A bankruptcy judge approved the $40.6 million sale of an unfinished Palm Beach hotel-condominium to an affiliate of a London-based hotel company, but an appeal is planned by Wellington developer Glenn Straub, a previous owner and creditor.
U.S. Bankruptcy Judge Erik Kimball in West Palm Beach approved the asset purchase agreement between the manager of Palm House Hotel property owner 160 Royal Palm LLC and LR U.S. Hotels Holdings LLC, an affiliate of London + Regional Properties.
Kimball approved the private sale that breaks down to $39.6 million in cash, $450,000 in real estate brokerage commissions, a $350,000 breakup fee with a stalking-horse bidder and a $250,000 settlement with the town of Palm Beach.
Kimball overruled a written objection to the sale filed by Straub’s KK-PB Financial LLC. As a creditor, the company asserted it has a $39 million secured interest from a $27.5 million mortgage issued on the property six years ago.
At Friday’s final hearing on the sale, KK-PB made an oral offer to pay $40.6 million in cash — $1 million more in cash than London + Regional offered — for the Palm House Hotel but only if an auction were held on the property in a month.
Kimball highlighted the “unusual” nature of the 11th-hour offer, according to a hearing summary attached to a written order issued Tuesday.
“It is impossible to overstate how unusual this last minute proposal is in the context of a sale of this particular asset,” Kimball is quoted as saying at the hearing. “Does it sometimes happen that bidders show up at a bankruptcy sale hearing to present a last minute bid? Yes, it does. Does it happen in cases such as this where the asset is of significant value and the due diligence to present a reasoned bid typically requires extensive review of data and discussion with the debtor? In my 28 years experience with bankruptcy sales, it does not.”
The would-be hotel on mansion-studded Palm Beach was envisioned as a 79-unit hotel-condo. Instead, it remains unfinished as criminal and civil allegations mounted against its developer and others for allegedly inducing foreigners to invest in the property’s redevelopment through the EB-5 visa program but converting some of the funds to personal use.
The visa program gives foreigners a path to green cards for themselves and their families in exchange for investing at least $500,000 into a U.S. commercial enterprise that creates at least 10 jobs.
Court-appointed manager Cary Glickstein, a former Delray Beach mayor, filed for Chapter 11 protection last August.
The property originally was set for a bankruptcy auction Nov. 16, but that was delayed several times as 160 Royal Palm and KK-PB Financial fought in court over KK-PB’s attempt to recover money on the mortgage. Kimball cut KK-PB out of a credit bid in a Feb. 22 order.
Kimball approved 160 Royal Palm’s request to cancel the auction and switch to a private sale.
An affiliate of New York-based developer and fund manager Related Cos. LP had been approved as the stalking-horse bidder at $32 million, setting the auction floor. Related didn’t file a counteroffer to London + Regional’s offer and is in line for the breakup fee.
For its part, KK-PB Financial on Tuesday filed a notice of appeal in West Palm Beach federal district court. It’s appealing Kimball’s order denying the credit bid and a March 1 order granting 160 Royal Palm’s expedited sale procedures and scheduling a final hearing on the sale.
KK-PB Financial also filed a notice of appeal challenging Kimball’s order approval the sale to London + Regional’s affiliate.
In an emergency motion to stay three of Kimball’s orders pending appeal, KK-PB argued 160 Royal Palm and London + Regional rushed to close the deal, cutting KK-PB out of the bidding and mooting its appeals.
“This expedited 10-day private sale process by the debtor has been about one thing — racing to consummate the private sale between the debtor and LR to prevent KK-PB Financial’s principal, Mr. Glenn Straub, from purchasing the hotel,” KK-PB attorney Jim Robinson, a White & Case partner in Miami, wrote.
KK-PB Financial accused 160 Royal Palm of engaging in a “charade of good faith negotiation” over the sale and rejecting KK-PB’s latest offer because of “professed personal animosity toward Mr. Straub.”
In its stay motion, KK-PB also said it raised its cash offer at the hearing to $45.6 million and brought a $50 million cashier’s check to demonstrate its financial wherewithal.
Robinson didn’t respond to a request for comment by deadline.
160 Royal Palm has until noon Thursday to respond to the stay request.