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“Versailles”: Mortgage Meltdown Casualty

The opinions expressed by columnists are their own and do not necessarily represent the views of Townhall.com.
Is it possible to be sympathetic toward an ostentatious Florida billionaire family at risk of losing their unfinished dream home – the largest residence in the U.S. – because of a mortgage crisis which, in a modest way, they helped to create? Actually, it is…sort of. A new movie documentary,
“The Queen of Versailles,” shows why. Intentionally or not, it also makes a powerful case for why government shouldn’t cover losses incurred by high-rolling lending and borrowing.

I caught “The Queen of Versailles” a week ago at my favorite art house theater, the multiplex crowds for “The Dark Knight Rises” not yet having thinned out to my liking. It was a smart choice. The film, directed by photographer extraordinaire Lauren Greenfield and debuting this past January at the Sundance Film Festival (she won Best Director in the documentary category), is about the ultimate American real estate white elephant, a 90,000-square-foot unfinished palace near Orlando, Florida, and more centrally, the family hoping to inhabit it. But deep down, this reality TV-style trip is a parable about the addictive nature of money, the downfall of people who can’t say “no” to what it can buy, and the difficulty in reconciling one’s self to reality. In other words, it’s about the power of denial over the human mind.

The undeniable reality of the 10-acre, $75 million lakefront palace, fittingly named “Versailles,” is that it’s been vacant, unfinished and padlocked for virtually all of the last few years. Work very recently resumed, but it likely will be years before this house becomes a home. Moving day can’t come soon enough for its owner, David Siegel, one of the richest men in America – assuming he lives long enough to celebrate.

Siegel, now 77, is the founder and CEO of the Orlando-based Westgate Resorts, the largest privately-held timeshare resort company in the world. If you own a timeshare condo in Florida or somewhere else in the U.S., the chances are good you bought it from one of Siegel’s low-keyed but hard-edged salespersons. By 2007, near the tail end of last decade’s real estate boom, Westgate had 28 time share resorts (among other properties) in its portfolio, accounting for about 11,000 villas and 500,000 owners. Up until that time, the firm enjoyed 20 percent annual growth. Financing has come mainly from second- tier, non-depository lenders such as Textron, CapitalSource and GMAC. “They were throwing it at us,” he recalls.

David Siegel has owned Westgate since its founding 30 years ago. His brother and two sons from his first marriage are executives, but it’s 100 percent his show. Siegel is a man of the people when it comes to his moving his product. His kind of buyers, he says, without a trace of condescension, is the “Johnny Lunch-Bucket crowd” who “shops at Wal-Mart and otherwise would stay in a Ramada Inn.” He understands a deep- rooted impulse: Most people will never be rich, but they do have a need to
feel rich at least for a few golden moments in their lives. What’s wrong anyway with a week-long vacation in a luxury dwelling, where the average guy can live like a king or at least make his wife believe she married one? Saving marriages, in fact, as one learns early in the documentary, is central to the Westgate sales pitch.

Building, marketing and selling high-end time share units over the years has made David Siegel a busy man – and a rich one. Forbes in 2007 estimated his net worth at $1 billion, although Siegel, possessed of an overpowering desire for inclusion on the magazine’s 400 Richest Americans list, insisted the true figure was $1.8 billion. “I was making more money than I could ever spend in my life,” Siegel says of those boom years.

Somehow he found a way to spend it. Much of the thanks can go to his family, especially his wife, Jacqueline, “the Queen of Versailles.” The pair met in the late Nineties while he was on the rebound from a divorce from his second wife (a split that cost him about $200 million) and Jackie was going through her own divorce. He was instantly smitten. Eventually, she would as well. Siegel, who already had a combined six children from his two marriages, wasn’t averse to expanding his family tree. He and the love of his life would marry in 2000 and in short order would have seven children, and for good measure, adopt a niece. How does a guy so up in his years procreate so efficiently? His wife explains: “His Number One hobby is work, and his Number Two hobby is sex. He doesn’t need Viagra. He says I’m his Viagra.”

A strikingly attractive buxom woman with long, streaky blonde hair, Jackie Siegel, three decades her husband’s junior, isn’t one for timidity. She likes to talk and she likes to shop. A Binghamton, N.Y. native and a trained computer engineer, she reinvented herself after her arrival in Florida with her first husband. She entered and won the 1993 Mrs. Florida beauty pageant. As Mrs. Siegel, she now owns the franchise.

The expanding family eventually set up current residence in the posh gated community of Isleworth, located in Windermere, Fla., near Orlando. The homes are impressive, but the Siegel residence makes them look almost ordinary. Their residence, which they’ve cleverly dubbed “Seagull Island,” rests on a peninsula and contains 26,000 square feet of interior space. Tiger Woods and his nutjob wife, Elin, lived down the street until their marriage crumbled. When word got out during Thanksgiving weekend 2009that the golfing great had crashed his SUV into a tree, Jackie raced to the scene of the accident and took some photos. “She sold one to TMZ for $400,” says her husband. “That was very enterprising of her, but I think she could have gotten more.”

Domestic life at Seagull Island, as the film shows, is actually fairly normal. Jackie comes off as a relaxed and affable housefrau, not at all like some Sunshine State version of Leona Helmsley. Hectic as her life is, she interacts with her kids well. She treats nannies and other domestic help with respect. She’s even got a generous streak. At one point, on a visit to Binghamton, an old girlfriend confides that she and her husband may lose their home. Jackie subsequently writes her a check for $5,000 to bring their mortgage up to par (the bank would not accept it, even though the family owed only around $1,700 – real classy).

Seagull Island has all the amenities a luxury home can provide for a family of ten – one might think. The Siegels have thought otherwise. Back in 2004, while on a Las Vegas business trip, David sketched out what he wanted in a home on the back of an envelope. “I didn’t set out to design a 90,000-square-foot house,” he recalls. “I wasn’t looking to build the biggest house in America. I just drew my picture too big.”

The unfinished home is located in another gated community in Windermere called The Reserve at Lake Butler Sound. The homes are unique, yet blend beautifully. The Siegel mansion, to the chagrin of more than a few neighbors, is very unique. The couple calls it “Versailles.” Granted, its 90,000 square feet of interior space falls somewhat short of the original Palace of Versailles, with slightly over 550,000 square feet. But then, David Siegel doesn’t have the political clout of Louis XIV. The newer version will do just fine, especially as Siegel had to secure permission to build beyond the allowable height.

Construction began in 2006. When finished, this concrete Versailles, fully 67 feet high, will be covered by Italian white marble and will feature 20-foot-high Brazilian mahogany front doors. The dazzling interior will have 15 bedrooms, 30 bathrooms, 10 kitchens, a roller rink, a bowling alley, a wine cellar with space for 20,000 bottles, a giant aquarium, a movie theater for the kids and another one for the adults (modeled on the Paris Opera House), a video arcade, an indoor pool and a fitness center. The Great Room, which can accommodate parties of up to 500 persons, will be 120 by 60 feet with a 45-foot-high ceiling and a six-foot-high glass dome. Outside will be a half-acre deck with three pools, a waterfall, a rock grotto, a sandy beach, a boathouse, a baseball field and two tennis courts.

That’s all in the future tense. For now, this testament to American success and excess is at most two-thirds finished. As Lauren Greenfield’s camera crew follows Jackie inside the mansion for periodic visits, what one notices most are bare floors and a swimming pool with stagnant water. And until the recent upturn in the housing market, it’s been that way since 2009, when construction was halted. David Siegel normally is a man who finishes what he starts. So how does one explain the delay? Well, it’s complicated.

The timeshare market, like the housing market generally, came upon hard times starting in the second half of 2008. Siegel’s business philosophy is that “you have to keep borrowing to keep growing.” Unfortunately, borrowing suddenly had become nearly impossible. The nation’s financial system was on the brink of collapse. And Westgate couldn’t cover its bills.

The company, in short, had been operating on a subprime mortgage model. Nobody at headquarters utters “subprime,” of course, but it’s an appropriate word. Disaster was averted as long as Westgate could borrow cheaply against mortgages at interest rates far lower than the double-digit rates he charged. Lenders let Siegel borrow against projected sales because they had confidence in his ability to pull customers into his offices and persuade them to close. But now default rates were rising to 20 percent and beyond. Westgate was maxed out on its credit line and was facing a $300 million securitization payment set for October 2008. Lenders had very little left to lend. And would-be borrowers were too skittish to borrow.

David Siegel needed emergency financing to keep his company solvent. But to keep the spigot flowing, he agreed to the lenders’ austerity measures. His dilemma was reminiscent of the fictional Charlie Croker in Tom Wolfe’s novel, “A Man in Full,” or that of his friend, Donald Trump, in the early Nineties. Reluctantly, Siegel reduced his payroll from 12,000 to 5,500 and cut the pay of remaining employees by anywhere from 5 percent to 30 percent. He stopped flying on his Gulfstream jet. He unloaded a half- dozen of Westgate’s 60 properties, including a Ramada hotel near Disney World whom he claims Mexico’s richest man, Carlos Slim, stole from under him. Even his wife did her part, letting go of almost all the housekeepers.

Greatly magnifying the squeeze was that Siegel was desperate to prop up his new trophy property on the Las Vegas strip, Planet Hollywood Towers by Westgate, which opened in December 2009. The joint venture, in a city especially hit hard by the foreclosure crisis, was sucking up funds. In 2007, Siegel sunk $260 million of his own money into the extravagant, blue-hued, 52-story high-rise glass complex and took out a $400 million mortgage to finance the rest. But now Textron and GMAC stopped loaning him money against future sales. Siegel indicated he wouldn’t be able to pay back the mortgage. The two lenders ordered him to sell the property. His response: “Over my dead body,” a line he repeats in the movie. But a resistant spirit could carry him only so far. On November 21, 2011, he sold his controlling interest in the crown jewel to Resort Finance America, which rebranded it as a Hilton Grand Vacations resort.

Things also were getting bad at home. The movie shows a man preoccupied in an eleventh-hour effort to keep his Las Vegas property, treating his family as a virtual nuisance. The marriage had grown loveless. The couple wasn’t even eating dinner in the same room. He repeats a quip he’d uttered earlier in the film – that when his wife turns 40, he’ll trade her in for two 20-year-olds. It was a funny Borscht Belt one-liner the first time around. It sounded ugly this time. One of his children walks into his study where he’s having dinner and asks why he is behaving abusively; her mother gently upbraids her. It’s painful to watch. Not long after, Siegel pulls the plug on Greenfield’s film crew.

That left his wife to close things out. Desperately wanting to maintain the marriage, Jackie Siegel accepts the possibility of losing Versailles and even selling the current home. She wishes her husband had been more open about his finances. Yet there’s always tomorrow. She still believes in her family. The movie fades to black as she walks up her driveway, alone, toward Seagull Island.

Much as I tried, I couldn’t work up any major schadenfreude. Yes, the Siegels embody crass consumption. Yet like the borrowers who made them rich, they came to understand – though in the husband’s case, dimly – that “having it all” has its limits. David Siegel was less Louis XIV than Shelley’s Ozymandias.

Even on the issue of the movie itself, the couple is a house divided. David not only didn’t like it, he sued filmmaker Lauren Greenfield for defamation just days before it was unveiled at Sundance, though without seeing it. Jackie, by contrast, saw it and loved it. She attended the Sundance premiere, walking the red carpet in a leopard- print mini-dress and a red fox fur coat. “You’ll cry at the end,” she says. “The music is fabulous. And they got the moment the lights went off in Las Vegas…You should see it. I want to see it again.”

Now here comes the public policy part. Early in the movie, David Siegel states: “I’m not bragging. I’m just stating the fact: I personally got George W. Bush elected in 2000. I’m not proud of it.” When pressed to elaborate, he simply replied, “It was legal.” In a recent interview with Bloomberg/Business Week, Siegel opened up:

Whenever I saw a negative article about Gore, I put it in with the paychecks of my 8,000 employees. I had my managers do a survey on every employee. If they like Bush, we made them register to vote. But not if they liked Gore. The week before [the election] we made 80,000 phone calls through my call center – they were robo-calls. On Election Day, we made sure everyone who was voting for Bush got to the polls. I didn’t know he would win by 527 votes (Note: Actually the margin was 537 votes, but his point is no less valid). Afterward, we did a survey among the employees to find out who voted who wouldn’t have otherwise. One thousand of them said so.

As president, George W. Bush, arguably even more than predecessor Bill Clinton, made boosting the nation’s homeownership rate a central feature of domestic policy. The eventual mortgage meltdown was very much a product of that drive. Aggressive mortgage lending and securitization in the hopes of “reaching” marginally qualified borrowers – many of whom are time share buyers – created an unsustainable house of cards. Siegel’s fall, on at least some level, was poetic justice.

Yet the story does have a happy coda. The housing market over the last few months has picked up, bringing good times back to Westgate. “We’re the most profitable we’ve ever been,” Siegel remarked to the July 30 edition of Reuters. He projects nearly $500 million in gross sales this year and expects his company to be debt-free within two and a half years. He’s done it by raising standards for mortgage approval, which is as it should be. Taxpayers can be thankful the federal government didn’t bail out Westgate’s creditors in the way it did the major banks.

“The Queen of Versailles” can be seen either as tragedy or black comedy. And its main subjects can be seen as symbols of either arrogance or naïve overreaching. What ought to be clear either way is that even people who spend a fortune eventually pay a psychic price. That’s true for Americans as a whole. David and Jacqueline Siegel are a metaphor for a nation still in denial – a denial of the downside of a mortgage industry gone wild.

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