|By Douglas Hanks, The Miami
HeraldMcClatchy-Tribune Regional News
October 17, 2009 - -A court has taken over the Royal Palm as lenders reckon with a troubled South Beach hotel thought to be worth far less than its debt, an owner said Friday.
The move came as developer and minority owner R. Donahue Peebles walked away from the 417-room property, which he built on city-owned land in the late 1990s. Caught up in the collapse of the condominium market and the exploits of toppled condo-hotel king Robert Falor, the Royal Palm spent the decade as South Beach's longest-running hotel drama.
With Peebles out, the hotel's two lenders -- Wachovia and an affiliate of the investment giant BlackRock -- are sparring over the Royal Palm's fate.
Wachovia has a $130 million mortgage on the property, and the partnership that owns the hotel owes about $50 million to BlackRock, Peebles said. Wachovia had been fighting BlackRock and the partnership, controlled by Peebles until a judge turned it over to BlackRock in July, to foreclose on the oceanfront property.
Peebles had hoped the lenders would put him in charge of the property permanently in exchange for Peebles' agreeing to invest in refurbishments and maintenance needed at the hotel.
But the plan was contingent on the lenders' forgiving a large chunk of the hotel's $180 million debt. With the large amount of debt remaining, Peebles said the hotel couldn't be viable.
"There was no way out, no solution," Peebles said Friday.
The latest wrinkle adds to the hotel's colorful history.
Peebles, a Coral Gables developer, sold the hotel to Falor and partner Guy Mitchell in 2005 for $128 millionas the pair prepared a string of condo-hotel conversions that ended in litigation and bankruptcies.
When the duo came up short of cash at closing, they gave Peebles back a 12 percent stake in the Royal Palm and the right to take over management if the business went sour.
After the condo-hotel conversion failed and the hotel faced litigation from lenders, Peebles persuaded a judge in February to oust Mitchell and Falor.
In July, a federal judge ruled BlackRock owned the hotel partnership outright because of the unpaid debt. Last week, Peebles formally withdrew as manager of the hotel and the New York judge named a receiver to run the hotel while Wachovia and BlackRock consider their options.
A lawyer for Wachovia and a spokesman for BlackRock did not respond to interview requests Friday, and calls to Falor and Mitchell's cellphones were not returned.
Luigi Mercurio, a hotel broker with EWM, estimated the hotel is probably worth about $100 million -- roughly 55 percent of the Royal Palm's debt.
Mercurio said that a year ago, investors wanting to make the Royal Palm a Hyatt were prepared to pay $210 million for the hotel, but the deal fell through.
"It was another universe," Mercurio said.
If the hotel is sold in a foreclosure auction, Peebles said he would likely pursue the Royal Palm again as a buyer. But given the disparity between the hotel's value and debt, selling it would likely require Wachovia to reduce its mortgage -- a complicated matter, since the loan was sold to various investors on Wall Street.
"I don't know what the next chapter is going to be," said Michael Higer, Peebles' lawyer.
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