EFTA02538314.pdf

From: Jeffrey Epstein <jeevacation@gmail.com> Sent: Wednesday, April 27, 2011 2:28 PM To: app0001@aol.com Subject: Re: Swanson and 1220 should we approach the bank to buy the first. On Wed, Apr 27, 2011 at 9:53 AM, <app0001@aol.com> wrote: Dan Swanson asked me to talk to you about lending =oney against 1220 South Ocean. 1220 is owned by a single asset LLC owned by Dan (or in a joint =enancy with his wife, Karen). =/div> He is looking for a new $10 million second to refinance the existing $5,332,695.25 second mortgage loan that has been in place since January 2011. Before January 2011 there was no second. The new second would be junior to the existing first mortgage loan(s) held by TD Ba=k (successor to Mercantile) now totaling $21,200,000 but which he would pay down to $20,=00,000 out of the proceeds of the new second. TD extended the due date of the firs= until October 30, 2011 (when the existing second was put on) and <=span>Dan thinks TD will further extend it until Spring/Sum=er 2012 with an additional paydown. The existing second ma=ures in January 2012. Basically, he is seeking another selling season. This is his proposed use of proceeds: Principal reduction on TD first =AO =AO =AO $1,000,000 Interest reserve for first (to July 31, 2012) =AO =A0 800,000 Reserve for 2011 real property taxes =AO =AO =A0 200,000 Pay off existing second =AO =AO =AO <=pan>5,332,693 Closing costs of refinancing =AO =AO =AO <=span> 200,000 Reserve for maintenance, insurance and other bills for 1220 =AO =AO =A0 1,000,000 For "Dan to live on" =AO =AO =AO =A0 1,467,307 Obviously, there is play in this. We did not discuss interest rates or any other fin=ncial terms. The existing second mortgage lender is New Provide=ce Capital Management Partners II Limited (NPCM), a Bahamian international bus=ness company, with an address in Nassau. It is controlled by David Kosoy, a Cana=ian who has been dabbling in Palm Beach real estate for 20 years and who has a piece of the Royal Poinciana Plaza along with Lee Munder. D=n said the interest rate is "in the fives". It is due in January 2012- academic since the first is due October 30, 2011= The subordination agreement between NPCM and TD prohibits any current payment o= principal or interest on the second while the first is outstanding. =A0l assume there was a reserve or discount to compensate for this. It does not appear that Dan personally guaranteed the second. EFTA_R1_01685856 EFTA02538314  I think (but don't know) that Dan found Kosoy th=ough Jim McCann who has had some dealing over the years with Kosoy. Kosoy is a Toron=o based real estate developer who buys distressed real estate and value adds(=he Sterling Companies/Sterling Centrecorp) and NPCM is a mortgage fund he foun=ed in the Bahamas in 2007 and runs. He was also involved in buying a bank in t=e Turks and Caicos. Dan is very uncomfortable with Kosoy. He says he r=grets borrowing from Kosoy who "strung him along" "until he had no other alternatives". I notice that he had to give NPCM a second mortgage on 210 Miraflores- a house and lot adjacent to the Phipps Estate lot on which Dan lives- as additional security for the second on 1220. Since, I don't thin= there is much more than $500,000 equity in 210 Miraflores, it seems that th=re was a hard bargain. Dan says that TD was very obliging in entering int= an agreement (a Mortgage Subordination Agreement) but I read it and find it a strict subordination agreement, with several restrictions on what NPCM can do in t=e event of default. TD does give NPCM an option to buy the first for all amounts secured (including fees, advances a=d expenses) for a scant 10 days after notice of default. Nevertheless, TO ask=d for and got in exchange: a $998,000 principal paydown, a $1=041,379 interest reserve and a $137,849 tax reserve. (This was in January 2011.) This correlates to the use of proceeds=he provided above. TD also got Dan's wife, Karen, as a guarantor. Dan alread= is a guarantor. Dan has discussed a refi nancing of the NPC M seco=d with TD and says that TD would welcome it but wants an additional $1million paydow= plus an interest and tax reserve similar to what TD required in January. 4=iv> Dan's Finances I did not ask him to explain his financial conditi=n at this stage but it seems obvious that he is illiquid from his "no alternative=94 comment and his characterization of the $1,467,000 balance of the proposed =oan proceeds as "for Dan to live on". I also think he has a problematic net=worth. His visible real assets seem to be: 1220 South Ocean. He has reduced the price =0 $64,900,000 and now owes $26,600,000. "Survey says" a $40 number. Thus,=Swanson's equity could range anywhere from 0 (if it doesn't sell before November) t= say $14,000,000. See discussion below. 205 Via Tortuga (Lot 17, Phipps Estates) (H= lives in a house this land). He has a mortgage linked to a $6 million credit line extended by Northern Trust secured by this property and an adjacent lot (207 Via Tortuga). This note has a variable interest rate and the "final due date" is October 2018. 205 Via Tortuga= might be worth $5,000,000. 207 Via Tortuga (Lot 18, Phipps Estates). T=is lot is adjacent to his house and covered by the same Northern Trust mortgage. It i= about 20,000 sf and is listed with McCann for 55,500,000 but is probably wo=th around $4,000,000. Swanson's equity in 205 + 207 Via Tortuga combin=d (assuming the $6 million Northern line is fully drawn) is in the $3,000,000 range. 210 Miraflores is an older 2000 sf Bermuda =ouse adjacent to his Phipps lots. He rents it out. He paid $350,000 in 1995 and =wes $700,000 on a 20 yr self-amortizing mortgage. He pledged it as additional security for the 1220 second held by NPCM in January 2011. It is probably w=rth $1,300,000. Interest in 101 El Bravo Th=s is the spec house listed at $47 million. Jim Patterson o= Louisville is his partner. McCann (who has the listing) says that they have=had offers up to $30 million but Patterson has turned them down. Jim is allowed=to say a deal can be made in the upper $30s but it seems there is buyer "reluctance" above $30. There is a $25,000,000 mortgage on it through U=S. Bank N.A. which was put in place in February 2011. If they could get $30M, Swans=n's equity would presumably be $2,500,000 possibly less. (They =aid $16.5M for the land in 2007.) This indicates Swanson's net worth from PB real =state is in the $6 million range + his equity in 1220 South Ocean which as discussed co=Id be zero to $14M. This does not account for cash, securities, other =usiness interests, any other real estate outside PB, and tangibles. I do not have a=y information about these. I do not know of other assets and I do not think h= has a pending project. He does have a pending and very active lawsuit aga=nst him by Leo Vecellio (Ranger Construction) who bought 589 N County. This is a very acrimonious suit. Vecellio is seeking several million in damages for construction defects and rec=ntly amended the suit to allege fraud by Dan, his wife, and his backer Dean DeSantis (son of Carl of Rexall-Sundo=n) and his wife. The fraud alleged is that Dan concealed water damage during construction due to hurricanes. This is well publicized and seems to be get=ing nastier and I assume very expensive to defend. Value of 1220 2 EFTA_R1_01685857 EFTA02538315  Dan has reduced the ask from $84 million to $64 mi=lion. Evidently appraisals were made by TD and NPCM in January that were in the $.0s. Dan has asked that the TD appraisal be revised because of Moens sale of 125= S Ocean (the ex Krakoff lot) to the south for $22.7+ to Petterfy. (Swanson pa=d $20.6 for the land at 1220.) He thinks/hopes 1220 will now appraise in the $50s. The nearest competitio= is Sandra Hammond's house at 1275 SOB listed by Cris Condon of Sotheby's at $42.5= I do not think there have been offers. Swanson sold the house to Hammond from pl=ns. It recorded as a $15M land sale but she is supposed to have paid more than =26M in total. Interestingly, Petterfy got interested in the land at 1255 while looking at 1275. 1275 has 13,300 sf on 170 lakefront feet (270 depth) and i= basically a smaller version of 1220 (27.350 sf on 200+ feet The sense of the PB brokers is that 1220 will brin= a $40 number. There has been a lot of activity in PB this season in the $20-$30 range (sales and offers). But the fact is that so far the high sale this season will be $29.= for 40 Blossom Way (190 feet on the ocean) which (Moens says) Moens and his partner (Bill Kallop) are buying and leasing to Petterfy for 5 years while he builds on 1255 which th=y owned and sold to him. Discussion Dan is shell-shocked. He doesn't think Kosoy wil= extend the second so he fears losing 1220 in November before next season provides an opportunity to sell it. I don't think he is likely to have many alternati=es over the summer. Its obvious that one could structure a second with=a high rate of interest and an interest reserve. I think Dan would agree. The comb=ned first and second would at $30,200,000 represent 75% loan to expected sales value ratio - poss=bly a lower ratio if appraised value is used. Since 1220 is owned by a single asset LLC, there seem to be some obvious techniques to limit exposure to delays i= possession on default or in the event of an LLC bankruptcy including =/span>taking a membership position in the LLC and amending the operating agreement to require consent to certain actions like bankruptcy, s=le and refinancings. Taking an LLC membership position in addition to the =ortgage could also be a vehicle for a profit participation in the event of a successful sale. Given the LLC's position, the FMV o= an equity position would be modest. If Dan (the LLC) defaulted, and the second mortgag= holder acquired the first for $20,200,000, then it would have $30,200,000 in. If the house =old at $40 million=or slightly above, it would represent a return of $10 millio= (plus interest) in a year on a $10,000,000 debt position. The information contained in=this communication is confidential, may be attorney-client privileged, =ay constitute inside information, and is intended only for the use of the a=dressee. It is the property of Jeffrey Epstein Unauthorized use, di=closure or copying of this communication or any part thereof is strictl= prohibited and may be unlawful. If you have received this communication in error, p=ease notify us immediately by return e-mail or by e-mail to jeevacation@gmail.com, =nd destroy this communication and all copies thereof, including all attachm=nts. copyright -all rights reserved 3 EFTA_R1_01685858 EFTA02538316