The mortgage holder for Freestyle Music Park has foreclosed on the park's property, leading one industry consultant to proclaim that it is "time to bury" the shuttered, financially troubled attraction.
The foreclosure indicates that key Russian investors, who also hold the mortgage and have supported the park since it was bought out of bankruptcy in 2009, have withdrawn their support for Freestyle, which never opened for the 2010 season.
The foreclosure suit will go to the front of the line of creditors to be paid by the park, making it unlikely that others who are owed - including a girl injured at the park, sign makers and other suppliers - will ever be paid, lawyers and industry experts said. With a weak real estate market, even paying off the original mortgage may be a struggle if the land is eventually sold at a foreclosure auction.
The park failed twice in two years: First as Hard Rock Park in 2008, then as Freestyle in 2009.
Nate Fata, an attorney for Freestyle's owner, FPI MB Entertainment LLC, said the park aims to find some resolution - possibly bringing on new investors or selling the park - to reopen the park.
Built for $400 million and sold out of bankruptcy to Freestyle owners for $25 million, the park is unworkable at any price, said Dennis Speigel, an amusement park consultant not affiliated with either party in the suit. No one inside the industry is interested in buying, Speigel said.
"As far as the industry is pretty much concerned, it's burned," Speigel said "It's just one of those things that fall into the category, just because you have an idea, it doesn't mean it's a good one."
Inside and outside the park's fenced perimeter off U.S. 501, signs of neglect have taken hold in its year of disuse: Weeds have grown up in the cracked parking lots and one of its largest buildings is streaked with rust. As the paint fades on the park's largest coaster, so does the dream of Myrtle Beach having its own hometown theme park.
The mortgage holder, FPI US LLC, seeks $25 million in loans and interest from the park, which is owned by FPI MBE. That amount will continue to grow by almost $10,000 a day from interest, according to court filings.
The two similarly named companies have done business together since they bought the park out of bankruptcy in 2009. FPI MBE is a joint venture between Russian and American investors, with FPI US LLC representing the interests of a Russian investment company.
If the foreclosure goes through, the court will order that the park and its property be auctioned off, with the proceeds being used to pay the mortgage holder and others owed by Freestyle.
Fata said Thursday that he would file an answer to the suit on behalf of his client FPI MBE before the Sept. 5 deadline, declining to comment on what that response would contain. Fata said he's unsure how long court proceedings would last.
"It could take several months; it could take longer," Fata said.
Steve Baker, president of FPI MBE, did not respond to phone or e-mail messages this week.
David Slough, attorney for FPI US, said the company would do what it takes to reclaim the debt, and that may include having the property sold at auction.
The foreclosure proceedings could take anywhere from 90 days to a couple of years, depending on how FPI MBE reacts, said Allen Jeffcoat, a lawyer who works with foreclosures and is not affiliated with either party.
"The foreclosure process in South Carolina is relatively slow," Jeffcoat said.
If FPI MBE does nothing to oppose the suit, the park's property could be auctioned off after about 90 days, he said. If the park responds to the suit as expected, it will likely be four to six months before it reaches a judge, Jeffcoat said.
If the park files for bankruptcy or fights hard, it could take a couple of years, he said.
A slew of litigation
Charlie Cutts, owner of Hydraulic and Pneumatic Sales in Charlotte, N.C., gave up hope of getting paid what he's owed by Freestyle a long time ago, but that hasn't stopped him from pursuing legal action, he said.
The mortgage foreclosure is added to a pile of other litigation against the park, including Cutts' suit. Local and federal courts have already issued a slew of judgments against the park, ruling that it owes more than $15.2 million to at least 11 parties. An additional $2 million in lawsuits are working their way through the court system. The rulings range from a few thousand dollars to $14 million.
The court ruled that the park must pay Cutts' company nearly $6,000 for valves, a key component in roller coasters, that were bought on credit, he said. Hydraulic and Pneumatic Sales is a small company, and that money could be put to good use, Cutts said.
Now that the foreclosure suit has been filed, there's even less hope he'll be paid back, he said.
"I think the fella that holds the mortgage on that property will get dibs on that, and I'm not sure there'll be anything left for the rest of us," Cutts said.
The park is valued at $37.2 million, according to the Horry County tax records, but most foreclosures are sold for less than fair market value, Jeffcoat said. It's unlikely after FPI US is paid that there will be much left for others who are owed, he said.
The foreclosure suit lists all other entities that have claims against the park as co-defendants, stating that their claims are "junior and inferior" to the mortgage suit. If those companies or individuals fail to file their own responses by Sept. 5, it will further cement FPI US's case that it is first priority to be paid back, Jeffcoat said.
A complicated relationship
The two companies' similar names, FPI US LLC and FPI MB Entertainment LLC, convey their close relationship, and to this point the two companies have largely been intertwined. For example, both companies have shared the same address off George Bishop Parkway, according to Uniform Commercial Code filings.
It is unclear in the court filings who is behind FPI US, and their identities may never be known, Jeffcoat said.
"One of the problems of having a corporate or LLC plaintiff, a lot of times you can never really find out who's behind it," he said. "They don't really have to say in the foreclosure who they are. They just have to say, 'We're this company, and we have this mortgage and this note.'"
FPI US has operated in the background to this point, with FPI MBE officials commenting little on their financing.
The loan agreements list the general manager of FPI US LLC as Alexey Sidnev, a man whose name - more often spelled Alexei in court filings - crisscrosses documents of several companies involved in the park.
Sidnev was a partner in MT Development, based in Moscow, which invested in Myrtle Beach's Freestyle Music Park and had also planned to build its own Freestyle-branded park in Europe, as listed on its website this spring.
Sidnev also signed the mortgage papers for FPI US as general manager and sat on the FPI MBE board of directors.
The website has since been taken down, and Sidnev lists in his profile on LinkedIn, a professional networking website, that he stopped working as a partner in MT Development in August 2009.
Court filings from one of the original partners tell part of the story of FPI US. FPI US, a company registered in Delaware, is an offshore division of MT Development, according to a suit filed by Roundbox Advisors LLC, an original partner in Freestyle that was later ousted. FPI US entered a joint venture with MB Entertainment to form FPI MB Entertainment LLC prior to purchasing the park out of bankruptcy.
Sidnev's response to the Roundbox suit states that he lacked sufficient information on the structure of the companies and therefore denied the claims therein.
MT Development had also been planning to open a park in Russia under the Freestyle brand, Speigel said, but it halted that project at the beginning of the summer. Speigel's company provides international theme park news in addition to its consulting services.
Lawyers for FPI US and FPI MBE switched sides in July, the most recent twist in the two sides' connection. Fata was removed as lawyer of FPI US and replaced by Slough, according to court documents. The same day, Fata took over Slough's representation of FPI MBE.
Slough and Fata say such a switch isn't uncommon, but declined to comment further on whether FPI US and FPI MBE discussed the change.
"That doesn't happen very often. It must be a peculiar set of circumstances," he said.
Such a switch could have happened for a good reason, and there wouldn't be a problem if both parties consented, Jeffcoat said.
The Hail Mary
Freestyle would like to resolve the suit, Fata said, and would be open to any option enabling it to do so.
"The park is trying to do everything it can to determine what kind of feasible solution, resolution option, it might have, to do the best it can in light of the economy, the recession and the given financial circumstances," Fata said.
"To the extent someone is interested in purchasing the park - great," he said. "That might be something that works, that's an option and it would be positive."
The park was continuing to aggressively pursue investors, Baker said in a June 30 interview. The park could be prepared to open in six weeks, officials said before the 2010 season. How much a year of not operating would affect that timetable is unclear.
The park would need to have new owners take it over immediately if it were to have any hope of opening next season and being successful, Speigel said. The park would need to orchestrate everything from marketing strategies to groundskeeping, he said. With court proceedings likely to last at least into next year, that window of opportunity will have passed.
Only an industry outsider would be interested in the park, Speigel said, adding they'd have to be "nuts" to take over a park in such a challenging location.
"It's a tough location, very expensive to operate," said Mark Lazarus, owner of water park Wild Water & Wheels in Surfside Beach and a business partner in the Ocean Drive Pavilion & Amusement Park in North Myrtle Beach. "And I think we're seeing that more seaside-type amusement parks like Family Kingdom [Amusement Park] and like what we did at O.D. Pavilion is really a better fit for the Myrtle Beach area."
Lazarus and a group of investors had considered bidding on Hard Rock Park when it was being sold out of bankruptcy but couldn't get the financing in time. Lazarus is not considering trying to buy the park out of its present financial troubles, he said.
It's still possible the park could work, if a company had enough money and the right business strategy, Lazarus said. To succeed, the park should have no admission cost and charge for rides, food and drinks, he said.
Bury it and move on
The park's best option is to liquidate its assets while they are still worth something, Speigel said. Leaving a roller coaster outside in salty air will take its toll, lessening its value over time, he said.
Speigel appraised the park's coasters for some investors in Hard Rock Park when it was experiencing financial difficulty in 2008. He valued the rides at $25 million to $30 million, he said.
That figure is likely much lower now, he said, due to wear and the park's more desperate sales position. A ride that cost a couple million dollars to build might sell for $100,000, he said.
The location and the audience was never well thought out, so it's time to let it go, Speigel said.
"Time to bury it, move on. That's really what they should do," he said.
Contact JAKE SPRING at 626-0310.