A U.S. Bankruptcy Court just approved the sale of the unfinished 550 Seabreeze Boulevard hotel in Fort Lauderdale Beach to a subsidiary of Magna Hospitality Group for $39.1 million.
The approval comes days after the project failed to receive any qualified bidders for the planned 12-story, 136-room hotel, canceling the auction last week. Glenn Moses and Paul Battista of Genovese Joblove & Battista represented the development group, 550 Seabreeze Development.
The Rhode Island-based hospitality company plans to begin construction once it officially closes on the property later this month.
Under an agreement reached between the parties, Magna plans to use the same contractor and many of the same subcontractors to complete the project. It has also agreed to comply with certain reporting guidelines that will assist the EB-5 investors who helped finance the project in obtaining their visas.
The developer originally purchased the property in 2003 with plans to build the Las Olas Resort.
The group sought EB-5 investment, a federal program in which foreign investors can invest $500,000 into certain projects in exchange for U.S. residency, to finance the project. It raised at least $30 million from 60 EB-5 investors through December 2015. But the project ran into financial trouble and in January of this year, Bancorp Bank filed a foreclosure suit against 550 Seabreeze Development LLC, alleging default on a loan with an unpaid balance of $36.9 million.
Then in June, the development group filed a motion in bankruptcy court to establish procedures for the sale and auction of the property, scheduled for Wednesday, Aug. 15. Magna Hospitality Group emerged as the stalking horse bidder in July. By purchasing the property out of bankruptcy, the buyer can close on the property free and clear of any liens and claims.
In addition to a foreclosure lawsuit, the development group’s principals, Ray Parello, Ken Bernstein, Jack Kessler and Eugene Kessler, face another lawsuit from 21 EB-5 investors who allege they were misled into investing in the project.
The 550 Seabreeze hotel is another example of the challenges facing the EB-5 investment program. Earlier this month, the Securities and Exchange Commission charged a Palm Beach developer, EB-5 regional center and its managing director of defrauding foreign investors in a failed hotel-condo development. The company behind the unfinished Palm House Hotel, 160 Royal Palm Way, also filed for Chapter 11 bankruptcy with creditors claims totaling $115 million.