Fund Managed by Blackrock Claims The Royal Palm
in South Beach Has Defaulted on a $25 million Loan
|By Douglas Hanks, The Miami
HeraldMcClatchy-Tribune Regional News
Apr. 9, 2008 - Lenders are trying to take control of the Royal Palm hotel in Miami Beach after accusing its owner of defaulting on a $25 million loan, according to court documents.
A fund with ties to the Blackrock investment giant has asked a New York judge to force owner Guy Mitchell to surrender management of the 417-room oceanfront hotel.
A $25 million loan to the hotel came due on March 31, and Mitchell has been unable to find another lender or a buyer for the hotel, court papers show.
The unfolding drama is the latest saga for the oceanfront resort, one of Miami Beach's largest hotels, which developer R. Donahue Peebles built using city subsidies.
Mitchell backed condo-hotel developer Robert Falor in a failed attempt to sell off a portion of the hotel's rooms as condominiums, a venture that would have meant a windfall of cash.
Mitchell and Falor took out the $25 million loan in 2005 when they bought the hotel for $128 million, with Peebles retaining a 12 percent stake in the property. Mitchell holds the majority stake; Falor owns a small portion of the hotel.
The partnership soured. Peebles sued Mitchell last year, claiming mismanagement. Mitchell then ousted Falor from running the hotel's operations.
Despite its oceanfront location in South Beach, the Royal Palm has struggled financially.
It missed a loan payment in July, and October court filings list $11 million overdue interest and late penalties. During his court fight with Mitchell, Peebles said the hotel lost $12 million in 2006.
Though it opened in 2002 in the Intercontinental chain, the Royal Palm no longer has a national hotel brand on its door -- typically a must for a property of its size. Hyatt was poised to buy the hotel in the fall, but that deal fell through.
With no buyer, Mitchell was left to find another lender amid a credit crisis that has Wall Street leery about taking on more risk.
Mitchell could not be reached Tuesday for comment. A spokesman for Blackrock, a New York company, also was not immediately available for an interview. Peebles declined to comment.
The suit was filed last week by Carbon Capital II, an investment fund managed by Blackrock that holds the loan made to a Mitchell company called Royal Palm Senior Investors.
Carbon Capital said it informed Mitchell that he needed to relinquish control of the hotel under the terms of the loan, which called for Carbon Capital to take over if the March 31 deadline passed without a buyer or a new loan in place.
A Mitchell lawyer wrote in an April 2 e-mail that Carbon could not take over the Royal Palm, according to the court papers. The stand-off makes it impossible for Blackrock to sell the hotel, which "is in the best interests of the property," the suit says.
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