The Fontainebleau Miami Beach is vulnerable to a declaration of default by its lenders, partly thanks to about $60 million in unpaid contractor claims, the Wall Street Journal reported Friday.
Citing unnamed sources, the paper reported that a 45-day agreement by lenders not to declare default on $670 million in construction debt expired Monday. The Fontainebleau allegedly violated the terms of its loan in part by not keeping appropriate reserves to cover the $60 million in construction liens on the oceanfront property, the paper said, debts the hotel is contesting in court.
In a statement to the Journal, the Fontainebleau said it has not missed a debt payment and is "engaged in constructive negotiations with our lenders." Violating the terms of a loan while still making payments is considered a "technical default," generally the lowest level of debt troubles. Fontainebleau executives were not immediately available for comment Friday morning.
The potential trouble with the Fontainebleau Miami Beach comes as the hotel's primary owner, Jeffrey Soffer, grapples with bankruptcy proceedings for the Fontainebleau Las Vegas. While both are run by Soffer's Fontainebleau Resorts, the projects are separate corporate entities and the Fontainebleau Miami Beach has not filed for bankruptcy protection and has not played a role in the Vegas bankruptcy case.
The Vegas property is now an idle construction site after lenders cut off funding to finish what was to be the sister property of the Fontainebleau Miami Beach, which Soffer bought in 2005.
The purchase marked a milestone for Soffer, the son of Donald Soffer, who earned legendary status in South Florida's real estate industry in the late 1960s when he developed Aventura out of swampland north of Miami.
In recent months, the Fontainebleau Miami Beach has enjoyed a surge of cash as buyers closed on condominium units in the second of two condo-hotel towers at the resort. But the hotel has been hammered by a nationwide pullback in meetings and business conferences, particularly in resort areas like Miami Beach.
Though room rates are down, Fontainebleau executives say they're beating forecasts, doing better than competitors and renting most of the resort's beds each week.
Last year, Soffer sold half of the resort and its debt for $375 million to Nakheel Hotels, the investment arm of the Dubai government.
But a source familiar with the deal told The Miami Herald that Nakheel agreed to buy a completed project, with overruns and the debt tied to the extra bills the responsibility of the Soffer side of the partnership. Of the $375 million that Nakheel paid, Soffer shifted $200 million to pay for cost overruns at the Vegas Fontainebleau project.
The Journal reported that lenders, led by Bank of America, are withholding a final $26 million yet to be drawn on the construction loan until the Fontainebleau Miami Beach resolves the problems with contractors.
A Miami judge has scheduled a hearing Wednesday for the Vegas Fontainebleau project. Scott Baena, the Bilzin & Sumberg lawyer representing Fontainebleau Las Vegas, said in a motion filed Tuesday that Soffer's team and the lenders have not reached a deal on allowing Fontainebleau Vegas to continue spending cash during the costly Chapter 11 bankruptcy proceedings.