at 1800 Canal Drive, eligible bidders must be willing to put down at least 5% in earnest money and provide proof of funds on an all-cash basis to participate in the auction, scheduled to take place April 7 at the U.S. Bankruptcy Court in Raleigh.

With 42 condos and 2,184 timeshares between both buildings, owners could see a minimum of about $1,800 each if no bidder offers more than the established minimum, according to the HOA’s attorney, David Haidt, of Ayers & Haidt.

Shortly after filing for bankruptcy, the HOA sought a $250,000 loan to finance the administrative work required for the legal procedure and sale of the property. In an August hearing in the U.S. Bankruptcy Court for the Eastern District of North Carolina, Wilmington attorney James Carter, representing the lender Conversion Financial LLC, likened the condos to a damaged World War II plane twirling to its demise. 

“What we have here is a figurative death spiral,” Carter said. “If we don’t get the money, then I think the condominium is going to crash and burn.” The judge approved the request. 

Including the loan, the HOA’s administrative debts total roughly $500,000 (this includes attorneys’ fees, accounting services, engineering report, management fees and more). Once these fees are paid, the HOA will then pay off its outstanding $42,345 property tax bill to New Hanover County, $2,633 to the Internal Revenue Service and $306 to the N.C. Department of Revenue. 

The two-building, ’80s-era condominium is in rough shape, with the first structure (closest to shore) facing potential condemnation action, which the town of Carolina Beach is holding off on enforcing in hopes that the HOA’s financial affairs get settled, according to town officials.

If it were condemned, 780 timeshare owners who split the gutted building’s 15 units (each condo is divided into 52 weekly shares) would risk receiving nothing.

“Once I start down that path, in the condition of that building, it would be where I would probably put it on the ground and have it completely rebuilt,” town building inspector Darrel Johnson said. “The problem is that doesn't really help anybody.” 

So far, the HOA has worked with the town to correct the building's issues, Johnson said.

Hurricane Dorian destroyed the roof of phase one in September 2019. The HOA sought a special assessment of all owners to rebuild the structure in phase one, and nearly all respondents indicated they did not want to finance the project, according to court testimony. Insurance paid the HOA $895,000 to fix both buildings’ roofs and address some interior issues five months after the hurricane made landfall. While awaiting the payment, rain further damaged the building.  

When crews eventually removed the siding, “we found the whole building to be rotten,” HOA president John “Jay” Hutchings told the court in the August hearing. 

Some work was done without the proper permits in place, Johnson said, leading him to issue the HOA a stop-work order in June 2020. Johnson said the insurance company was flustered as workers addressed the building, finding it difficult to differentiate between storm- and maintenance-related damage. 

As workers addressed the interior of phase one, crews “took more apart than what they were supposed to,” Johnson said, furthering his public safety concerns. He required the HOA to obtain a second structural engineer’s report before continuing any more work (an expense it couldn’t afford until obtaining the court-approved loan). 

That report, dated Dec. 27, uncovered myriad structural deficiencies, calling for a rebuild of phase one’s stairwells, breezeways and decks. More than half of the concrete columns required repair or replacement but the interior may be structurally salvageable with minor repairs, according to the report. 

Whether the first building is a tear-down is “questionable,” said Rob Tramantano of Chapel Hill-based Great Neck Realty Co., the HOA’s court-approved broker. A rebuild would cause a new street setback to kick in, according to Tramantano; town code requires the cost of rehabilitations to not exceed half of the property’s value, which will also be factored into the equation, he said.  

Comprising stacked modular units installed in phases, the second building is better off, and could more readily be rehabbed, both Tramantano and Johnson said separately.  

U.S. Bankruptcy Judge David Warren’s Feb. 10 order allows for a stalking horse bid, a mechanism designed to generate interest in the listing and drive up the price, Haidt explained at a Feb. 8 court hearing. 

The so-called stalking horse can enter a contract with the HOA prior to the auction for a price higher than the minimum bid; 3% more than that contracted price then becomes the starting point at the auction; if another bidder meets the new threshold, the stalking horse is entitled to a “breakup” fee. 

Qualified bidders have until April 5 at 4 p.m. to submit their earnest money deposit and proof of cash funds, according to the order. A court hearing to approve the highest bidder is scheduled for five days after the auction on April 12, and a 10-day closing period will follow.  

Tramantano said he hopes the sale will fetch over $5.5 million or as much as $7 million in the auction.  

“Obviously there's some hair on this,” he said. “Given the noncontingent nature of the sale, it's really going to be a function of who can get comfortable and how comfortable can they get within the relatively expedited timeframe.” 

Fifty parties are actively looking at the property, Haidt told the court in a Jan. 31 hearing. In a similar condominium bankruptcy proceeding in Pinehurst in July, about eight bidders showed at the auction, Tramantano said.

To get a clean title in the sale, the HOA will soon begin filing adversarial complaints against timeshare owners who didn’t sign consent orders to agree to the transaction. Haidt said he is preparing to file 36 separate lawsuits (one for each unit containing a timeshare owner who hasn’t consented), naming roughly 275 parties. 

Jay Hutchings, the HOA’s president and chairman of the board of directors, submitted the bankruptcy filings. Hutchings, whose involvement with the development began in 1990, also serves as the maintenance manager of the property through his North Carolina-based company VMH & Associates Inc., which the HOA contracts with. He is the registered agent of Timeshare Ventures Inc., an inactive Florida corporation, which accepted ownership of at least 16 timeshare deeds last year, seven in 2020 and 16 in 2019, according to county records. Hutchings referred to Haidt for comment on this article.

Starting in the late ’90s, condominium partial unit owners began returning their shares to the HOA for no reimbursement, just to be free of the annual maintenance dues, Hutchings told the court in the August hearing.  

“People started giving them back,” he said. “I’ve taken so far this year 83 deed-backs, which is $60,000 worth of revenue.” 

Eventually the HOA came to own roughly 47% of the timeshares, or 1,042 individual shares. Many HOA-owned shares were rented out, but the association couldn’t recoup the revenue lost from owners turning in their deeds.  

“The HOA doesn't pay dues and maintenance fees – it collects them,” Haidt told the Business Journal. “So when you lose 50% of your owners, then you lose 50% of your cash flow.” 

As part of the liquidation plan, the HOA’s shares of the payout will be attributed to its debts. Anything left over will be divided among the remaining timeshare owners, and the HOA will dissolve following the sale.

Many timeshare owners stopped paying their dues altogether, causing the HOA to rack up $430,000 in delinquent assessments, according to court proceedings. “The HOA simply didn't have the available cash to maintain the facility,” Haidt said.  

In interviews with the Business Journal, several timeshare owners were critical of Hutchings’ management of the property, describing a lack of general maintenance and upkeep as conditions slumped over the past few years. The owners expressed frustration with not knowing how their annual dues were spent as seemingly little to no maintenance activities were taking place. 

From linens to dishes, everything inside the units is supposed to be taken care of by the HOA, so long as owners pay their annual dues. Maintenance fees grew over the years, from $164 in 1991, according to a bill reviewed by the Business Journal, to more than $700 per weekly unit in recent years. Owners spent between $3,000-$8,000 to purchase each shared unit, depending on the time of year their week fell on and when they closed on the deal.  

Some owners were comfortable with the level of maintenance in their units, while others said it was difficult to get management to address issues.  

“My husband takes his tools down every year, and he has to do repairs to our room,” said Agnes Strushensky, a Pennsylvania-based owner who has spent two summer weeks in her unit for the past 15 years. Though the maintenance fees had risen, Strushensky said her family doesn't mind paying them – they were still less than the market rate for a rental in Carolina Beach.

“We loved it. I don’t know what we're gonna do now,” she said, adding she’d even consider buying her weeks back again – if that were an option with the new owner. 

Mary Caudill, whose in-laws own an August timeshare, said she never had maintenance issues until about three years ago. In 2019, the washer in her unit was broken and she had to use a neighbor’s to launder her clothes. “In the last few years, we have watched it deteriorate and be poorly taken care of and watched our rates rise with nothing being done,” she said. 

After receiving the bankruptcy notice, Caudill said she had to tell her daughters they won’t be returning. “It's not fair to lose a place so close to your heart because someone else had given up,” she said.

Asked to address the residents’ concerns about slumping maintenance, Haidt said it comes down to dwindling revenues.

“It just wasn't a feasible ongoing business,” he said. “Selling the facility is the best way for these owners and their heirs to recoup some of that investment that they put into it. I wish there was a better way, but I don’t think there is.”

For more about the changing trends in timeshare ownership that contributed to the fall of the North Pier Ocean Villas, read the Feb. 18 issue of the Greater Wilmington Business Journal.  

 

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