Margaritaville Hollywood Beach Resort, 1111 N. Ocean Dr., in Hollywood. Credit: Google. Margaritaville Hollywood Beach Resort, 1111 N. Ocean Dr., in Hollywood. Credit: Google.

Hollywood gained ground in a feud with the Margaritaville resort developer over $1.7 million the city claims it’s owed from the sale of the property last year.

The city pressed to arbitrate instead of litigate the dispute, and Broward Circuit Chief Judge Jack Tuter agreed in an order issued June 6.

The two sides are locked in a fight over how much, if anything, the city is owed after Margaritaville Hollywood Beach Resort LP sold the hotel in April 2018.

The resort company led by Hollywood-based developer Lon Tabatchnick, with Barry Sternlicht’s Connecticut-based Starwood Capital Group as equity partner, sued the city last October after the city made its claim.

The resort was sold to an affiliate of Denver-based leisure real estate investment company KSL Capital Partners LLC for $190 million.

Tabatchnick, who is president of Hollywood-based Lojeta Group, a real estate development company, said, “We are happy with the judge’s decision and look forward to resolving the issue with the city.”

His attorney, Michael Kreitzer, litigation partner at Bilzin Sumberg in Miami, said by email, “Margaritaville Hollywood Resort looks forward to litigating this matter in whatever forum the court deems appropriate.”

The oceanfront project at 1111 N. Ocean Dr. was developed on city land leased by the developer. It features a 349-room hotel, 35,000-square-foot convention center, eight restaurants and bars, several pools, a FlowRider wave ride and parking garage.

The garage, which is shared by the resort and the city, is at the heart of the dispute.

The project was built in 2015 after the two sides signed a development and lease agreement in June 2013. The agreement said the city would be entitled to a payout if the developer sold the project at a profit or for a net price that’s higher than the development costs.

The payout would be 5% of the difference between the net sale proceeds and the developer’s investment.

Although the gross sale price was $190 million, the net proceeds were just over $188.4 million, the developer said in its complaint. The developer said it invested nearly $190.7 million in the property, which would leave it owing nothing.

Not so fast, the city said.

The city argues the developer incorrectly included the full cost of the garage in its investment calculation even though the city funded the construction of the public portion of the garage pedestal. The city created a community development district for the project.

Excluding the cost of the public parking, the developer’s investment shrinks to $154 million, City Attorney Douglas Gonzalez wrote the developer last October. City figures leave the developer on the hook for $1.7 million based on a $34 million difference between the net sale proceeds and the developer’s investment.

Fox Rothschild partner Joseph DeMaria in Miami, who represents the city in the lawsuit, said the issue comes down to the developer trying to avoid payment.

“Wait a minute, Mr. Developer,” DeMaria said. “You didn’t pay to build the spaces in the public garage. The taxpayer did. And that’s what this case comes down to. They are taking the position that they get to deduct as an expense money that they never spent just so that they can wipe out the profit and not pay the taxpayer.”

The complaint for declaratory judgment argued the city’s calculations are “erroneous” and based on a “flawed” interpretation of the development agreement.

The developer noted the city staff initially agreed with the developer’s conclusion and argued the city’s claim was pushed by some commissioners trying to gain voter support.

“Certain members of the Hollywood City Commission, in an attempt to curry favor amongst some voters, have demanded that the city mug the project in [an] effort to extract monetary concessions to which there is no contractual or legal right,” the complaint said.

The resort, which borrows its name from Jimmy Buffett’s hit song, has revitalized Hollywood Beach, helped triple the taxable value of beachfront properties and spurred more development.

Steven Zelkowitz, the Fox Rothschild partner in Miami who has represented the city since 2009 on real estate aspects of the project, acknowledged the city was committed to improving business at the beach.

In pursuit of that, the city leased the land, partially funded the garage and issued a $28 million grant for the resort and streetscape improvements.

“The city really bent over backwards to assist the developer to allow them to move forward,” Zelkowitz said.

“This is like the case of the no-good-deed-goes-unpunished,” DeMaria added. “The community, the taxpayer gives all these benefits to the developer, and the developer has one obligation. If you sell that property for a profit, you got to pay a fee. Not an outrageous fee, but a fee.”