A bankruptcy judge has approved the $39.1 million sale of an incomplete Fort Lauderdale hotel where Chinese investors claim they were victims of fraud under the federal EB-5 visa program.
MHF Properties VI LLC, an affiliate of Warwick, Rhode Island-based Magna Hospitality Group, submitted an initial stalking horse bid of $38.6 million and increased the value to the eventual purchase price in a would-be auction that attracted no other bids Aug. 15.
U.S. Bankruptcy Judge Raymond Ray in Fort Lauderdale approved the sale of the Las Olas Ocean Resort on Friday, and bankruptcy attorney Glenn Moses of Genovese Joblove & Battista in Miami expects the transaction to close this week. Construction is projected to restart by the end of the month.
Moses called the sale “a significant milestone” marking the biggest avenue for potential recovery in the bankruptcy case.
Developer 550 Seabreeze Development LLC planned the project as a 12-story hotel with 136 rooms at 550 Seabreeze Blvd. Sixty Chinese investors kicked in more than $60 million in exchange for EB-5 visas, which are contingent on job creation.
Court records showed 550 Seabreeze owed more than $37 million in principal and fees when it went into default following damage from Hurricane Irma last October and subsequent repair delays.
A $2 million insurance claim was submitted for water, salt and sand damage to the building, including customized electrical and mechanical components in an automated garage system. Labor costs increased as demand for construction repairs rose after Irma landed in the Florida Keys.
The developer also had to deal with a change in state flood elevation requirements, which mandated architectural and engineering revisions, lighting conflicts among state agencies for the protection of nesting sea turtles and delays in steel fabrication for the parking garage.
Delaware-based lender Bancorp Bank filed a foreclosure lawsuit in January, and work stopped with construction 70 percent complete on the hotel across State Road A1A from the beach south of Las Olas Boulevard. The bankruptcy filing followed in February.
Moses expects a quick construction restart. ”Magna was in discussions with the general contractor to use them on a going-forward basis so they were lining up their ducks to move forward as quickly as possible,” he said.
The Stuart-based general contractor, Straticon, and many of the subcontractors committed in advance to coming back to work, he said.
The sale benefits the creditors, the contractors and the EB-5 investors, who supported Magna’s offer despite their lawsuits, Moses said.
Magna has agreed to a reporting process on job creation to help the Chinese investors, and Moses said, “Hopefully, they’ll be able to obtain their visas through the reporting that Magna will provide.”
Magna was founded in 1998 as an opportunistic hotel real estate investment company focused on hospitality investment, development and management, according to its website. The company owns or operates more than 20 hotels with over 4,500 rooms and employs 1,500 people.
Moses worked with law partner Paul Battista on the bankruptcy case.
Magna is represented by R. Scott Shuker, Justin Luna and Bruce Knapp of Latham, Shuker, Eden & Beaudine in Orlando. Shuker did not respond to a request for comment by deadline.