The Miami Herald
August 3, 2006
Royal Palm Misses Loan Payment
The Royal Palm hotel missed a loan payment as its owner rethinks the condo-hotel market. The setback could signal a larger slowdown.
By Douglas Hanks
The Royal Palm hotel missed its loan payment last month while facing a cash squeeze amid its stalled plan to convert 160 rooms into condominium units, an owner said Wednesday.
Robert Falor said the summer tourism slowdown left the 417-room South Beach hotel about $600,000 short of the $1 million loan payment due at the end of June.
Instead, the Royal Palm dipped into an interest-reserve fund established with its lender to cover the installment, said Falor, a minority owner of the hotel and president of the Chicago company that runs the hotel.
The hotel's troubles come as Falor rethinks plans to convert both the Royal Palm and Coconut Grove's Mayfair Hotel into condo-hotel complexes, efforts once expected to generate sales well in excess of $100 million.
The condominium market is much slower than it was a year ago, while hotels are commanding top rates. That's prompted some developers of condo-hotels, where rooms are sold off to real estate buyers to pull back from their conversion plans and run the properties as traditional hotels.
But analysts question whether developers can wring enough profits out of running hotels to justify the sky-high prices they paid for the properties during a booming real estate market.
"The question remains as to whether [the] debt on these complexes could be extinguished as an operating rental facility,'' Standard & Poor's said in a report released Wednesday warning of problems in Florida's condo-hotel market."
Added Francis Nardozza, an investment banker in Fort Lauderdale: "There's a lot of soul-searching going on right now.''
The S&P report disclosed the Royal Palm's missed loan payment, which landed Falor in the Wall Street Journal's Wednesday real estate column. He said the situation did not reflect a broader problem at the hotel, which he said is producing ''great'' results. Falor said this was the first missed loan payment since he and partners paid $128 million for the hotel in February 2005.
But he acknowledged the slowdown in the condominium market, as well as the strong hotel rates, have prompted him to continue delaying the Royal Palm's conversion project.
''We're waiting to see if we still want to do that,'' he said, while predicting the conversion will ultimately happen. "We all know buyers aren't rushing in the door.''
And Falor said he and his partners have paused condo-hotel sales at the Mayfair to try and sell the hotel outright.
''The numbers as a pure hotel are so unbelievable that a broker approached us to sell,'' Falor said of the Mayfair, where 56 of the 123 rooms have been sold.
Falor, whose Falor Cos. owns small stakes in both the Royal Palm and the Mayfair, has faced cash-flow problems in the past.
One of his companies briefly filed for bankruptcy last year to avoid foreclosure proceedings in the Breakwater project. And Falor's ex-broker sued him over a $500,000 loan she said he needed to close the Royal Palm deal.
Falor said his lenders have not declared his company in default on his loans, which includes a $112 million first mortgage by Credit Suisse.