June 6, 2014 HOA board meeting. Left to right: The late Bob Karatz, HOA pres. 1974-2002, who flim-flammed the casita owners into paying a commercial ground rent rate; Sue Karatz, HOA pres. 2012-2014; Rich Walker, casita owner, now current board member and former HOA legal advisor; and the right hand of board member Jack Huston entertaining the crowd with a hand puppet show.
The Original Mullets.
It all started in 1972 when Bob Karatz (DBA Lincscott Hotel Corp.) developed the Scottsdale Hilton Hotel and the 29 casitas behind the Hilton on the 20 acres of land leased from the W.J. and Hazel Small of Kansas. The term of the 20-acre ground lease is 99 years with a rent reset every 33 years which is based on a reappraisal of the 20 acres.
On the leased 20-acres Karatz built 29 casita condominiums on an 8-acre sublease. He sold 25 of the casitas to his friends and acquaintances, and kept four of the casitas for himself and his partners. Karatz and his partner’s casita lots were more than twice the size of the other 25 casitas that were sold to his friends and acquaintances.
Because the casita development was setup as a condominium, Karatz and his partners paid the same ground rent as the smaller lots. The ground rent from the casitas in 1972 - 1977 was $34,800 a year, or $100 per month per casita. Until 1999 the casita ground rent was increased every five years based upon the consumer price index. The ground rent paid by the casitas on the 8 acres was twice the ground rent paid by Karatz on the entire 20 acres.
In 1984 Karatz sold the Hilton along with the 20-acre lease and 8-acre casitas’ sublease. In 1994, Merv Griffin purchased the Hilton and rezoned it to add an extra floor of rooms, a spa, convention center and a Flemings restaurant.
Baiting the Hook
In order to have the casita owners supporting the zoning changes, Griffin agreed in a 1999 sublease amendment to freeze each casita owner’s ground rent at the 1999 rate of $323 per month until the 2003 rent reset, and then the casita owners would share in the Hilton’s increase of up-zoning value by apportioning the ground rent of 20-acre by either negotiating a rent rate or splitting based the ratio of the appraised value of the 12-acre Hotel land and the 8-acre casita land.
This begs the question: Is the value of an acre of commercial land on the corner of Scottsdale and Lincoln Roads equal to that of an acre of residential land one eight of a mile away?
If the subleases had not been amended in 1999 the monthly ground rent in 2012 would have been $1,400 a month.
Mullets opposed to lower ground rent.
Never one to pass up an opportunity, in 2003 Karatz made sure he was the committee of one for the ground rent negotiations between the casita owners and the Griffin Group, as not only was Karatz developer of the Hilton and the 29 casitas, but he was also the Hilton Casitas HOA president from 1972 to 2002.
The resetting of the ground rent was a two step process: first the ground rent of the 20 acre hotel lease had determined through negotiation and appraisal process; once the 20-acre ground rent was set, then the ground rent between the 12-acre hotel parcel and the 8-acre casita parcel was to be negotiated, but if no agreement could be reached, then the 12-acre hotel parcel and the 8-acre casita parcel had to be reappraised, and then the ground rent split would be based on those reappraised values.
Starting in 2003 the 20-acre ground rent reset took almost three years and ended in binding arbitration. After the arbitration, Karatz completed casita owners' rent negotiations with Griffin agreeing to propose to the casita owners that they should pay the same ground rent as the commercial property owners at the corner of Scottsdale and Lincoln roads.
Adding to the confusion, at the same time of the ground rent negotiations in late 2005 between the Griffin Group and the casita owners, the Griffin Group were also negotiating the sale of the Hilton to the Procaccianti Companies Inc. of Rhode Island.
Swimming in the Karatz Kool-Aid.
In March 2010, after moving into our casita, my wife and I attended what was supposed to be an annual HOA meeting at Casita 22, the home of Don and Karen Randolph. In response to a letter from the 2012 lawsuit plaintiffs' lawyer noting the HOA's deficiencies in calling the meeting, the attendees were told that the meeting could not be legally held, but that we should be consider a social meeting as the Hilton had already delivered horderves.
Representatives from the Hilton and Safeguard spoke about garbage pickup, discounts at the Hilton, nighttime patrols, the security gate, etc. When they were finished a casita owner asks about the 2006 lawsuit. The purported HOA Byron Graham (who hadn’t paid HOA dues or ground rent to the Hilton for several years) asked Karatz to speak about the lawsuit. He did not have any real news about the lawsuit, but launched into what a good deal the casita owners were getting on ground rent. While the casita owners in attendance bought it hook, line and sinker, but to me it was just another fish story that defied belief.
Over the years several casita owners have asked me: “Do you think Bob Karatz was paid off?” I have consistently told them: “When something doesn’t make rational sense there are only two explanations – incompetence or corruption.” Almost all have responded that “Bob Karatz is very competent.”
Karatz died in 2015 and, as a true gonif, his epitaph should have been: “If you can’t screw your friends and neighbors, who can you screw?”
Mullet (Mullus surmeletus)
(1) A fish so dumb you barely have to bait the hook to catch it. (2) An unsophisticated but wealthy investor who is the constant mark of con men and shady tax shelter salesmen. Mullets have so much excess cash and such abiding faith in what other people tell them that they will bite on almost anything. Synonyms: doctor, dentist, casita-owning friends of Karatz.
Unlike a Good Neighbor...
Scottsdale Hilton Casitas - the HOA from Hell!!