Condo Converters’ Debts Piling Up

According to the Sarasota Herald-Tribune, Warren Hickernell looked like the boldest contrarian in the Southwest Florida housing market last year.

He spent millions changing motels and apartment buildings into condominiums long after the condo conversion trend seemed spent.

But with banks filing for foreclosure on six of his 18 condo conversion projects - demanding repayment of more than $17 million - Hickernell now looks like a gambler whose luck ran out after he kept letting it ride on red.

In December 2005, Hickernell purchased the 46-unit Bermuda Apartments in Sarasota for $10.23 million, court records show. The seller had paid just $5 million nine months earlier.

“Hickernell had to have a lot of courage to pay that much at that time,” said Kent Davis, a former Anna Maria Island motel owner.

“Everyone knew the market was dead in late 2005. No one expected a happy ending at that point. It was game over.”

But like so many other real estate investors during the recent housing market boom, Hickernell believed prices would keep climbing on a massive wave of retiring baby boomers.

Hickernell thought that by continuing condo conversions of motels and apartments, he would have the cheapest product available in the most expensive areas of the region - the barrier islands and the city of Sarasota.

“Warren is a very sharp guy,” said Richard Dear, a Siesta Key vacation resort owner and friend of Hickernell’s.

“He just had too many partners and too many projects. It’s hard to be successful when you have so much on your plate, especially when your projects are spread out over a wide geographical area.”

Hickernell was not always careful about his Florida mortgage choices or with whom he did business with, however.

Though an associate, Daniel Prewett, was recently arrested on drug-related money laundering charges and is being sued by six investors for misappropriating money, Hickernell has continued to do business with him.

Sarasota County court records show that Hickernell launched his first motel conversion in June 2003. That is when he and a team of investors took out a Florida home mortgage of $900,000 from Sarasota’s Bank of Commerce to buy the 12-unit Tiki on the Bay Resort in Englewood for $1.1 million.

During the next three years, Hickernell-led investment teams raised another $59.1 million from eight banks and used the money to buy and refurbish 17 more motel and Sarasota-area apartment complexes from Manasota Key to Anna Maria Island, court records show.

Davis, who sold his 16-room resort to a different condo converter at the peak of the market in July 2005, said Hickernell got into the condo conversion game at the right time and his market philosophy was valid.

With property taxes and insurance rates on the rise, it became harder for mom-and-pop motel owners on the barrier islands to turn a profit on their old complexes, Davis said. So owners sold out to people like Hickernell, who refurbished the units and resold them to individual investors.

The units were still to be rented out to vacationers, Davis said. But the business model was different because investors buying the units did not need to turn a profit.

“They were tickled to break even,” Davis said.

Investors’ profits would come from the appreciation of the units over time.

During the height of the real estate boom in 2004 and 2005, fueled in large part by record low rates on Florida mortgages, real estate investors embraced the condo conversion theory.

Hickernell quickly sold his Tiki on the Bay development and paid off his loan to the Bank of Commerce. He then sold 35 units more from five more developments, raising nearly $14 million that was used to pay down loans to other banks, court records show.

Continue reading in the Sarasota Herald-Tribune …