In December, creditors forced the developer of the Delta Resort & Spa in Desha County and the Hotel Hot Springs & Spa into bankruptcy for defaulting on loans totaling $119.4 million.
It was an unusual move, and Gary R. Gibbs of Niceville, Florida, who also developed low-income housing projects in Lake Village, McGehee and Warren, initially fought it.
Eventually, he didn’t dispute being placed into involuntary Chapter 7 bankruptcy.
As of Wednesday, Gibbs hadn’t filed his complete financial details in U.S. Bankruptcy Court in Hot Springs, which would reveal his debts and assets. But court documents paint a picture of a businessman who recovered from a 2005 bankruptcy only to fall into deep financial distress after the New Orleans bank that made all his loans failed two years ago.
The Hotel Hot Springs and the $32 million, 132-room Delta Resort are being operated by a receiver after foreclosure suits were filed against the properties last year. Those lawsuits are in the circuit courts of Garland and Desha counties.
Gibbs’ financial problems weren’t sudden, said Sam Walls III, president and chief operating officer of Arkansas Capital Corp., who worked with Gibbs on the Delta Resort & Spa project. “This freight train’s been coming,” Walls said. “I think Mr. Gibbs, like anyone in his situation, was trying to figure out a way to resolve it and ultimately wasn’t able to.”
For years, according to court documents, Gibbs and his business entities were able to get loans and refinance loans, which he personally guaranteed, from First NBC Bank in New Orleans, a bank with about $4.74 billion in assets. It wasn’t until the Federal Deposit Insurance Corp. was appointed receiver of the bank in April 2017, at a cost to the Deposit Insurance Fund of almost $1 billion, that Gibbs’ problems surfaced.
In October 2017, SBN V FNBC LLC, an affiliate of Summit Investment Management LLC of Denver, an investment company that buys distressed loans, paid the FDIC about $114 million for a pool of about $500 million of First NBC’s loans, according to Gibbs’ bankruptcy documents. Gibbs and his companies’ loans were in that pool of loans.
SBN alleged in Gibbs’ bankruptcy filing that Gibbs mismanaged the Hot Springs and Desha County properties and defaulted on the loans for the properties.
In April 2018, “after numerous loans extended to Gibbs” and his companies became delinquent, Gibbs and SBN entered into an agreement that combined 18 existing promissory notes that were owed to First NBC into one unsecured loan for $84.2 million. SBN said in its court filing that Gibbs and his company failed to pay on that loan, which is now in default. An additional $34.9 million in loans were to companies that Gibbs controlled and that he had personally guaranteed.
In addition, Gibbs allegedly defaulted after borrowing $301,000 from an 81-year-old Tennessee widow who is in the early stages of Alzheimer’s disease. Nashville attorney Michelle Poss, conservator for the estate of Betty Callahan Borth, said in an affidavit that Gibbs borrowed the money between January and June 2018.
“Borth was able to make the loans to Mr. Gibbs by borrowing against a line of credit on her home,” Poss wrote in the filing.
Gibbs has made a payment on the loans, but $292,000 remained as of Dec. 15, when the loans were due, Poss wrote.
Gibbs didn’t return repeated calls from Arkansas Business. His bankruptcy attorney, Kevin Keech of Little Rock, also didn’t return a call.
Passion for Real Estate
Gibbs had an “early passion” for real estate and architectural design, according to a profile from his company, Coastal Phoenix Investments LLC of Franklin, Tennessee, which was filed in the bankruptcy.
In high school, Gibbs had a job in an architectural firm that was co-owned by his father. They worked on projects throughout the south-central United States.
“At 21, he delved into finance,” the bio said. And he went on to use conventional and tax-exempt financing options for his projects.
In 1980, Gibbs began working for American Central Development Inc. of Germantown, Tennessee, a real estate development consulting firm where he was the president and chairman and owned 55% of the company. He also was involved in several other real estate-related companies.
In 2003, he and his wife, Shareen, reported income of $280,000, but a year later, their income dropped to $176,000.
In March 2005, the couple filed for Chapter 7 bankruptcy liquidation in Tennessee.
His bankruptcy filing didn’t say what triggered the financial problems. They listed $10.3 million in debts and $643,000 in assets, with most of the debts being unsecured. At the time of the bankruptcy filing, Gary Gibbs reported he was unemployed and the couple had $250 in cash.
ADFA Connection
Court records don’t explain how Gibbs bounced back from the bankruptcy after it was closed in July 2006. In 2011, he applied to the Arkansas Development Finance Authority for tax credits to build subsidized housing projects in Lake Village, McGehee and Warren.
Gibbs and his adult sons, Joshua Gibbs and Jeremy Gibbs, were going to build 36 family houses in each city and requested tax credits totaling $1.6 million. Each project cost about $5.8 million to develop. Most developers sell their tax credits to a syndicator, and then use the money, along with other funds, to build the project.
ADFA knew about Gibbs’ 2005 bankruptcy when it awarded Gibbs the tax credits in 2011, according to a Feb. 1, 2016, memorandum by ADFA.
It didn’t take long for new problems to develop.
In 2013, Gibbs asked that the syndicator be changed to First NBC Bank. That request was unusual, Ben Van Kleef, vice president of ADFA’s legal and tax division, told Arkansas Business last week.
“The fact that the [original] syndicator left all three properties is a major sign to me that the investor was not comfortable with them,” said Van Kleef, who started working at ADFA in June 2015. “And that’s purely my speculation. Sometimes I do see the developer leave an investor, but rarely do I see an investor leave a developer.”
Other issues developed in 2013. Gibbs asked for a change of the construction contractor, attorney, engineer, architect and management company for the Lake Village and Warren projects, ADFA said in the 2016 memo. ADFA approved the request.
But at the end of 2013, Gibbs missed the deadline to have all three projects completed, which meant the tax credits had to be returned.
Gibbs reapplied for the tax credits the following year, but ADFA didn’t approve them. Eventually, however, the credits were approved in 2014, but the total amount of the tax credits had fallen from $1.6 million to $1.4 million.
Also in 2014, Gibbs became one of the largest donors to Arkansas gubernatorial candidate Mike Ross, a Democrat, according to an October 2014 article in the Arkansas Democrat-Gazette. The Democrat-Gazette found Gibbs and his related entities were connected to more than $70,000 in contributions to Ross’ campaign. Ross lost the 2014 election to Republican Asa Hutchinson.
Gibbs told the paper at the time that he didn’t want to talk about his campaign contributions. “I don’t care if anybody knows who I am, but there are certain points … you try to help people,” he said. “I’ve made very large investments in Arkansas in a distressed area. I want my privacy and will not talk about donations.”
Gibbs’ three housing projects were completed in 2017, and the tax credits were awarded in February 2017, just as Gibbs’ other projects in Arkansas were about to fall apart.
Delta Resort
When Gibbs approached Arkansas Capital Corp. in 2011, he already had a soft commitment from First NBC Bank to fund the Delta Resort project, but it wouldn’t be enough money.
Gibbs knew that Arkansas Capital’s subsidiary, Heartland Renaissance Fund LLC, had received an allocation of tax credits from the U.S. Treasury’s New Markets Tax Credit Program, credits that were to be used in distressed areas.
Gibbs envisioned “a bed-and-breakfast meeting center type place” in Tillar for duck hunters, corporate conferences and retreats, according to Arkansas Capital’s Sam Walls.
Gibbs had a connection to the area. In 1979, he went on his first duck hunt at Banfield’s Duck Funnel Hunt Club in Tillar.
In 2011, the country was coming out of the Great Recession, and the economy in the Delta “had just gotten hammered … with the timber industry,” Walls said.
Some economic leaders thought one way to diversify the economy was to tap into the ecotourism industry.
At the time, people were still searching in the Big Woods of east Arkansas after supposed sightings of the ivory-billed woodpecker that had long been considered extinct.
To help fund Gibbs’ resort project, Heartland Renaissance Fund could offer $5.9 million worth of federal tax credits to an investor willing to buy them. The money from the sale of the tax credits would then be used to fill the financing gap.
“So we looked at … the market study and … we looked at a lot of the revenue projections,” Walls said. “Everyone down there was saying, ‘Hey, we want this.’ And so we looked at it and ultimately … we said we’ll use an allocation [of tax credits] for this thing.”
Gibbs was going to use a loan from First NBC Bank and the bank was going to buy the tax credits.
About a year later, “Gary shows back up and says, ‘I’ve had this epiphany moment about sporting clay tournaments,’” Walls said. Gibbs’ research led him to believe that clay shooting tournaments could attract people from all over the country and beyond.
First NBC Bank was willing to lend him money for the second phase of the project and buy the federal tax credits, if Heartland would offer more, Walls said.
“So again we looked at it,” he said. “And you’re scratching your head saying this is a pretty big leap.”
But, if it worked, it would have a big impact, Walls said. So more federal tax credits were approved for phase two of the project. Once again, First NBC Bank funded the loan and bought the tax credits.
After the resort opened, it did attract people from all over the country for shooting competitions. One tournament in 2014 brought in more than 170 competitors, and in 2016 competitions were held for the U.S. Olympic Team trials.
But there were financial problems, too, according to court filings.
Gibbs allegedly failed to pay taxes owed to Desha County. He also allegedly didn’t pay employees or maintain insurance on the property.
The Heartland entities that issued the tax credits filed the foreclosure lawsuit against the property in November. The resort is being operated by a receiver and will be sold, Walls said.
Walls said Heartland approved the tax credits for the project because it thought it was going to have an impact in the area.
And he said it still can. “You can’t say the original plan was ever fully executed as well as it could have been to really prove that out,” Walls said.
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