PLANTATION KEY -- To the casual observer, the decision by federal regulators to shut down Naples-based Orion Bank last month was just one more headline about a financial system gone awry.

But on one stretch of road at the entryway to the village of Islamorada, Orion's troubles are intricately connected to what is and serves as a reminder of what might have been.

Islamorada, which spans some 18 miles from Tavernier Creek at mile marker 90.8 to just south of Anne's Beach at mile marker 73, bills itself as the Sportfishing Capital of the World.

Its residents, only 6,000 or so on a good winter day, like to think of their little town as a jewel of the Upper Keys: part funky, a little junky, but also a cut above -- a place where the grass is neatly cut, the dining is as good as the fishing holes and the lodging is often as lovely as the sunsets one can view from the dock of the popular Lorelei Cabana Bar.

But not even the most loyal Islamoradan would be likely to argue that the oceanside strip of buildings that lines an extension to the Old Highway called Freelan Road at the entrance to the village is a thing of beauty.

"Those buildings aren't in the greatest condition right there," modestly states commercial Realtor Steve Kurutz, who in 2004 had devised a plan to transform much of the area into a mid-scale hotel.

The row of mostly concrete structures has a look of decay about it. At its northern end, abutting Tavernier Creek, sits an empty lot that was formerly used as lobster trap storage. To its south are two vacant and unkempt buildings. One formerly housed a dive shop. The other, the old Plantation Fisheries building, recently made news when rotten fish that had been left in its walk-in freezer created a stink so awful that a hazardous materials team needed nearly a week to get rid of it.

The strip of buildings also houses functioning, and in some cases, vibrant businesses -- among them the Keys and Tropic Vista motels, Made 2 Order Café and Vic's Auto Tech.

But as the tale of the area's connection to the Orion failure will attest, until recently those buildings were owned by speculative landlords who got caught up in the housing bubble.

Demolition had been a goal of one-time property manager Cay Clubs. Upkeep and rehabilitation, seemingly, never were.

"It's called deferred maintenance," says Islamorada Councilman Dave Boerner, who is also an architect.

Contrasting plans

Boerner, in fact, was the architect Kurutz called upon in 2004 to assemble a plan for the area the real estate agent hoped would be attractive to developers looking to take advantage of a then-burgeoning market. Already at that time the strip of buildings along Freelan Road was falling into disrepair.

"It didn't look like an area that really advertised Islamorada as the Sportfishing Capital of the World," said Kurutz, who figured the area's strategic access to Tavernier Creek, the Atlantic Ocean and Florida Bay made it ripe for redevelopment.

Kurutz's plan was fairly straightforward. He wanted to build a traditional hotel, with a restaurant and dive shop included, and he wanted the whole design to be legal under existing zoning and planning regulations. The hotel would have occupied roughly the southern half of the strip, in the area then occupied by the Tavernier Dive Center, Plantation Fisheries, the old Tropical Café and the Tropic Vista.

But a newly-formed development company had far more grandiose ideas.

Cay Clubs International, the brainchild of a Tavernier resident named Dave Clark, was born in early 2005. In June of that year the company marked its coming out in the Keys by paying nearly $14 million to acquire 18 lots on Freelan Road, ranging from Vic's north to Tavernier Creek.

By 2006 Cay Clubs was one of the most recognizable names in the Keys, setting its sights on properties from Key Largo to Key West and helping sponsor everything from powerboat races to rock concerts to the new TIB amphitheater at Founders Park. By early 2008 the company was gone, a victim of the bursting real estate bubble.

At Freelan Road, Cay Clubs had announced plans to replace the existing strip of buildings with a high-end gated development. The community was to feature 25 San Francisco-style townhouses and was also to include 26,000 square feet of retail space. Unbuilt units were marketed for $950,000.

Company literature showed beautiful people relaxing in a sun-drenched marina, but didn't bother to expound on the many zoning and legal hurdles Cay Clubs needed to leap before it was ever to get such a plan off the ground.

Cay Clubs, though, wasn't the money behind the project. Backing them in Islamorada, and at numerous other properties throughout the Keys, was Hallendale-based Sunvest Resort Communities. And Sunvest's lender for the Freelan Road strip was Orion Bank.

The fallout

With the demise of Cay Clubs in the fall and winter of 2007 and 2008, Sunvest took direct control of the Freelan properties, as well as numerous other sites around the Keys that had carried the Cay Clubs banner. Along Tavernier Creek, Vic's, Keys Motel, Made 2 Order and other businesses chugged along. But all was not well at Sunvest.

In December of last year Orion filed a foreclosure suit against the developer for nonpayment of the $7.5 million mortgage Sunvest used to purchase Tavernier's Mangrove Marina -- another would-be Cay Clubs project -- in August 2005. The bank dismissed the case in April, a month after Sunvest short-sold the property for $5.5 to Summit Development, a West Palm-based company that focuses on acquiring distressed assets.

Meanwhile, Orion was having plenty of its own problems. In August 2008 federal regulators sanctioned the bank, ordering directors to tighten up their lending practices. By June of this year 11 percent of Orion's loans were toxic.

Normally, 1 percent would be considered a healthy figure, said Ken Thomas, a Miami-based independent bank analyst and economist. And even in these times, 5 percent is the threshold for what be considered a typical amount of toxic assets.

At Made 2 Order, owner Frank Hughes says Orion's problems manifested themselves directly. In February, he said, bank representatives came to him with a choice: Make an offer on the property or move out. Hughes says he made an offer but never received a response. He was never asked to move.

At the time Sunvest was still the owner of record of the Made 2 Order property as well as the other Freelan Road sites. But that would change in June, when the company made several short sales. All in all, Sunvest unloaded the Freelan strip for $9 million, a $4.8 million loss. More unusual were the buyers -- a series of newly-formed companies held by Orion Bank.

Hughes accuses Orion of engineering the sales in lieu of foreclosure proceedings so it could keep the bad assets off its books. When Federal Reserve regulators shut down Orion last month, replacing it with IberiaBank, they didn't mention any specific properties. But they made it clear that the move was a response to the lending practices of Orion and CEO Jerry Williams, who among other things, they said, underwrote loans on low-quality assets "in an unsafe and unsound manner."

Regulators also said that Orion was undercapitalized in June when it loaned $60 million to straw borrowers. The loans, according to the feds, were structured to make it appear that the bank was reducing its level of bad assets.

A brighter future

With Orion out of the picture, the future of the strip of road at the gateway to Islamorada remains in flux.

Prior to the Federal Reserve's Nov. 9 move, Orion, operating under one of the companies it formed in advance of the Sunvest sales, held direct management of the vacant northernmost properties on Freelan Road.

Louisiana-based IberiaBank has agreed to assume $2.4 billion of Orion's $2.7 billion in assets, but the Federal Deposit Insurance Corporation has not yet published the list of properties the bank didn't take over, spokeswoman LaJuan Williams-Dickerson said last week. The FDIC will eventually put such unclaimed properties up for auction.

Further down Freelan Road, the situation might be brighter for the other properties once held under the Cay Clubs banner.

In August, Summit Development, the same company that now owns Mangrove Marina, acquired from Orion the Vic's Auto Tech property as well as adjacent properties that house a locksmith and a swimming pool supply businesses.

Bob Charney, head of Summit's Florida operations, said he plans to continue leasing the site to the existing tenants. But Summit will do things like painting and roof work that Cay Clubs and Sunvest never addressed.

"We like to maintain our property," said Charney. "We are just catching up with maintenance problems that have been ignored."

Likewise, a West Palm Beach management team purchased the Keys Motel and Tropic Vista as well as the Made 2 Order property form Orion in July.

Dipak Magan, part of that management group, declined to comment for this article. But in a previous discussion with the Free Press, he spoke of plans to remodel the Keys Motel in the coming months and he showed a reporter one room where remodeling is already complete.

Boerner, who will step down from the Village Council when his term ends in March, said he still has high hopes for the Freelan Road strip. He added that especially if the northernmost properties go to federal auction, there will be an opportunity for the village to step in with a package of tax deferrals and incentives that would make the area attractive to potential developers.

"For the interest of the village you would really want something great there, wouldn't you?" Boerner said. "Really encourage something really good."

rsilk@keysnews.com