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The Battle for the Royal Palm Hotel Becomes Increasingly Bitter; Affiliate of  Investment
 Giant Blackrock Suing to Take Over the 417 room South Beach Hotel from
 Majority Owner Guy Mitchell


By Douglas Hanks, The Miami HeraldMcClatchy-Tribune Regional News

Jun. 19, 2008 - In the increasingly bitter battle for the Royal Palm hotel, owner Guy Mitchell faces accusations he diverted nearly $4 million from the oceanfront resort to offshore accounts in the Cook Islands.

The allegations came in the latest filings in a series of legal fights that now have the South Beach hotel under the control of a court-ordered receiver. The receivership marks the biggest setback yet for Mitchell, who bought the 417-room hotel built with city subsidies from developer R. Donahue Peebles.

Peebles sold his controlling stake in the property to Mitchell and partner Robert Falor in 2005, at the height of South Florida's real estate boom. But a planned condo-hotel conversion fizzled and the hotel fell behind on payments for about $134 million in debt.

Now Mitchell is fighting lenders and his partners, while a retired New York judge oversees the hotel and tries to sell it.

A New York court installed retired judge Albert Rosenblatt to oversee Mitchell's assets earlier this month after Mitchell lost an unrelated court case involving a Chicago condo-hotel he planned to develop with Falor, said Philip Shatz, a lawyer for Rosenblatt.

The court fights are increasing the pressure on Mitchell, a low-profile investor in Coral Gables before his Royal Palm venture thrust him into the front lines of South Florida's condo-hotel sector.

He bankrolled Falor's acquisition of the oceanfront property as Falor, a hotelier out of Chicago, assembled one of the region's largest portfolios of condo-hotel conversions.

PORTFOLIO UNRAVELS

But that portfolio unraveled as the condo market soured, and the partnership crumbled too. Falor issued a statement Wednesday saying he feels "vindicated" for distancing himself from Mitchell, while Mitchell told a court last year he had dismissed Falor as Royal Palm's manager.

Mitchell, who owns a Coconut Grove carwash and other real estate investments, did not return phone calls seeking comment.

Haveles also did not respond to an interview request, and Carbon declined to comment.

In the middle of the dispute sits the Royal Palm, likely Mitchell's most valuable asset.

A lender on the South Beach property, Carbon Capital II, an affiliate of the investment giant Blackrock, is suing to take over the hotel as a penalty for Mitchell not making payments on a $25 million loan.

A lawyer for Carbon said Mitchell took about $3.8 million out of the hotel since March and transferred it to a family trust in the Cook Islands in the Pacific.

'STEALING FROM TILL'

"Mitchell is stealing from the till, for all intents and purposes," Carbon lawyer Nicholas Crowell said at a June 10 hearing, according to a transcript.

Mitchell's lawyer, Peter Haveles, characterized the transfers as repayments of loans a Mitchell company made to the Royal Palm. He said the transfers were disclosed as part of the hotel's regular accounting reports to Carbon.

"These loans have been reflected on the general ledgers and the monthly financial statements that were always made available to Carbon Capital since 2005," he said, according to the transcript. In an interview Shatz said that despite the litigation, the Royal Palm continues to succeed as a hotel.

"It runs well. It makes money," Shatz said of the Royal Palm, one of the biggest hotels in Miami Beach. "The hotel is not in trouble."

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Copyright (c) 2008, The Miami Herald

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