|By Douglas Hanks III, The Miami Herald|
Knight Ridder/Tribune Business News
Aug. 13, 2004 - A New York hotelier has signed a contract to buy the $54 million mortgage on the Royal Palm Crowne Plaza Resort, and he said he hopes either to foreclose on the Miami Beach hotel or force a sale of the business.
The mortgage came due Saturday, and the hotel's owner, R. Donahue Peebles, is negotiating with Union Planters Bank to extend the loan, his lawyer said Thursday. Union Planters had tried to sell the loan last month to William S. Achenbaum, the owner of a boutique Manhattan hotel who said he is eager to take over the Royal Palm's oceanfront location in South Beach.
Achenbaum's attempted purchase of the Royal Palm mortgage is now tied up in court, and Peebles lawyer Stuart Hoffman said his client is confident Union Planters will continue extending the loan. Should Achenbaum succeed in buying the note, Hoffman said the 417-room Royal Palm is worth enough that Peebles would have little trouble obtaining financing to pay off the mortgage.
"It would never go to a foreclosure. The property is underleveraged," said Hoffman, of Hunton & Williams in Miami. He said the Royal Palm has never missed a monthly payment on the interest-only loan.
If successful, Achenbaum's bid for Miami Beach's fourth-largest hotel would remove Peebles from the project that propelled him to prominence in South Florida eight years ago and that remains the high-profile centerpiece of his real estate holdings.
Miami Beach picked Peebles to build the hotel on city-owned land on a minority set-aside contract, and the Royal Palm deal was celebrated as the country's first major convention-friendly hotel developed by a black-owned firm. In June, Black Enterprise magazine named Peebles Atlantic Development its Company of the Year, and Peebles recently was elected to a second term of Miami-Dade County's tax-funded tourism board, the Greater Miami Convention & Visitors Bureau.
On Thursday, Peebles dismissed Achenbaum's strategy as a misguided gambit to "steal" the Royal Palm that could never succeed given his options to extend the loan until next summer with Union Planters, his financial backers like the Inter-Continental hotel chain, and the stability of the Royal Palm itself.
"I've got a great asset in the most exciting destination in the world," he said. Saying Achenbaum is the lone suitor for the Union Planters loan, Peebles added: "Only one person saw it as an opportunity in a hot market, and that should tell you something."
Achenbaum -- whose second hotel, the 208-room Gansevoort recently opened in Manhattan's chic-but-edgy meatpacking district and charges nearly $400 a night -- said he would like to steer the Royal Palm away from large business groups and attract more high-spending vacationers.
"We would market it as a very upscale boutique competing with the Delano and the Shore Club," Achenbaum said.
Miami Beach subsidized the Royal Palm project in an effort to increase the number of rooms available for large business groups using the Miami Beach Convention Center. It was unclear Thursday if the Royal Palm's lease on the city-owned land would interfere with Achenbaum's vision of a pricier resort there.
It also wasn't known how Achenbaum, who is white, would satisfy the city's requirement that the hotel be black-owned. Stuart Kapp, a Boca Raton lawyer representing Achenbaum, said the lease exempts from the minority requirements the kind of financial structure his client plans for acquiring the hotel.
Lawyers for Union Planters and WSA Management Florida, Achenbaum's company, agreed that Achenbaum was on target to buy the Royal Palm mortgage last month. But WSA balked after the Royal Palm's builder, Clark Construction, sued Union Planters over $12 million in alleged back fees on the project.
Within days WSA sued Union Planters in U.S. District Court in Miami, demanding that it be allowed to buy the loan without assuming any liability for the Clark lawsuit. The bank refused to put any conditions on the sale, which had been scheduled to close July 20.
A Union Planters lawyer said that by refusing to close on the loan, WSA forfeited its $2 million deposit and its sales contract and that the bank is free to shop the loan elsewhere. But WSA claims the bank still must sell it the loan -- free of the Clark claims -- and that Union Planters is barred from even extending the payment schedule on the mortgage.
"We don't want our money back," said Kapp, of Proskauer Rose in Boca Raton. "We want to buy what we contracted to buy, which was a good first mortgage."
Union Planters lawyer Hilarie Bass declined to comment on the bank's plans relating to the loan.
The current dispute can be traced back to 2000, when the Royal Palm was mired in construction problems that ended up stretching the project two years past its completion date and a reported $16 million over its original budget.
GMAC, the lending arm of General Motors, had signed on to purchase the $40 million Union Planters loan that had funded the construction of the hotel. But in June 2000 GMAC backed out, citing the delays. Union Planters began a series of extensions and additional loans, bringing the balance to the current $53.8 million, according to court documents and interviews.
Commercial banks like Union Planters typically make interest-only loans to fund construction projects on a short-term basis. The developer usually lines up a large investor, like a pension fund, to take over the financing once the project is finished. After the sale, the borrower begins paying interest and principal on an extended schedule, usually over at least 10 years.
Peebles said the Royal Palm is valued at more than $100 million, far above the $54 million mortgage on the property. Such an equity cushion would probably ease the pressure on Union Planters to get the loan off its books, which is usually the aim of construction lenders, said Maurice J. Veissi, a Miami real estate consultant and past president of the Florida Association of Realtors.
"If the bank's loan was made with adequate equity, then they're not panicky," Veissi said. Generally, banks will negotiate with a borrower to extend a loan past its maturity date in part to avoid the bad publicity that comes with calling a mortgage and pursuing foreclosure. "What you don't want to do if you're a lender is go after someone," he said. "It generates a lot of bad will."
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