Fontainebleau Miami Said to Offer Restructuring Plan (Update1)

March 17, 2010, 11:31 AM EDT

 

By Jonathan Keehner and Beth Jinks

March 17 (Bloomberg) -- Fontainebleau Miami Beach owners Dubai World and Jeffrey Soffer, chief executive officer of Turnberry Ltd., offered the resort’s lenders a debt- restructuring plan that includes $100 million of new equity, according to three people with knowledge of the talks.

The Fontainebleau, which served as a backdrop for the “Scarface” and “Goldfinger” movies, borrowed more than $620 million to help fund renovations and hasn’t made loan payments since September, said the people, who asked not to be named because the talks are private. Dubai World, half-owner of the resort, is leading negotiations with lenders, the people said.

Lenders, led by Bank of America Corp., haven’t given final approval to the plan, which would extend senior debt maturities by four years to 2016 and increase loan fees and interest rates, according to one person. Debt holders, including hedge funds Highland Capital Management LP and Five Mile Capital Partners, rejected a previous restructuring plan, the people said.

The Fontainebleau Miami reopened in November 2008, seven months after Dubai World unit Nakheel bought its stake in the property for $375 million, and two months after the collapse of Lehman Brothers Holdings Inc. that triggered the global financial crisis. Miami hotel rates in September were 54 percent below their February 2007 peak, Smith Travel Research said.

‘Victim’ of Collapse

“Fontainebleau Miami is a victim of the collapse in room rates, not of flawed renovation,” said Bill Lerner, an analyst at Union Gaming Group LLC in Las Vegas. “It’s a great hotel reopened at the wrong time.”

A spokesman for Istithmar World, the private-equity arm of Dubai World, said the company believes the resort is a valuable asset with a solid future. Representatives of Fontainebleau Miami Beach, Bank of America and Highland Capital Management declined to comment. Messages left at Five Mile Capital weren’t immediately returned.

The resort, which faces the Atlantic Ocean, now features more than 1,500 rooms, 11 restaurants and lounges and a 40,000 square-foot spa, according to a press release.

The Miami restructuring offer comes after Fontainebleau Resorts LLC, the development firm founded by Soffer, lost control of the bankrupt Fontainebleau Las Vegas in February. Billionaire investor Carl Icahn bought the unfinished casino resort for $156.1 million.

The 63-story Fontainebleau, which sits on about 27 acres at the north end of the Las Vegas Strip, was about 70 percent complete at a cost of $2 billion when it filed for bankruptcy in June.

--With assistance from Nadja Brandt in Los Angeles and Zainab Fattah in Dubai. Editors: Jeff St.Onge, Rob Urban

To contact the reporters on this story: Jonathan Keehner in New York at jkeehner@bloomberg.net Beth Jinks in New York at bjinks1@bloomberg.net.

To contact the editors responsible for this story: Jeff St.Onge at jstonge@bloomberg.net; Alec McCabe in New York at amccabe@bloomberg.net

W South Beach deception alleged

Several unit buyers at the W South Beach are clamoring for their deposits to be returned, alleging developers deceived them into believing there were to be more units, larger units or a second pool at the chic 420-unit condo-hotel.

The problems at the W reflect the dismal market for condo-hotels and the latest wrinkle in the ongoing flood of buyer rescission cases making their way through Florida courts.

“The biggest problem at the W right now is the values have declined so substantially, and nobody will lend on that,” said Dennis Freeman, a Miami Beach attorney handling one of the cases.

Lawsuits are alleging several adverse changes to the property in an attempt to collect the full 20 percent deposit back, a major challenge in today’s market. The project is held by a company called 2201 Collins Fee LLC, and ultimately by New York-based TriStar Capital and RFR Realty.

A lawsuit, filed in federal court by real estate investor Kamyar Kadivar and three other buyers, alleges that the developer reduced the number of units to 411 from 523 without revising the calculations for how much of the total property the units represent. The percentage of ownership is used to calculate maintenance fees. The suit also makes a more common allegation against condo-hotels: that the project represented the unregistered sale of securities.

Another lawsuit, by a buyer called Cadillac Investment Partners, alleges that the buyer received a smaller unit than was promised, that the unit included a door to the adjacent unit that was not previously disclosed, and that developer reduced the number of trees planted outside and eliminated a second pool from the outdoor space to expand restaurant facilities. The Kadivar suit and the Cadillac Investment suit were both filed in federal court in Miami. Several other buyer rescission lawsuits have been filed in Miami-Dade County Circuit Court.

Kadivar and his co-plaintiffs – who put down deposits of $264,380 and $165,180 – are trying to get back deposits from a January 2006 contract.

“I think the developer may have a tough time with the Kadivar case,” said Palm Beach County attorney Gary Nagle, who has handled several buyer rescission cases recently. “There’s a breach of contact claim, and a possible material and adverse change. It’s an especially difficult time for condo-hotels, even to find financing for them.

Data released March 10 by Condo Vultures shows that, as of Dec. 31, only 42 of 408 units in the W South Beach condominium have closed, at an average of $1.8 million a unit, or $1,806 a square foot. The overall gross revenue generated from selling 10.3 percent of the units is $73.6 million.

Condo Vultures principal Peter Zalewski said nearly 1,450 of the 5,600 new condominium units developed in Miami Beach’s trendy South Beach neighborhood in the last seven years are still unsold.

Zalewski said Miami Beach’s reputation as a long-term good investment, fueled by international demand, may result in some reluctance to drop the price.

“The non-negotiable prices are a shock for a lot of prospective buyers,” Zalewski said.

Attempts to solicit a comment about the recent lawsuits from the W, its ownership and its attorneys at Greenberg Traurig in Miami by press time were not successful.

pbrinkmann@bizjournals.com

 

The Shore Club's lenders are trying to foreclose on the hip, struggling South Beach hotel. It was once valued at $176 million, but the latest appraisal is $86 million.

By DOUGLAS HANKS

dhanks@MiamiHerald.com

Even $3,000 suites weren't enough to keep the lenders at bay at the Shore Club, which got hit with a foreclosure suit this week.

The swank South Beach hotel is still open and charging premium rates but last made a mortgage payment in September. A dismal year walloped the financials at the oceanfront property.

Home to a Robert DeNiro restaurant and a long pedigree of celebrity guests, the Shore Club saw profits collapse last year -- down 62 percent as it cleared just $328,000 before taxes and debt payments, according to filings by its operator, Morgans Hotel Group.

Room rates and occupancy both dropped 20 percent, slides that sent the revenue generated by a typical room down 37 percent to $156 a night.

Now forced to fend off foreclosure proceedings over a $126 million loan from 2005, the Shore Club probably qualifies as South Florida's most high-profile hotel drama. Long a source of gossip-column fodder since its 2001 opening, the Shore Club got hit by the recent hotel downturn just as it faced more competition for a shrinking pool of free-spending vacationers.

``A lot of that high-end boutique South Beach product appealed to the Wall Street crowd -- the 38-year-old, 39-year-old executive who got six-figure bonuses,'' said hotel broker Dan Carlo, of Holliday Fenoglio Fowler in Coral Gables.

With that customer mostly gone, the Shore Club was left to duke it out with high-profile newcomers, including the newly renovated Fontainebleau and the nearby W South Beach.

Owner Philip Pilevsky did not respond to an interview request Thursday. Morgans Hotel Group, which owns the nearby Delano and manages Shore Club for Pilevsky, said the debt dispute would not affect operations.

But the loan problems have threatened to spillover into the 309-room hotel, where the cheapest beds go for $445 a night this weekend and the most expensive suite available sells for $3,000.

SOME GOOD NEWS

  Last fall the Shore Club's loan servicer, LNR Property Corp., disclosed to investors that Pilevsky's team had threatened to shut down the hotel unless it could use loan reserves to make payroll. But its financial picture has brightened amid a recovery by hotels throughout South Florida.

For January, Smith Travel Research reports per-room revenue rose 4.2 percent at Miami-Dade hotels -- the first increase since August 2008, the start of the global financial crisis.

The American Academy of Dermatology's annual meeting brought an estimated 19,000 people to Miami Beach this week, which the trade group says is a record for the yearly convention.

The improvement showed in the Shore Club's numbers, too. The hotel's per-room revenue drop narrowed to 23 percent in the last three months of 2009 and lenders reported the hotel is generating enough revenue to pay expenses but not cover loan payments.

Still, for hotels like the Shore Club that borrowed big in the boom times and now must contend with recession-era revenue and values, the good news only goes so far. Valued at $176 million at the time of the 2005 loan, the Shore Club was appraised at $86 million in September, according to lender reports.

``In general terms, 2010 is not going to provide any real relief for borrowers,'' said Gregory Rumpel, a broker with Jones Lang LaSalle Hotels in Coral Gables.

LNR, a Miami Beach company that manages delinquent loans across the country, has control of the Shore Club mortgage, which was sold as part of an investment pool on Wall Street.

AUCTION?

  The federal foreclosure suit asks a judge to order the entity that owns the hotel, Philips South Beach, to either pay off the loan or surrender the hotel in a courthouse auction. No hearing has been set in the case.

Victor Diaz, a lawyer at Miami's Podhurst Orseck who represents the LNR entity managing the loan, said in a statement Thursday that the loan dispute ``will not affect the guest experience at the Shore Club.''

The undeveloped tract planned to hold luxury condos, high-end retail and posh hotel rooms at Biscayne Landing will go to the highest bidder at a foreclosure auction April 6.

But only if the city of North Miami approves the buyer.

The 190 acres between Northeast 137th and Northeast 151st streets along Biscayne Boulevard, with views overlooking Biscayne Bay and Oleta River State Park, beckon for a new developer to complete what Boca Developers -- the Deerfield Beach company in charge of the project -- could not.

Meanwhile, the only complete part of the Biscayne Landing project, two condominium towers plagued with low occupancy rates and owners who complain the luxurious lifestyle promised in sales brochures never materialized, is mired in a separate foreclosure. The 173 unsold units are scheduled for another public auction May 11 after BLIA Developers, the Boca Developers subsidiary that developed The Oaks, lost a $35.5 million foreclosure lawsuit in February.

``Everything that happens at Biscayne Landing matters to us. It's horrifying, the uncertainty about what might happen around your home,'' said Sylvia Londono who spent $400,000 on her two-bedroom condo in The Oaks.

All of the auctions will be available on the new Miami-Dade online foreclosure auction system.

Industry analysts said the auction of the undeveloped land is unlikely to draw many bidders.

On Jan. 21, Wells Fargo obtained a foreclosure judgement against Biscayne Landing. The developer owed the Wells Fargo group $196.3 million, but the foreclosure action only includes a $35 million junior loan.

That means the winner of the auction may be liable for the remaining $161.3 million in debt.

The winner of the auction also will inherit a complex 200-year lease agreement that allows development on North Miami city-owned prime real estate, but assumes a big liability on land encumbered with off-site development requirements.

``The value really doesn't exist until after you build it; development is substantially more risky than real estate,'' said William Hardin, a professor of real estate at Florida International University.

``The city was envisioning an `everything and the kitchen sink' deal,'' he said. ``That's easy to write up in a memo; it's a lot harder to make happen.''

In the lease, the developer is responsible for off-site improvements totaling $28 million, including $10 million for the library and $1 million a year for eight years for the Museum of Contemporary Art.

The city also requires the developer to create affordable housing and rehab older areas.

``They have to reevaluate the deal perhaps immediately or later down the road,'' in order to make the lease more appealing to a potential developer, Hardin said.

That idea has been dismissed by North Miami city officials.

``Those are commitments in the original agreement. Just because someone else takes over doesn't mean they get to back out on what is signed. The words in that contract are binding,'' said Councilman Scott Galvin, who represents the district that includes Biscayne Landing.

Even if the city allowed concessions, Michael Cannon, a real estate analyst, said a potential developer has to consider the environmental factors tied to the site.

``I hope the bidder understands the market and the condition of the land, which was a former garbage dump.'' Cannon said. ``A buyer of this property should do their due diligence.''

835 NE 132nd St. North Miami, FL 33161

Spa Etiquette: What to Wear

by Rigel Celeste   Mar 13th 2010 at 10:01AM

Going to the spa is supposed to be a relaxing experience, but if you spend too much time stressing about what to wear (or what not to wear, as the case may be) you won't get nearly the enjoyment out of it as you could. If it's your first time to a spa and you're not sure what the dress code/etiquette is the best thing for peace of mind is to simply call the spa ahead of time and ask. Most spas take a similar approach however so here are some basic guidelines.

Under your robe If you're given a robe and slippers to change into what you leave on underneath the robe is up to you based on your personal comfort level. Most people choose to strip down to their underwear, a swimsuit, or nothing at all, but if you want to leave a shirt and/or pants on under the robe you can certainly do that too -- most spas get all kinds. If they give you sandals or slippers do try to put them on however, as heavy heeled shoes clanking down the halls tends to disrupt the experience for everyone.

On the massage table How much clothing you wear during a massage is again completely up to you based on your comfort level, but most people undress completely or leave just their underwear bottoms on. It is best to take your bra top off so the strap doesn't interfere with the therapists ability to give a thorough massage, and remember for most massages you'll be laying face down, with only the area being worked exposed at any given time.

Contact lenses It's best to go without contacts at the spa, as many lens manufacturers recommend they not be worn in the hot tub, sauna, jacuzzi, etc. You should also be sure to tell your esthetician that you're wearing contacts before receiving a facial, or remove them prior just to be on the safe side.

Other treatments There are so many different and new offerings at spas these days that's there's no shame in asking what attire is appropriate whenever you aren't sure.