Lakefront project runs out of money

Lakefront project runs out of money

July 12th, 2009 in News

The developer of what was envisioned to be the biggest residential development in Southeast Tennessee says more money and investors are needed to build the marina, golf course and other amenities planned for the $500 million complex.

But some of those who bought lots in the 578-acre complex on Nickajack Lake claim construction halted because money was improperly diverted to other projects.

In an eight-page lawsuit filed Friday in Marion County Chancery Court, a half dozen lot owners in the development known as Rarity Club accuse developer Mike Ross of diverting more than $10 million to other projects that Mr. Ross is developing elsewhere in East Tennessee.

"Mr. Ross has not done what he promised to those who bought lots in this development as well as to the citizens of Marion County," Jasper attorney J. Harvey Cameron said Saturday. "Obviously, the economy has made conditions very difficult today. But we believe he is certainly at fault to a substantial degree for not using the proceeds available toward this project."

Neither Mr. Ross nor his attorney, David Long, were available for comment Saturday. But in a letter recently sent to more than 50 people who bought lots at Nickajack Shores during 2007 and 2008, Mr. Ross said he has defaulted on a major loan for Nickajack Shores and faces an eminent foreclosure on the property from his lenders.

Mr. Ross, whose Rarity Communities development group is involved in at least a half dozen luxury complexes across East Tennessee, said the market for his retirement-oriented projects collapsed along with the stock and housing markets last year.

"These factors have caused many prospective Rarity Communities customers to delay or change retirement purchase plans," Mr. Ross said in a July 2 letter obtained by the Chattanooga Times Free Press. "It has become apparent to us that recapitalization (of Rarity Club) will be required in order for the development to be completed."

But Mr. Cameron said Mr. Ross' firm sold $26.5 million of lots in Rarity Club, was paid another $1.85 million in golf course memberships and had access to another $15.5 million line of credit from Green Bank of Greeneville, Tenn.

Roads and sewer lines were installed and some land was cleared before construction work stopped earlier this year. But major work has yet to begin on the planned 18-hole golf course, a public boat marina, a club house or wellness center, according to Mr. Cameron.

The developer has only a couple of more years to relocate the Shellmound Recreation campground to satisfy a deed requirement from the Tennessee Valley Authority, which previously owned the property. Otherwise, the property could revert back to TVA.

Chattanooga developer John "Thunder" Thornton assembled the 578-acre parcel near Little Cedar Mountain from TVA after swapping more than a 1,000 acres of other property in the area to the federal agency. Mr. Thornton sold his interests in 2006 to Mr. Ross and his Rarity Investment Co. LLC. But Mr. Thornton still has a second mortgage on the property that was to be paid off as lots were sold.

The development was designed to eventually include about 450 single-family lots, plus some condominiums and a public marina and golf course.

SLOW GOING

So far, only two houses have been built in the development, and sewer connections have yet to be completed for those homes. Home builder Bill Worley, who erected one of the homes, sued Mr. Ross in February in Marion County Circuit Court.

Hertz Equipment Rental Corp., which provided equipment for the construction project, filed liens on the property and is seeking $66,129 in a separate lawsuit filed in Marion County Chancery Court.

In April, Mr. Ross also was sued by his partner in his Rarity Pointe subdivision in Loudon County for allegedly filing false documents by the Ross-owned Assurance Title LLC.

Another one of Mr. Ross' projects, Rarity Rivers on Chickamauga Lake near Dayton, Tenn., also is reportedly stalled, in part, due to the bankruptcy of partner Toby McKenzie, of Cleveland, Tenn.

The latest lawsuit against Mr. Ross also accuses Green Bank of Greeneville, Tenn., of allowing funds to be diverted from the Nickajack project "contrary to its own guidelines and loan provisions." Mr. Cameron said the bank "failed to exercise reasonable diligence" over how the construction loan was spent and is now threatening to foreclose on the project. The lawsuit is seeking to recover losses for those who bought into Rarity Club from the bank, as well as Mr. Ross.

James Adams, Green Bank's chief financial officer, said Saturday he has not seen the lawsuit and declined to comment on the allegations in the suit or the bank's loan agreements with Mr. Ross.

Nickajack Shores is the second major luxury development to stall this year in Marion County. Last month, the developer of the 3,500-acre Sequatchie Pointe - J.J. Detweiler Enterprises - filed for bankruptcy in Ohio. That filing came four months after a group of Florida residents who bought the first lots in the development sued for $13.5 million, claiming they were misled, court records show.