Limited Partnership Investment in Callery-Judge Grove, L.P. (the “Grove”)
The Company has maintained an interest in the Grove, which originally represented a 20% limited partnership interest beginning in 1965. The Grove owned a 3,700+ acre citrus grove located in Palm Beach County, Florida, which is the subject of a plan for mixed-use development. Based on four subsequent capital raises through 2009, each of which the Corporation chose not to participate in, the Company’s share was diluted to approximately 9.32% as of December 31, 2013. During 2014, certain partners elected to give back their limited partnership interests to the Grove, which resulted in increasing the Company’s share to 10.12% as of December 31, 2015.
On March 18, 2011, the Grove’s lender, Prudential Industrial Properties, LLC ("Prudential"), commenced an action against the Grove by filing a complaint in the Circuit Court of Palm Beach County to foreclose upon the Grove property, alleging that the Grove defaulted on its loan from Prudential and that the Grove was indebted to Prudential in an amount of over $37 million in principal and over $8 million in interest and fees. On September 19, 2013, the Grove was sold, the foreclosure lawsuit was dismissed and the Grove’s debt to Prudential was repaid. The investment is held in a subsidiary of the Company with $0 value. Gyrodyne did not receive any distribution in connection with the sale. Under the agreement with the purchaser, the Grove may receive payments if certain development benchmarks are achieved by the purchaser. Gyrodyne cannot predict whether these benchmarks will be achieved or as to the timing or amount of any further distributions by the Grove. The aforementioned transactions resulted in taxable gains to the Corporation in 2014 but no book gain. The Corporation had a deferred tax liability related to the Grove of $1,315,000, at December 31, 2013, which represented taxable losses not yet recorded pursuant to the equity method of accounting. The Corporation reversed the deferred tax liability in total in 2014 and recorded a current tax liability of approximately $618,000 and a tax benefit of $697,000, in the taxable REIT subsidiary. Under the equity method of accounting, the Company stopped recording losses after the carrying value of the investment was reduced to zero. The gain does not show up on the financial statements, as there were unrecorded accumulated prior year net operating losses which were not recorded as the investment basis was zero. Pursuant to the equity method of accounting, the 2014 gain is reduced by such accumulated unrecorded losses. As of December 31, 2015, the Company no longer has any accumulated prior year losses.
The purchaser of the Grove Property, Minto Group, formally refers to the development project as Westlake. In October 2014, Westlake was approved by the Palm Beach County Commission to develop 4,546 homes, 2.1 million square feet of commercial development, a 3,000-student university and a 150-unit hotel. Minto Group announced on February 18, 2016 that groundbreaking for Westlake could take place in as early as 90 days and that residential sales were expected to begin in early 2017.
Pursuant to the original sale agreement for the Grove Property and given the status of development and sales, Gyrodyne does not expect distributions to the partnership, if any, until 2017 at the earliest. The amount of distributions, if any, ultimately received by Gyrodyne will depend on The Grove’s receipts from Westlake and the liabilities and expenses of the Grove, a limited partnership, that must be settled prior to any distributions to Gyrodyne.
"Someone said it takes 30 years to be an instant success" - Gabriel Barbier-Mueller, CEO of Harwood International
