The largest investor in the Gulf of Papagayo Tourism Development, The Marvin M. Schwan Charitable Foundation, a U.S. foundation, lost at least $391 million on its real estate investments in the Caribbean islands. Several documents, including a lawsuit in the U.S. against the foundation, also show that it lost as much as $205 million in Papagayo.
The Schwan Foundation was created by Minnesota business magnate Marvin M. Schwan, who made his fortune in the frozen food business. When he died in 1993 he left property and money in the name of the foundation with the goal of promoting the doctrine of the Lutheran church. The initial capital at the time of it’s creation was close to $1 billion.
Nevertheless, the foundation’s net assets were cut in half in 20 years, falling from $1 billion in 1993 to $449 million in 2013, according to its U.S. tax returns filed with the Internal Revenue Service (IRS).
In other words, the largest licensee of Costa Rica’s most ambitious tourism project was in the hands of a foundation with a history of failed investments.
For this investigation, we were unable to obtain responses from the Schwan Foundation. They didn’t answer calls at the office nor emails sent to the foundation’s managers.
Losses in Costa Rica
A complaint filed in 2014 by two sons of founder Marvin M. Schwan against the foundation’s managers — who were responsible for the real estate investments in Costa Rica — claims that the investments in Costa Rica caused losses of $205 million.
“The trustees funded these offshore investments through an elaborate network of over 100 holding companies, subsidiaries, partnerships, and other related organizations with legal domiciles in the British Virgin Islands, the Bahamas, Costa Rica, the Cayman Islands, and Panama”, the complaint says.
In documents found inside Appleby-Estera law firm and analyzed by The Voice of Guanacaste as part of an international investigation with the Pulitzer prize-winning ICIJ we found four people present in all the companies related to the investments in the Bahamas, the Cayman Islands and Costa Rica responsible for administering and diminishing Schwan’s fortune.
The magnate’s closest confidantes were his brother Alfred Schwan, who died in 2011 and one of the foundation’s manager; Lawrence Burgdorf, another manager that was a personal friend of Schwan and a clergyman in the Lutheran church; Keith Boheim, the only one of the four with business experience, and Erick Burgdorf, son of Lawrence and the foundation’s executive director.
All of them had the power to make financial decisions in the foundation and decided to invest in the real estate market, one of the most speculative and complex in the world. They invested in that market and granted loans to developments based on trust and that were constantly having economic problems.
“Speculative by their very nature, each of the trustees’ offshore investments failed in spectacular fashion, causing the foundation to suffer losses of hundreds of millions of dollars,” the lawsuit continues.
Tax returns sent by the foundation to the IRS between 1997 and 2015 show that Schwan had invested at least $211 million in Papagayo and granted loans for $204.5 million.
The foundation started to invest heavily in the Golfo de Papagayo development between 1999 and 2000 when it bought 70% of the shares of Ecodesarrollo Papagayo S. A, the largest licensee in Papagayo, along with the Costa Rican Company Fifco (Cervecería de Costa Rica) which held the remaining 30% of the shares.
Both investors created offshore companies in the British Virgin Islands, the Cayman Islands and the Bahamas to develop the Four Seasons Resort in Papagayo, the Papagayo marina, residences, the golf course and to transfer some of the land to third parties.
The company formed between Fifco and the foundation suffered a drastic change in 2012 when Fifco traded all its shares in Ecodesarrollo Papagayo S.A. to Schwan in exchange for 311 undeveloped hectares (790 acres) located in the northern part of the peninsula. Fifco did not confirm to this newspaper its reasons for exiting at that particular moment.
According to statements made by one of Schwan’s sons in the complaint against the foundation’s managers, in May 2013 “the managers confirmed that they projected an additional loss of $205 million in its investments in Costa Rica.”
Schwan continued in Papagayo until 2016 when it sold all its offshore companies to Gencom Group, a company devoted to developing and administering hotels.
The sale price wasn’t revealed, but according to the foundation’s U.S. tax returns its assets in Costa Rica was $152 million.
READ ALSO: The Seven Commandments that Sink Papagayo
Losses in the Bahamas
The foundation’s first economic loss occurred in 2007 when the corporations, that were financing and administering the Four Seasons Hotel in the Bahamas, had debts that reached $142 million, according to a financial statement from the Bahamas government that appears in the leaked dossier from the law firm Applebay-Estera.
The hotel closed its doors after the insurance company that lent it funds filed a complaint because the debtor corporations, of which the foundation was the largest shareholder, broke payment terms.
Two years later, in 2009, the hotel chain Sandals bought the Four Seasons for a price below market value that, according to financial publication analysts, was $300 million.
Grand Cayman´s Turn
In 2012, the Ritz-Carlton Grand Cayman Hotel was sold at auction due to its failure to pay $234 million in debt it acquired in 2007. The debtors were companies in which Schwan was a shareholder and administered the hotel.
Besides the loan, the Schwan Foundation had invested as much as $220 million in the hotel over the course of eight years (1999-2007). The total loss for Schwan totalled $249 million in Grand Cayman, according to the foundation’s IRS tax return in the U.S.
“IRR Limited (corporation) in whom the organization had invested, defaulted on a series of loans and the property was auctioned off by creditors. During the course of these events, the organization realized losses of over $249,000,000,” the foundation’s report says.
The Ritz-Carlton Hotel was sold at auction for $177 million, a price drastically inferior to its value that, according to the real estate market, was $400 million.
The Schwan Foundation Didn’t Want to Know its Investment Partner’s Breach of Contract History
The Marvin M. Schwan Charitable Foundation wasn’t interested in researching who it was investing $220 million on Grand Cayman with, despite the fact that its partner, Canadian developer and investor Michael Ryan, had an unfavorable record of breaching contracts and even had a complaint filed against him in Costa Rica.
The investment in the Ritz-Carlton Hotel in Cayman ended up in large losses for both investors. The company that bought the Ritz-Carlton’s debt discovered that Ryan had supposedly been using the money for purposes other than those stipulated and sued him for misuse of funds.
That’s how the archives read from the law firm Appleby-Estera read, a law firm that Michael Ryan used for his investments on Grand Cayman Island and whose leaked documents are the basis for this report.
Before the Cayman Islands, Ryan had invested in Guanacaste in the 1990s when he promised to develop a real estate project in Punta Cacique, between Playa Hermosa and Playa Panamá.
This project was also a failure. After installing basic services and selling some lots to foreigners, he was reported to the consumer protection bureau for breach of contract and the bureau ordered him to return the money that the customer—the plaintiff— spent on the purchase of the lots.
While Ryan was investing in our country, the family development company that he had in Canada with his father was reported for breach of contract, according to a letter written by Lawrence Burgdof found in the leaked emails.
In 1997, Ryan was sued for fraud and a court in Canada ruled that he must provide monetary compensation to his victims, according to the site www.offshorealerts.com.
Leaked emails from Appleby-Estera show that the directors of Schwan were aware of Ryan’s negative history, but they never doubted investing in him.
In 2007 when the Canadian turned to Column Financial INC-Credit Suisse seeking to refinance a loan for the Ritz-Carlton, Lawrence Burgdorf, one of the managers of the foundation’s money, wrote a letter to the bank saying:
“We are generally aware of this ongoing litigation involving the project (Ritz-Carlton Hotel) and although we have made no independent investigations of these allegations or lawsuits we do not believe they will have any material impact on the project.”
Burgdorf, said in a letter supporting Michael Ryan that “over the years we have invested well over $220 million dollars in the project and we have never been influenced in our decisions by these disputes.”
With that, Burgdorf backed the request for refinancing $234 million to finish construction of the Ritz-Carlton Hotel and millions of dollars end up lost.