The Meruelo family was hit hard during the housing crash, losing several development sites to foreclosure. But the family isn’t letting its past troubles prevent it from pursuing a massive expansion of the 484-room Deauville Hotel in Miami Beach.

The family is proposing a 21-story tower with 412 hotel rooms next to the iconic 56-year-old building at 6701 Collins Ave. That would almost double the number of rooms at the landmark property.

The family would also add 12 suites above a second-floor ballroom and reconfigure another ballroom and retail space on the ground floor to make room for a 124-space parking garage.

The family’s plans come at a time when the hotel market in Miami Beach is thriving with rising occupancy and room fees.

It also comes when securing construction financing for new projects is tough to obtain, especially for developers like the Meruelos who handed properties over to lenders during the financial crisis.

“Construction lenders want strong guarantees of payment going beyond a hotel project itself,” said Frank Nardozza, chairman and CEO of REH Capital Partners in Fort Lauderdale. His company provides advisory services to the real estate and hospitality industries. “The developer has to have a strong personal balance sheet to be able to provide guarantee of payment on the loan.”

That may be a problem for the Meruelos. As a result of foreclosures, some family members were involved in litigation with lenders that sought their personal assets to recover some of the debt.

Return To ‘Glory Days’

The Meruelos initially planned to build the tower in 2003, when they received city approval for a 150-condo high-rise. At that time, the South Florida condo market was regaining momentum. The project never materialized, but the family kept the city approval alive, said Miami architect Kobi Karp, who designed the tower and the proposed modification to turn the condo tower into a hotel.

The new tower is to be built partly on vacant land and partly on a section of the hotel’s current service area on the south side of the project, Karp said.

The proposal also calls for restoring the existing hotel to its “glory days,” he added.

Today, Karp plans to present the plan to the Miami Beach Historic Preservation Board, which must approve the application before the project moves forward.

Homero Meruelo last month told the Daily Business Review he was pulling the Deauville item from today’s agenda and putting the project on hold. But the item was never withdrawn and last Friday his attorney, Neisen Kasdin of Akerman Senterfitt, said the application was moving forward.

Meruelo could not be reached for comment about the apparent change in plans.

Ballroom’s Future

The new proposal spares the Napoleon Ballroom from the wrecking ball. The Beatles performed there during a 1964 segment of the Ed Sullivan Show on CBS. Only a portion of the ballroom would be demolished to accommodate the parking garage.

The Miami Beach planning staff welcomes the change.

“The legacy of the Napoleon Ballroom … as the venue for Frank Sinatra, President John F. Kennedy, the Beatles and so many others of fame is probably unsurpassed in South Florida history, and may once again become a great promotional calling card for the hotel,” according a city planning staff report.

The city is concerned about the location and design of the 12 suits proposed above the north ballroom. Planners claim the future addition isn’t “designed in relation to the historic Post War Modern structure and has an adverse impact upon the original architecture.”

The Deauville was designed by Miami Beach architect Melvin Grossman.

Karp said the city planners like the project overall and realize there is still some work to be done.

“The staff comments are good comments,” said Karp, one of South Florida’s most prolific architects. “We have worked very closely with them, and we are looking to make the modifications to comply with their comments.”

Repositioned Hotels

The hotel restoration and the addition of a new tower could boost the Deauville’s competitiveness at a time when Miami Beach is seeing a wave of hotels being repositioning to a higher level of luxury.

“Definitely, you need to upgrade because all the supply in is getting better and better,” said Coral Gables hospitality consultant Christian Charre. “That’s why the Gansevoort is putting so much money into it.”

A consortium of Starwood Capital Group, the LeFrak Organization and Invesco are spending nearly $100 million renovating the 334-room Gansevoort at 2377 Collins Ave.

Another hotel that has been transformed is the former Royal Palm hotel at 1545 Collins Ave. The 393-room facility re-opened last month as the James Royal Palm after a nearly $40 million renovation.

Much of the renewed interest in Miami Beach hotels is fueled by rising room rates and occupancy levels.

“The Miami market is generally just about even where it was in the pre-downturn,” Nardozza said. “Miami market is one of the strongest in the country.”

Over the first nine months of the year, the room occupancy rate in Miami-Dade hit 76.5 percent, up from 75.7 percent during the same period of 2011, according to Smith Travel Research, which compiles data for the hospitality industry. The occupancy rate during the same period in 2008, at the height of the recession, was 65.2 percent. The average daily rate during the first three quarters of 2012 was $124.55, up from $115.48 in the same period last year. For the same months in 2008, the average daily rate was $92.17.

Consultant Charre said the Deauville, which is considered a three-star hotel, attracts guests by charging lower rates. But as the hotel inventory in Miami Beach continues to improve, the Deauville would need more than a rich history to fill its rooms.

“History alone won’t make you competitive,” said Charre, president of The Charre Group. “You need to invest into a hotel to make people want to go there.”

Charre said the Deauville has a lot of potential because it is on the beach.

Violations

The Deauville’s need for improvement was shown by past safety-related violations cited by the city of Miami Beach.

In 2010, the city ordered the closure of the Napoleon Ballroom, two other ballrooms and the theater at the lower lobby. The city has cited the hotel for violations including the lack of a fire safety permit, an exit door in the theater that was built illegally and doesn’t comply with the city’s fire code, and exit doors in the ballrooms that don’t meet city safety standards. The ballrooms remain closed “until proper permits and inspections” are done and the city issues a new certificate of occupancy, according to a report provided by the Building Department.

Homero Meruelo did not respond to two telephone calls Monday seeking comment on the violations.

City planners also want the Meruelos to renovate the structure of the existing hotel — in a way approved by the city — before the city issues a building permit for the rooftop. The city also wants the lobby of the hotel to be restored to its original design.