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Press Room
June | 2008
Advisory Services Partner, Barry Mukamal, Featured in Daily Business Review article “Jordache jeans founders buy pair of Ocean Drive hotels”
A failed condo-hotel conversion on Miami Beach’s Ocean Drive — which was to be branded Nicky O, in tribute to celebrity-socialite Nicky Hilton — has been acquired by the founders of the Jordache jeans company.
New York-based Nakash Holding paid $24.75 million for The Breakwater Hotel and the adjacent Edison Hotel as the result of a bankruptcy auction.
Chicago condo converter Robert Falor’s conversion of the buildings stalled more than a year ago over a lack of financing, and he lost the properties in August when they were transferred to a bankruptcy trustee.
The Nakash family saw it as an opportunity to expand its holdings of South Beach-area properties.
“We are just getting warmed up,” said Shaul Nakash, chief marketing officer of the Nakash’s Jordache Enterprises. He is the son of Ralph Nakash, one of the three founding brothers of Jordache.
They plan to operate the Breakwater and Edison as traditional hotels.
Sources familiar with the deal predicted the Nakash family will have to spend more than $15 million to complete the renovation of the hotels at 960 and 948 Ocean Drive.
Emzon Shung, who oversees the family’s South Beach properties, said he doesn’t have a firm renovation budget yet, but said the $15 million was realistic.
The hotels will have about 100 rooms; The Edison could be ready for occupancy by the next season and The Breakwater for the following season, he said.
This is the fourth South Beach hotel property the Nakash brothers have acquired in four years. They own Hotel Ocean at 1230 Ocean Drive, the Henrosa Hotel at 1435 Collins Ave. and a hotel yet to open at 1444 Drexel Ave. Jordache owns six condos at The Setai in Miami Beach, said Shung, Jordache’s executive vice president of real estate.
“We like South Beach because it is easy to understand,” Shung said. “You have nice people, nice beaches and nice weather.”
The family has amassed a sizable real estate portfolio in the United States and Israel since brothers Joe, Ralph and Avi Nakash introduced the tight and sexy jeans to the nation in 1978. Jordache Enterprises’ real estate holdings range from high-rise offices to warehouses in Chicago, Boston, New York, Philadelphia and Israel. The family’s investments also include Arkia Airlines, the second-largest airline in Israel; and Maine Atlantic, which provides fuel, maintenance and parking for private planes at Knox County Regional Airport in Owls Head, Maine.
The sale of the two hotel buildings marks the end of Falor’s plan to convert them into hotel condo properties. His company, South Beach Hotel Investors, bought the South Beach properties for $10.25 million in 2004. But his plan crumpled two years later, as demand for hotel condos dried up, the licensing agreement with Nicky Hilton to brand the hotels as “Nicky O” fell apart, and the carrying cost of the hotels became unaffordable.
“The hotels are on Ocean Drive and the insurance [premium] became much more than they could afford,” said Miami attorney Steven Mishan, who represented South Beach Hotel Investors in the bankruptcy case.
Mishan said his client wanted to sell the hotels to get out of the debt, but the lender, Oak Tree Capital Management, didn’t cooperate.
Miami attorney Paul Battista said his client, Oaktree Capital, did not feel “comfortable” with Falor’s handling the sale of the hotels.
In March 2007, South Beach Hotel Investors filed for Chapter 11 protection from creditors. A recent court filing showed South Beach Hotel Investors owed Oaktree Capital more than $60 million for a mortgage and a mezzanine loan.
“The relationship became adversarial almost immediately” after filling for bankruptcy, Mishan said.
Battista, a partner with the law firm Genovese Joblove & Battista, said the Los Angeles-based lender isn’t done with South Beach Hotel Investors. Oaktree Capital plans to go after the guarantors of the mortgage and mezzanine loans to recover nearly $40 million lost in the deal, he said.
Falor arrived into town in 2004 and persuaded deep-pocket investors to partner with him to buy hotels for condo-hotel conversions. At that time, many developers saw conversions as a great way to make quick money, said Miami Beach real estate broker and investor Jeff Cohen.
“They would buy at wholesale prices to sell at retail prices,” he said. “It made total sense.”
Falor, backed by different investors, bought Coconut Grove’s Mayfair Hotel and Miami Beach’s Royal Palm Hotel. Eventually, the partnerships soured and ended up in litigation.
“Everything he touched went down the toilet,” said Cohen, who, with partner The Comras Co., unsuccessfully tried to buy for $230 million the Royal Palm Hotel from Falor and majority owner Guy Mitchell last year. The deal failed after the lender backed out, Cohen said. The Royal Palm is now in foreclosure.
In August, U.S. Bankruptcy judge A. Jay Cristol ruled the Breakwater and Edison hotels could be sold to help pay creditors. The sale closed in early May.
Barry Mukamal, the bankruptcy trustee, said selling the property, which had deteriorated since the halt of construction, was a challenge.
“It was a troubled property,” said Mukamal, a partner with the accounting firm Rachlin LLP in Miami. “Even though the location was superb, it had a lot of baggage attached.”
He had to renegotiate the leases for two restaurants on the ground floor of the hotels. Falor had signed long-term, below-market leases that made the properties unattractive, he said. Commercial tenants typically are protected under bankruptcy laws and can not be evicted to make room for more profitable leases.
Mukamal also had to keep a construction permit active so that a buyer could build nine penthouses in The Breakwater. Miami Beach zoning code has changed since Falor started the project years ago. If the permit had expired, a new owner would have not been able to build the high-priced penthouses, said Mukamal, who was appointed trustee in August.
Miami attorney Andrew Zaron, who represented the trustee, said finding financially strong buyers in a distressed credit market where lenders are afraid of taking on more risk was a big hurdle.
“From August to April, we had 160 people interested in the hotels,” said Zaron, with the law firm Hunton & Williams. “We would negotiate the terms of a contract, and when we thought we had a deal, it turned out the buyer could not get financing.”
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