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Date of Issue: February 15, 2007

GSR sales: $5.4 million disappears

The world's greatest detective could easily be called in to investigate a claim that bankrupt GSR Development LLC had $5.4 million in closings lined up between August and October 2005, but the deals fell through because the company wasn't able to come up with the money to finish the projects. The company eventually filed bankruptcy in July 2006.

"The game is afoot," Sherlock Holmes might cry. He might even find the answer to why the deals failed to materialize is "elementary."

Needless to say, Island and west Bradenton residents who are among GSR's unsecured creditors won't be happy to learn of the closings that would have given the company an infusion of cash and might have kept GSR out of bankruptcy.

"There were $5.4 million in closings planned for that period," claimed Paul Gallizzi of Spectrum Construction Management, closings that would have certainly helped the cash flow of the company.

Gallizzi should know about the closings. He was the general contractor with Spectrum and in charge of many of GSR's construction projects, which included single-family homes and condominiums on the Island. Spectrum was actually formed by four people, including Galizzi and GSR principals Robert Byrne and Steve Noriega.

"I was never able to complete the projects because the money needed to finish them never came from the company or the principals," he said. "I was promised the money, but the principals never delivered."

He said it was "frustrating" when a buyer for a unit at the Gardenia condominiums on Seventh Street South in Bradenton Beach was "ready, willing and able" to close on a $1.2 million unit, but the deal collapsed at the last minute because Gallizzi never got the final flow of cash needed to finish the job.

Gallizzi said he doesn't know what happened to the money he needed to complete the projects scheduled to close during that time period and he doesn't want to speculate publicly. "I really don't want to say what I think happened," he said. "All I know is that I ended up being responsible for the subcontractors and many of them have sued me."

In addition, Gallizzi has his own claim in bankruptcy court against GSR for just under $1 million. He's used his own money to pay off some of the subcontractors and has several liens against GSR and/or Robert Byrne's properties.

One of those liens not associated with the GSR bankruptcy is probably just a waste of paper. It's against two Byrne properties in Holmes Beach, one on 60th Street and the other on 61st Street. First Priority Bank was awarded a foreclosure judgment last week on the two properties for a total amount of $1.6 million. Gallizzi's lien is for $164,991.

The properties will be sold at a public auction at the Manatee County Courthouse March 8 if the judgment isn't satisfied by that date.

"The two properties are probably worth the amount due and perhaps a little more," said Gallizzi, who was not confident that he would get any money from an auction sale.

What Gallizzi does know is that GSR re-financed a vast number of its Island properties due to generous appraisal increases. Most, if not all, of that money was to go toward completion of on-going projects, but didn't. Whether or not $5.4 million might have helped stave off bankruptcy is a question Gallizzi said he couldn't answer.

But others involved with Byrne and Noriega say the two men enjoyed a lavish lifestyle, complete with late-model high-end cars, a private airplane, trips to the Bahamas, the Domincan Republic and Fort Lauderdale, a $60,000 bracelet given to a girlfriend, the best clothes, and meals at the finest restaurants.

In its bankruptcy filing, GSR claimed $44 million in debts against $33 million in assets. While GSR has until March to submit its complete financial statements to the bankruptcy court - along with a restructuring proposal - indications are that the company's bankruptcy is substantially larger than the original amount.

What Gallizzi and other creditors would like to see are some property sales, but GSR chief restructuring officer, William Maloney - who was hired by Byrne and Noriega - seems unwilling to lower the asking price for the properties.

A licensed real estate agent and a GSR creditor, Gallizzi is on both sides of the problem.

"I'd like the properties to be sold at the asking price, because then I and other creditors would probably see some money," he said.

But the reality, he added, is that GSR's asking prices are simply too high to attract serious interest, given the current condition of the Island real estate market.

The problem, Gallizzi noted, is that GSR needs maximum value on its properties because they've been refinanced to the maximum, leaving little room for the creditors to be paid anything if the properties sell for less than what's asked.

"If they'd asked those prices two years ago or even last year, they'd probably get them. Maybe they'll get them in six to eight months. I don't know. But right now, I think they're overpriced," he said.

Maloney has indicated he doesn't want to lower the prices because that would devalue Island real estate. But Maloney has a personal interest in selling GSR's properties for full value. He gets a $125,000 bonus if the creditors - secured and unsecured - get all their money back. Phone messages and e-mails to Maloney were not returned.

"It's a tough spot," said Gallizzi. "I think there'd be some real interest if the prices dropped by 10 or 20 percent."

Mike Norman of Mike Norman Realty agreed.

"The prices they are asking now for the properties are a joke. They are way over-priced," he said. "We're trying to encourage people to lower prices so properties will start to move." Norman did not indicate whether or not his office has any interested clients.

One Island real estate agent, who asked not to be identified, agreed with Norman that GSR is "over-priced."

For example, she said, one GSR property is a vacant lot on Key Royale Drive. Rosebay Real Estate, the exclusive marketing agent approved by the court for a number of GSR's Island properties, has listed the property for $1.5 million.

"I don't think that's in the ball park right now," the agent said. "A realistic figure is $1 million, maybe up to $1.2 million. Good luck at $1.5 million," she concluded.

Another agent, who works for a major Island real estate firm, also did not want to be identified until Maloney signs an agreement. She said she has a client willing to make an offer for GSR's Rosa del Mar property in Bradenton Beach, but it's somewhat less than the $11 million asking price.

Maloney is looking to market GSR properties not listed with Rosebay.

On Feb. 7, GSR attorney Richard Prosser submitted a motion to the federal bankruptcy court to allow Maloney to sign a non-exclusive listing agreement for Rosa del Mar, the failed condominium project in Bradenton Beach.

Prosser said that since Maloney was retained by GSR to restructure the company, he has "conducted an extensive investigation" of GSR properties to "ascertain the most expeditious, economical and best method" to sell GSR properties and convert those assets into cash "for the benefit of the creditors" and other interested parties.

Prosser said Maloney has been approached by "perhaps a dozen" Island real estate agents with "potential" buyers for Rosa del Mar. "These brokers have indicated that they have potential buyers, but will not disclose them" to either Maloney or GSR "absent some protection on a non-exclusive basis," Prosser maintained.

Maloney proposes to sign non-exclusive agreements with Island real estate companies for Rosa del Mar "without committing to any one particular broker, to maximize value." If local brokers are unable to bring a qualified buyer "to the table" in a reasonable period of time, Prosser said that after March 15, Maloney wants the option to retain a national firm.

Prosser has also submitted a separate motion to have Michael Saunders & Co. Realty named as exclusive agent for a two-unit Bradenton Beach condominium owned by GSR.