Z Capital Group lost its attempt to levy a $7.7 million assessment on condominium unit owners at the Carillon Miami Wellness Resort.
The outcome is the latest in the drawn out and still-ongoing legal battle, pitting the associations for the North, South and Central towers against Z Capital’s affiliate, Carillon Hotel. The oceanfront complex is at 6801 Collins Avenue in Miami Beach.
Z Capital owns the spa and roughly 70 condo-hotel units at the Central Tower, the order says. It is the only tower among the three that allows individual condo unit ownership and allows owners to put their condos in a hotel pool, according to an attorney representing one of the associations. Under the master declaration, this ownership gives Carillon Hotel control over the majority of the common areas such as hallways, elevators, pools and gyms in all of the towers, as well as the right to levy assessments on unit owners for the maintenance, operation and insurance of these shared facilities.
It is this level of control and assessment power that is at the heart of the litigation. The associations sued Carillon Hotel in 2016, with the case now in its eighth year. Z Capital has maintained in court filings that it has created an internationally recognized wellness resort since buying the hotel keys and spa in bankruptcy court in 2015.
In the latest chapter of the case, Z Capital, through Carillon Hotel, sought to levy the $7.7 million assessment to cover the legal fees and costs it has accrued in the lawsuit since 2017. New York-based Z Capital, led by James Zenni Jr., is a privately held merchant bank with $5.2 billion in Its portfolio of companies includes Affinity Gaming, Alchemy Wellness Resorts and Mrs. Fields.
On Monday, Miami-Dade Circuit Judge Michael Hanzman sided with the condo associations, calling the push for the assessment “audacious.” The fee is illegal and in violation of the master declaration that outlines the governing structure of the campus, the judge wrote in his order.
Because this was a temporary ban on the assessment, Hanzman ordered the associations to post a $712,000 bond in the event his ruling is overturned.
The order could set the stage for a decision on the broader issue of control of condo-hotels’ shared areas. Hanzman wrote that he intends to “address, on an expedited basis, the legality of the structure governing the shared campus.” In addition, some of the common areas unit owners pay assessments for are actually amenities, such as the spa and restaurant, which generate a profit for Carillon Hotel, Hanzman noted.
“Carillon Hotel has no right to charge anyone any costs of defendants’ [Carillon Hotel] profit-seeking hotel venture,” he wrote.
Carillon Hotel’s attorneys did not return a request for comment. Over the course of the case, It has counter-sued the condo associations, arguing that the entire case is really a ploy by the associations to undo Carillon Hotel’s purchase of the resort in bankruptcy court and take ownership and control of the property for themselves. It also argues that the associations could not sue as long as Carillon Hotel did not breach an assessment cap.
In two letters sent to unit owners in late July after Hanzman issued his order verbally at a hearing, Carillon Hotel said it plans to appeal. It called the lawsuit “meritless” and said that it is eager for a potential trial in the fall.
Its chief financial officer testified in court in July that it does have the right to levy assessments to maintain and operate the shared facilities, and that the residents have no say in how the shared facilities are run, according to the judge’s order.
Gene Stearns, an attorney for the associations, argues otherwise. He said it’s illegal for a private company to unilaterally control and issue assessments for the maintenance of common areas used by residents. The associations should elect a board that will give them a voice over the maintenance and operations of the facilities, said Stearns, of Miami-based Stearns Weaver Miller Weissler Alhadeff & Sitterson.
Z Capital can’t be “the dictator, the authoritarian ruler over a master association that controls all three buildings,” Stearns added.
Peter Zalewski, a South Florida condominium market analyst, said this is a common issue for condo-hotels, as they usually give the owner of the hotel — and not the unit owners — decision-making power.
“The corporate investors love this type of structure because of the subsidy,” said Zalewski of Condo Vultures, referring to the assessments on unit owners. “It’s not officially called a subsidy but that’s what it is.”
In a similar case, One Bal Harbour’s condo-hotel association had claimed the condo association changed the declaration to decrease its own expenses for shared utilities, parking and beach service access. The lawsuit settled this year.
“Corporate investors in condo-hotel ownerships, they can basically piss away cash and put the debt on individual unit owners,” Zalewski said.