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R. Donahue Peebles Fighting to Take Charge of the 417-room Royal Palm Hotel Again;
Accuses Robert Falor and Partners of "Gross Negligence" in Manging the South Beach Hotel

By Douglas Hanks, The Miami HeraldMcClatchy-Tribune Regional News

May 3, 2007 - Three years after giving up control of the Royal Palm Hotel in a sale, R. Donahue Peebles is fighting to take charge of the resort again.

The Coral Gables developer retained a 12 percent stake in the South Beach hotel when he sold it to condominium converter Robert Falor and partners in 2004. Now Peebles wants his company installed as the 417-room hotel's manager, accusing Falor of "gross negligence" in running it -- including a $12 million loss last year amid record revenues for South Beach's lodging industry.

"Falor Group has miserably failed," Peebles' lawyers wrote in a Miami-Dade civil suit asking a judge to put Peebles in charge of the hotel or appoint a trustee to run it.

Falor could not be reached for comment Tuesday, but the lawsuit reveals the latest fissure in his once sprawling portfolio of condo-hotel projects.

Once a leader in the sector who earned national attention for his projects and the licensing deal he signed with celebrity socialite Nicky Hilton, Falor has faced cash shortfalls, litigation with partners and bankruptcy proceedings.

"I think times got tougher," condominium broker Mark Zilbert, who once helped push sales for Falor's Nicky O project, said of the Royal Palm troubles.

Falor has faced a real estate slowdown in recent years. But the Royal Palm hit other stumbles too: Sol Melia backed out as the hotel's operator, and a promised lounge branded after Maxim magazine never arrived.

"I think there was confusion in the marketplace," Zilbert said. "One of the secrets to success in the condo-hotel market is strong branding."

The lawsuit could mean a reprise for Peebles, a developer who rose to local prominence but also attracted controversy with the Royal Palm deal. Peebles declined to comment Tuesday.

Miami Beach loaned him $10 million to build the hotel and also contributed the oceanfront location to be combined with the Shorecrest hotel Peebles owned.

The subsidies were aimed partly at creating more hotel rooms for conventioneers. But when Peebles sued over alleged defects in the city-owned site, Miami Beach let him convert 160 Shorecrest rooms to condominiums as part of a settlement. The concession greatly enhanced the hotel's value, allowing Peebles to sell it to Falor for a record $128 million.

Facing a cash shortfall, Falor asked Peebles to loan back $8.5 million of the proceeds in exchange for a stake in the hotel. Peebles now claims Falor has not sold any condo-hotel units and is more than two years behind schedule in the conversion.

Falor told the Miami Herald last month he decided to abort the conversion in 2006 amid record room rates for South Florida hotels and dried-up demand for condo-hotel units. Falor now runs the Royal Palm, which is managed by an outside hotel operator, although Coral Gables investor Guy Mitchell owns roughly 80 percent of it. Peebles contends his partnership agreement allows him to take over the hotel if Falor shirks his duties as the managing partner.

The Royal Palm missed a loan payment in July, and allowed its $109 million mortgage to mature in March without paying it off. Weeks later, two other Falor hotels filed for bankruptcy protection.

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Copyright (c) 2007, The Miami Herald

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