Out of Bounds
Ken’s first day at work started promptly at 1 pm. Ken spent the morning looking at condominiums and chose was a perfect location on the Clearwater side of the Howard Frankland Bridge. Feather Sound was 10 minutes from Tampa International Airport and 15 minutes from the office.
Ken’s late start provided Dave the opportunity to spend time with Roger Felton and Pete Romine. By midmorning, he was confident that both men were strong additions to his staff. Roger’s experience would allow Dave to turn over day-to-day responsibility for the mortgage side of the business and allow him to concentrate on Mario’s projects. Mary and Grace got the men set up in their office space and Chris gave them an overview of the computer software - from student to teacher in two weeks.
Ken came in raring to go. “Let’s get started,” he proclaimed, plunking his long frame into one of Dave’s office chairs.
“Chris, come on in and bring your lender file. His highness has arrived,” Dave called out to Chris. “Ken, It’s good to have you on Board,” Dave said to Ken as they waited for Chris.
“Good to be here,” Ken replied easily as he rose to greet Chris.
“Okay,” Dave asked, “where are we in our search for lenders? I know that the two of you were talking quite a bit the last two weeks. Any progress?”
Ken took the lead. “Chris and I went over her list and made some additions and subtractions. I’ve had experience with some of them, both good and bad. We’ll be spending a lot of time on the phone the next few days.”
“There is one other thing that came up yesterday at the barbeque,” Chris added. “I was talking with Fred about his restaurants when he mentioned a Swiss lender that had contacted him about eight or nine months ago regarding funding of his restaurant expansion. They claim to have unlimited funds. Dave, does that ring a bell?”
“No, it doesn’t. I funded two of his restaurants and am working on a third, but Fred never mentioned a Swiss lender to me. Go ahead and follow up, it can’t hurt.”
Three days later Ken and Chris developed a short list of potential lenders. “Dave, we have four that appear to be real possibilities including the Swiss lender that Fred mentioned. What’s nice is they are not asking for any front-end fees. The others want anywhere from $10,000 to $25,000 just to look at the application.”
“Why the up-front fees, Ken? I would think they would be eager to look at a deal this big.”
“In their defense, lenders have a lot of options to invest their money. They don’t want to waste their time with dreamers or people that are shopping their project to multiple lenders. It’s their way to separate the corn from the chaff.”
Chris interjected. “The problem is that there are a bunch of fee hunters out there that make a living by taking application fees but don’t deliver. The trick is to separate the lenders from the pretenders.”
“Enough,” Dave interrupted with a smile. Assuming we want to go forward with the Swiss group, what’s the next step?”
“They want to meet with in Zurich, which by the way is a great place to visit this time of year. I was there six years ago on business and stayed an extra week touring the country. I think we should go.”
“What do you think Chris?”
“I agree with Ken. I like a couple of the other lenders on our list, but I’m not sure they are as committed as the Swiss group. We need to meet with these people face to face.”
“Have they proposed terms?”
“They are talking a 5%-7% construction loan that converts to a fixed mortgage when certain goals are met. The downside is they want 25% equity and first option on all future loans. After five years, we could buy them out.”
“That doesn’t sound unreasonable. Okay, I guess we’re agreed. Let’s go to Zurich.”
Buzz played the 15th hole poorly. It was a simple hole if you kept your drive in the fairway. Buzz didn’t and Dave did. Dave’s second shot wasn’t great, but left him 10 feet from the green with a fairly easy pitch to a middle pin. Buzz’ drive missed the fairway by 30 yards and found heavy rough. His only choice was to use a wedge and get the ball back to the fairway. He actually hit a pretty good shot and advanced the ball to the 100-yard marker, but his third shot found a pot bunker to the right of the green.
As he walked to the green, Dave thought back to his first trip to Zurich with Ken and Chris.
Dave, Ken and Chris caught a late afternoon flight to New York and a connecting red-eye flight to Zurich. Chris caught Dave’s shoulder as they cleared customs and exited into the main terminal with their luggage.
“Look, Dave. See that man with the sign?” A uniformed man was holding a sign that read, “Bradford Party.” We were impressed.
Their limo driver’s name was Max. “My orders are to drive you to the St. Gotthard Hotel and be available in case you need me the rest of the day. The hotel is on the Bahnhofstrasse, the city’s main street. You are only a short walk to our corporate offices.”
“Max, we appreciate the offer, but we won’t need you today after you drop us off at the hotel. We will probably stay real close to the hotel this evening.”
“Isn’t the St. Gotthard close to the Kronenhalle?” Ken inquired.
“Yes, it’s only a five minute walk and one of our finest restaurants. If you wish, I will make 8:00 PM dinner reservations.”
“That will be fine,” Ken replied. “Can you also make us reservations at the Kronenhalle Bar next door, just in case we care to stop after dinner?” Ken had been there before and knew reservations were a must.
It was noon Zurich time, but only 6 AM in Tampa. No one had slept well on the plane and they all could use a few hours rest. Dave tried, but was too keyed-up and decided to take a walk. He ran into Chris in the hotel lobby. She had the same idea.
Zurich is known as a business center and is not the typical destination of tourists looking for Alpine skiing. Nonetheless, it was a beautiful and interesting city. The Bahnhofstrasse reminded Dave of Worth Avenue in West Palm Beach. The shops were prestigious and expensive; Gucci, Cartier, Bally and numerous small boutiques intermingled with austere bank buildings, outdoor cafes, fine restaurants and jewelry stores. Dave and Chris played “tourist” and walked into a few shops pretending they could afford to pay $1,200 for a sport coat they found on a bargain rack. They soon found ourselves down by Lake Zurich, which offered a splendid vista with the mountains in the background. Dave looked forward to spending more time in Switzerland.
“Chris, it’s 3:30. I’m going back to the hotel and try to get a couple hours sleep before dinner. Let’s meet in the lobby at 7:45 PM.”
“See you later. I’m too excited to sleep so I think I’ll just wander around a bit.”
Ken was the last to arrive and led the way to the restaurant.
The Kronenhalle was a trendy restaurant that offered traditional Swiss food. The consensus of locals was that it was a great place to be seen, but the food was average. What was impressive was the artwork that lined the walls of the dining room. Dining beneath an original Picasso and Chagall was a new experience. After dessert and coffee, we decided to cancel our reservations for the lounge. Tomorrow’s meeting was too important.
Their offices were on the top floor of a 4-story building. From the outside, the building was stark as was the case of most of the Swiss banks that line the Bahnhofstrasse. Inside, the offices portrayed an aura of taste and old money. The elevator opened to a large lobby decorated tastefully with French antique furniture and original oil paintings. “Very impressive,” whispered Chris.
Dagfin Jensen, the lender contact that Ken and Chris were dealing with, greeted them warmly, and led them into the conference room. “Sven, may I introduce Mr. Dave Bradford, Mr. Ken Reid and Ms. Chris Lewis from Global Management in Tampa, Florida.”
Sven Johansen was seated at the head of a mammoth 19th C. French inlaid parquet top conference table surrounded by a dozen leather armchairs. Sven stood and introduced the six other Board members seated along one side of the table.
“Mr. Bra
dford, I hope you had a nice trip and had time to look around our beautiful city. If you don’t mind, we have a busy day scheduled and would like to get started. Dagfin has kept us informed, but why don’t you start from scratch and you tell us what you need?”
“Mr. Johansen, I appreciate the opportunity to meet with you and the time that all of you have taken out of your schedules. Bradford distributed a 1-page summary of their financial request:
Project Summary (Funding Required)
1.1 Cabo San Lucas, Mx Resort and Casino $350M - ($200M)
1.2 Miami Beach Marina and Condominiums $150M - ($20M)
1.3 Dominican Republic Mixed Use Facility $275M - $30M)
1.4 Las Vegas Casino & Golf Course $225M - ($50M)
Total Phase I Funding Requirements One Billion Dollars - ($300M)
2.1 Costa Rica Resort and Ecology Center
2.2 Palm Beach Condominium Development
2.3 San Miguel Del Lago Resort & Casino
2.4 St Martin Golf Course & Condominiums
2.5 Orlando Convention Center & Hotel
2.6 Honduras Mountain Resort
Total Phase II Estimate $3.2 Billion
“We are requesting a $1 Billion loan commitment to complete four projects, $300 Million now and the remainder to be disbursed over an 18-month period as certain benchmarks are attained. The use-of-funds for the initial $300M funding is noted in parenthesis.”
“Phase II projects are listed only to provide you an idea of our future funding requirements. These projects won’t be started until the Cabo San Lucas casino is successfully opened.
“Any questions?”
“Please continue, Mr. Bradford. We will hold our questions until you have completed your presentation.”
Bradford spent ten minutes describing his team’s credentials and emphasizing the financial controls that would be employed to ensure the money is wisely spent. Ken took ten minutes to describe the Mexico project using a 1-page handout as a discussion outline. Chris did much the same with the other Phase I projects. The entire presentation took 30 minutes. No one said a word or asked a question until they finished. Nobody took notes. The team waited anxiously for Sven’s reaction.
“Mr. Bradford, thank you for an excellent presentation. We don’t question your credentials. What’s bothering us is that you are obviously only a front man in this operation. You don’t have the experience or financial strength to put these projects together. We are uncomfortable lending money without knowing who is pulling the strings.”
“Let me assure you that I have unequivocal authority to commit the assets of these projects. Your attorneys will verify this.”
“Forgive me, Mr. Bradford,” a person to the right of Mr. Jensen interrupted. “I’ve been around the block a once or twice, and have seen many of these types of arrangements. I would guess you have a private agreement that provides another group controlling interest. If they’re not happy with you, I’m sure they could dissolve the corporation or do something to take you out of the picture. Am I wrong?”
It was time for candor. “No, Mr. Warren, you are pretty much on target.”
Sven interrupted, and tried to lighten the mood of the meeting. “Dave, we are prepared to lend you the money according to the terms that Dagfin and Ken have discussed. However, we insist upon knowing all of the players. We mean no disrespect to you, but please understand our position.”
“May I suggest we adjourn for an hour and allow me to make a phone call. Let’s see if we can work this out.”
Dave, Ken and Chris went to the cafe next door to ensure their conversation was not monitored. “What do you think?” Dave asked.
“We should have expected this,” Chris replied.
“In fact, Dave, if they hadn’t demanded this, I would have been suspicious,” Ken added.
“I agree. Let’s see if Mario agrees,” Dave said as he called his cell phone.
Surprisingly, Mario had no objection. “Just make sure that the contracts are ready for signature before you reveal my identity. Let’s see if they are serious or just playing games.”
We returned to the conference room with the good news. “Mr. Johansen, our partner is amenable to your request, and quite frankly appeared to expect it.” Dave repeated Mario’s stipulation.
“That’s fine, Dave, we understand. I suggest you reconvene after lunch with Dagfin and our attorney. Dag has complete authority to negotiate on our behalf. I assume you have arranged for local legal representation?”
“Yes we have. We have an attorney on call and can be here at 2 PM if that’s agreeable with Dag.”
It was a long afternoon, but by 7 PM they had the framework of a deal. They agreed upon a 3-year, interest only construction loan with an interest rate of 6-1/4%. The lender received 25% equity and two seats on the Board of directors. After three years, either party could offer to buy out the other at a price based upon a financial valuation of the project. This looked like a potential problem, but they needed the financing.
The loan was for one billion dollars with an initial funding of $300M. Bradford’s broker commission was 1% to be paid as the money was released.
The following day the contract was ready for signature and Bradford presented Sven with a copy of his agreement with Mario.
“Give us a couple hours to find out a little bit about your partner.”
The team adjourned to the coffee shop and anxiously awaited the results of their research. They had no idea what the Swiss might find in Mario’s background and all they could do was wait. Precisely two hours later Bradford received a summons to meet privately with Sven Johansen.
Ten minutes later Bradford walked out of Sven’s office and gave Ken and Chris the good news. “We’re approved!”
Two hours later the contracts were signed and notarized. $300 Million was wired to their account in Tampa, FL. A separate check for $3M was wired to Dave’s Global Management account.
That night they celebrated until 2:00 AM at the Kronenhalle Lounge before catching a 7:00 AM flight back to La Guardia and eventually to Tampa. No one had trouble sleeping on the flight home.
Bradford was away and chipped to about 10 feet, not an easy par putt. Buzz was still in the hole. He needed to get up and down from the sand trap to put the pressure on Bradford’s putt. The ball was sitting up pretty good in the sand and it looked like an easy shot. Buzz took a wide stance, opened the face of his sand wedge and took a full, easy swing. When the sand cleared, his ball was perched on the lip of the bunker. The open-face wedge had slid under the ball, barely making contact. Buzz swiped at the offending ball with his wedge knocking it into a small pond 30 yards behind the green.
In match play, sometimes your opponent gives you a gift. Bradford accepted and headed to the sixteenth hole only one-down.
The next 12 months passed quickly, if not smoothly. Ken and Chris worked full time on the Mexico project. They hired an internal accountant, Pamela Suarez, to assist in the accounting and disbursement functions. Pamela reviewed every check written over $500. Chris or Ken’s signature was required on all checks over $5,000.
Chris spent 50% of their time at the project site, meeting with contractors, checking results and insuring that payments were made only for work that had been performed. Her Spanish speaking ability was invaluable in dealing with the contractors.
Kurt and Alberto worked with Ken to obtain another $200 initial funding for the other three Phase I projects. The initial funding of $100M had been used to purchase land, architectural plans, licenses and environmental reports. Zurich needed to approve the work plan and general contractors before they would release the funds. Dagfin Jensen was their point man and proving to be an excellent person to work with.
Dag was instrumental in getting Sven and his Board of Directors to approve the allocation. Three months after the trip to Zurich the $200M was wired to their account.
The Cabo job was falling behind schedule and was over budget. Pedro estimated they woul
d need another $50M to complete the project. The primary problem was environmental. The soil was not as firm as the initial soil samples indicated, either for the Marina or the Hotel and Casino sites. The concrete footings needed to be 30 feet deeper than anticipated, at an additional material and labor cost of almost $35M.
Ken and Chris presented the revised budget to Dag for approval. After several hours of discussion, and a few changes, Dag was satisfied. “Okay, let me call Sven and see how he wants to handle this. I have a hunch he might want to meet with us. I should know in a couple hours.”
Dag called Ken back an hour later. “I was right; he wants us to make a full report to the Board and asked that you and Chris attend. Is next Wednesday too soon?”
“We’re ready,” Ken answered immediately.
“I’m taking my skis,” Chris proclaimed after Dag hung up.
“Settle down, Chris. This is a business trip, and besides, we can rent skis at the lodge.” Ken’s mischievous look told Chris to pack her ski jacket.
Ken, Chris and Dag left Monday morning from Tampa giving them an extra day to get over the jet lag and rehearse for the meeting. Dave stayed behind to tend the store. Ken was going to give the overview and Chris was to get into the detail. Dag would remain neutral, a Swiss policy since the battle of Marignano in 1515. “Dag, the Swiss would remain neutral if aliens invaded earth,” Ken quipped.
“That’s right, Ken, and when they get here, the aliens will probably deposit their money in our banks; for our regular fee of course.”
The St. Gotthard Hotel was booked, so Ken and Chris made reservations at the Marriott. Dag headed home to his wife and three kids. It was 2 PM Swiss time when they checked in, but Ken’s watch still said 8 AM. “Chris, I need a couple of hours of sleep. Let’s meet downstairs at the sports bar around six.”
“Okay, I might just go for a walk. I slept pretty well on the plane.”
“I know, in fact, everyone in our cabin knew.” Chris ignored him.
Chris found Ken sitting at the bar with five steins of ale in front of him. “Hey, Chris, I need your input. I’m doing a survey of Swiss beverages, I can’t decide between the Steinbock Lager and the Hurlimann. The Oranjeboom Pilsner is pretty good too, but it’s Dutch. Try one.”
“Ugh,” Chris said as she tried the Steinbock, “this is too strong. How can you drink this? I’ll stick to wine.”
“While I was doing my research, what did you do today?”
“Nothing that compares to this, Ken. I did spend an hour at the Chinese Gardens and a couple hours at the National Museum, but nothing as cultural as this. I feel I just wasted the afternoon.”
“Do I detect a little sarcasm? And I was just about to ask you if you would care to drive to Lucerne with Dag and me tomorrow for a little golf. I thought you might want to see a little of the countryside and do a little shopping.”
“Yes! That would be fantastic, just so I don't have to golf. I would love to see the countryside and I can shop while you two play golf. You are forgiven. In fact, I’ll buy dinner tonight.”
“Can you afford it? I was thinking hamburger but now I just might go with the cheeseburger.” Ken wondered what he had done to be forgiven, but was happy nonetheless. Tomorrow would be more fun with Chris along.
Their plans changed later that evening. Chris was getting ready for bed when the telephone rang. “Chris, Dag just called. Sven wants to have dinner tomorrow, just the four of us. Unfortunately, I think we better postpone our trip to Lucerne.”
“I agree, Ken. I have a hunch that the dinner with Sven will be more important than the presentation to the Board. Most decisions are made in the hallways before a meeting ever starts.”
“By the way, Chris, dinner is at Petermann’s Kunststuben, so don’t wear jeans. Sven is sending a car for us about 7.”
Now that’s the pot calling the kettle black, Chris thought. “We’ll have time tomorrow to buy you a nice tie, Ken. Your clip-on probably won’t be appropriate. Goodnight. See you at breakfast.”
“Goodnight, Chris.”
Breakfast turned into brunch, as they both slept until almost ten. They were still catching up from the plane ride. “Ken, let’s go to this little outdoor café that I saw yesterday. It’s only a couple of blocks and the walk will do us good.”
As they were seated and ordered coffee, Chris asked if Dag had given any clue as to the purpose of the meeting. “Nope, other than to say that Sven doesn’t often get together for purely social reasons. There is usually a business purpose, so don’t be surprised if he gets into the meat of it and asks the tough questions.”
The afternoon was spent wandering the cobblestone streets of Old Town and visiting the cathedrals and churches. Grossmunster Cathedral with its duel towers looks like it was taken from a Brothers Grimm fairy tale. Ken sampled the beers and Chris sampled the chocolate and enjoyed a late lunch of cheese fondue and Rhine wine. Ken had racclette, melted cheese over a boiled potato, and a local beer.
“Let’s head back, Ken. I need some time to get ready. You are planning on a coat and tie, aren’t you?”
“It’s against my principles, Chris, but I have heard that the Kunststuben is one of the best restaurants in Switzerland. And besides, I’m going with the best looking woman in Switzerland so I had better dress up.”
“Why, Ken. I didn’t know you cared.” Maybe Ken had been thinking about her last night, too, Chris thought.
The restaurant lived up to its reputation. It was packed, but the food and service were extraordinary. Chris ordered the lobster while Ken tried their specialty, filet of trout. Sven was the perfect host, introducing us to a variety of celebrities and businessmen that stopped by our table. He finally said to Chris; “That last person was a complete stranger. I’m sure the only reason he stopped was to get a better look at you. I must say I agree with him; you look absolutely ravishing this evening.”
“Sven, why thank you. That is nice of you to say.” Chris cheeks had turned a little pink, which made her look even more beautiful, Ken thought.
“I happen to agree with him,” Dag offered.
“Is anybody else going to have dessert?” Sven asked. I recommend everything on the menu but the chocolate mousse is especially good.”
While we were waiting for dessert, Sven took the opportunity to talk a little business. “Ken, and Chris, tomorrow you will make your presentation to the Board. Dag tells me you are requesting that we release the final $150 Million required for the Mexico project, plus an additional $50 Million cost overrun. Is that correct?”
“That’s correct, Sven”, Ken replied.
“Your request will be approved tomorrow, but not without a price. Our equity percentage needs to be increased to 33%. Furthermore, you must understand that further cost overruns will not be tolerated, and the casino project must open on the revised schedule; no more delays. Understood?”
“I understand, Sven. I’ll talk to Dave and Mario tonight. We have discussed this and I’m pretty sure he will agree.”
“Tell Mario, no more money until we see some results.”
The dessert was excellent and Sven once again became the gracious host. The Swiss have a wonderful ability to compartmentalize business and pleasure. On the way out, he introduced us to the owner, Horst Petermann. We complimented him on his fine restaurant and he complimented Sven for bringing this fine looking woman to his restaurant.
Chris and I relaxed in silence during the 25-minute limo ride back to the Marriott, being careful not to talk business, just in case. “You did look pretty good tonight, Chris.”
“You looked okay yourself tonight, Ken. Are you sure this isn’t a clip-on?” as she yanked at his tie.
As they got to Ken’s room, Ken asked Chris to come in while he called Dave.
“Give me five minutes. I need to get out of this dress and these shoes. Privately,” Chris added, as she noticed Ken’s look.
Ten minutes later Chris was back after changing into her sweat clothes.
&nb
sp; It was still only 6 PM EDT and they caught Dave in the office. “Dave, Ken and Chris here, let us bring you up to date.” Ken repeated Sven’s decision and waited for a response.
“What’s our alternative?” Dave concluded after a moment’s thought. “If the three of us agree it’s a reasonable offer, let’s conference-in Mario and see what he says.”
Ken repeated the conversation to Mario. “Sven was pretty firm, Mario. It sounded like a take it or leave it offer. What do you say?”
“I don’t like being blackmailed like this, but I guess it’s not too bad. Tell the SOB I’ll take it, but as soon as I get a chance I’m going to cut these guys out of the deal. Mark my word.”
“I’ll tell him, Mario, but if you don’t mind, I will clean it up a little,” Ken replied.
“Well, Chris, he went for it. Care to have a drink to celebrate?”
“Not tonight, Ken. We can celebrate after the meeting tomorrow morning.” When Chris got back to her room she asked herself why she had said no to Ken so quickly. She had been thinking of him off and on since the trip was scheduled.
The meeting started at 9 AM and lasted over two hours. The Board members were not pleased and asked some tough questions, many relating to the capabilities of Mario and his management team. At the end of the meeting they came to the same conclusion that Sven had presented last evening; a $250M loan in exchange for 33% equity in all projects.
“I have authority to tell you that Dave’s associates will agree to these terms,” Ken said, as he nodded to Sven.
By 12:00 Ken and Chris had checked out of the Marriott and were on their way to Lucerne.
Over the next six months, they split their time between the Mexico project and the three projects in Miami Beach, Las Vegas and Dominican Republic. Kurt and Alberto were already doing preliminary work on the six Phase II projects.
They were cautioned not to go too fast because the money had not yet been approved. Despite Dave’s warnings, it was discovered that Mario had entered into contracts with several firms and put deposits on the land.
The next day Chris and Dave flew to Miami to meet with Mario and Alberto.
“I didn’t have a choice, Dave. We either paid the deposits or we lost our option on the land. They had another buyer.”
“How much are we talking about, Mario.
“$40M, nonrefundable. If we don’t close by October 1, we lose it all.
Where is the money coming from, Bradford wondered?
“Chris, Is Cabo going to open on time?” Dave asked for Mario’s benefit.
“Yes, I expect the hotel and one golf course to have a soft opening June 1st and the casino to open 30 days later. We need to get the resort and restaurant staff trained before we get an onslaught of customers from the casino. We are having problems with the championship golf course, but that should open by August. Everything else is looking good.”
“Okay, but we will be cutting it pretty close. We need casino revenues for two or three months before the Swiss will give us any more money. They made that very clear. Let’s hope our revenue projections hold up.”
“Mario, that $40M deposit really puts us in a time crunch. It won’t be easy to get the additional funding by October 1.”
“I’m counting on it, Dave.”
Bradford decided to start looking for another funding source in the event that Zurich didn’t exercise their option for the Phase II projects. He wasn’t sure what they could do about the three Phase I projects already started which still needed another $350M to complete. Dave was sure of one thing. They needed to open the casino July 1st and casino needed to be profitable. Otherwise, relationships could turn nasty.
Chapter 16
Par 3 – 220 Yards
Mexico Casino Grand opening