|By Douglas Hanks, The Miami
HeraldMcClatchy-Tribune Regional News
November 15, 2009 --A year ago, developer Jeffrey Soffer presided over the most lavish hotel opening in South Florida history as supermodels, pop singers and movie stars celebrated his $650 million renovation of the Fontainebleau Miami Beach.
Just weeks from his 41st birthday, the real-estate heir joined family friends James Caan and George Hamilton in the VIP section for a private concert by Mariah Carey. Victoria's Secret models sashayed in a televised lingerie show hosted by Heidi Klum.
Exactly 12 months later, the $5 million weekend bash seems a mere financial footnote as Soffer confronts mounting challenges at South Florida's largest resort.
Contractors claiming more than $60 million in unpaid bills.
In court papers and interviews, contractors say they were ordered to work double- or triple-time to get the Fontainebleau ready for the Nov. 15, 2008, Victoria's Secret show, but that the resort stopped paying its bills at roughly the same time.
The possibility of bankruptcy.
For the first time, a senior Fontainebleau executive on Saturday said publicly that bankruptcy was an option under consideration as the resort tries to reduce its $660 million construction loan and settle the contractor claims.
Last year, the investment arm of the Dubai government paid Soffer's ownership group $375 million for a 50 percent stake in the Fontainebleau. That deal gave the Dubai entity, part of Nakheel Leisure, the option to take over restructuring negotiations if there were problems with the resort's loans.
Days ago, Nakheel exercised that option, said Hamza Mustaffa, Nakheel's managing director. On Saturday, he said Nakheel and Soffer were waiting for recommendations from a restructuring consultant on the next step, and that one of the options could be a Chapter 11 filing that would let the resort continue operating while forcing creditors to negotiate.
"We haven't made a decision right now if we're going to file, or if we're not going to file," Mustaffa said.
While Nakheel has officially replaced Soffer as the lead negotiator with Fontainebleau's banks, Mustaffa said Soffer remains in charge of the hotel and that the partnership is solid.
"This is not us saying, 'Jeff, you're out and we're in,' " Mustaffa said while praising Soffer's role as the Fontainebleau developer. "We've been working together."
Efforts by creditors to link the Fontainebleau with its bankrupt sister property in Las Vegas.
In 2007, Soffer launched construction on the $3 billion Fontainebleau Las Vegas, a 63-story casino hotel that went bankrupt in the spring before workers could finish construction on it.
The Vegas Chapter 11 filing came after banks cut off $800 million in funding for the project, and a court is expected to auction off the unfinished tower in the coming months.
Since the sales price will be a fraction of the $2 billion spent on the Vegas venture, the Fontainebleau Miami Beach expects Vegas creditors and lenders to pursue the Miami Beach resort, according to several people close to the Florida Fontainebleau.
Soffer declined to be interviewed for this story, but a spokesman released this statement: "The Fontainebleau is performing well above its peers and we're very pleased with our progress in what's been a challenging economic environment.
"We continue to work closely with all of our stakeholders," the statement continued, "including our partner Nakheel and our lenders, to position Fontainebleau Miami Beach for long-term success."
Those close to Soffer blame the problems on the failure of Lehman Brothers, a major lender in Vegas, and the surprisingly steep economic downturn.
"Anyone who did a deal in the past couple of years with some short-term loans has some restructuring going on," said a high-ranking source on Soffer's management team.
Soffer never imagined a economy as hostile as the one he faces one year into the Fontainebleau's relaunch. He paid $325 million for the sprawling 1954 resort in 2005, according to corporate records, valuing the Fontainebleau brand at $62 million.
It had spent 27 years as a Hilton, and was viewed as a tired property in need of a major face-lift.
But Soffer opted for a complete rebuilding, gutting the 1,500-room hotel to its studs, all but demolishing its ballrooms and ripping up its pool deck.
The result was a lush, well-received take on architect Morris Lapidus' original creation. A glass-walled spa juts out over a series of pools modeled loosely after French gardens, and the resort's five stylish clubs and restaurants remain popular with celebrities.
Soffer recruited a team of top Vegas casino executives to run Fontainebleau Resorts, and paid them handsomely.
One executive got a $3 million Fort Lauderdale mansion as a signing a bonus, according to a corporate document reviewed by The Miami Herald.
After closing on $4 billion worth of financing for the two Fontainebleau projects in June 2007, the company paid Soffer and four other top executives $10 million in bonuses, including $2.5 million to Soffer and $3.5 million to then-CEO Glenn Schaeffer, the document stated.
The bonuses were originally crafted as rewards for the team taking Fontainebleau Resorts public, a goal Soffer dropped after securing the financing.
The world's biggest banks embraced Soffer's vision for the grand new Fontainebleaus. Bank of America, Lehman Brothers, JP Morgan and Deutsche Bank signed on to either the Vegas or Miami Beach loans.
Nakheel, an investor in prime hospitality properties like Atlantis in Nassau, bought into Miami Beach even as a slowing economy had others balking at new deals.
"It's one of the best assets we own," Mustafa said Saturday. Soffer "really created a concept and a brand out of nothing."
Last year's opening party was a big part of the brand's launch.
Etched-glass invitations went out to hundreds of local politicians, business leaders and reporters for the two-night event.
The highlight was the Saturday night Victoria's Secret show on a three-story stage built for the event, which CBS broadcast a month later.
Six months of construction delays threatened to scratch the event as hotel executives raced to get occupancy permits in time for the debut.
"The pressure was enormous," recalled Walter Jordan Jr., whose Davie metalworks company built the 7,000-bottle wine rack for one of the resort's signature restaurants, Gotham Steak.
Jordan's Lor Design claims $300,000 in unpaid bills. More than two dozen contractors have filed over $60 million worth of liens and lawsuits against the property, according to court records.
Alvin Lodish, the Coral Gables lawyer recently hired to represent the Fontainebleau on the construction cases, said the resort is sorting through which claims are legitimate and which are inflated.
"The cases run the gamut, from there being a certain amount of over-billing, change orders not being correct," said Lodish of Daniels Kashtan.
Contractor lawyers accuse the Fontainebleau of stalling in court as it tries to sort out its larger financial problems.
"The subcontractors' biggest fear is that [Fontainebleau Miami Beach] pursues bankruptcy as a way to avoid payments," said lawyer Clifford Wolff, who represents a Boca Raton glass company claiming $550,000 in unpaid bills.
It's a big switch from a year ago, when contractors were wrapping up a job many thought would see them through the recession.
"We were working 17, 18, 20 hours a day, Monday through Sunday," said Edgar Velasquez Jr., whose family's Miami Gardens carpeting company claims they're owed $160,000 on the $800,000 Fontainebleau contract.
They shut down the family's check-cashing shop in South Beach to raise the $40,000 needed for supplies to start the work -- their biggest contract ever.
"We felt from this, it's going to take us to another big job," he said. "We were going to follow [the general contractor]. They were all going to Vegas."
To see more of The Miami Herald or to subscribe to the newspaper, go to http://www.herald.com.
Copyright (c) 2009, The Miami Herald
Distributed by McClatchy-Tribune Information Services. For reprints, email email@example.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA. NYSE:LEH, NYSE:BAC, NYSE:DB,