UPDATED June 24, 3:40 p.m. New York-based Merchants Hospitality wants to pay $110 million to buy the lease for the Biltmore Hotel in Coral Gables and renovate the historic property, as the current partners plan a separate change in interest following a contentious dispute, The Real Deal has learned.
In a letter of intent for the Biltmore, signed by Merchants Hospitality President and CEO Abraham Merchant and obtained by TRD, Merchants has proposed to pay $40 million to pay off debt and $70 million to be split evenly between the 50/50 partners whose group holds the longterm lease, Gene Prescott and Robert Kay. The deal also includes at least $20 million to be spent to repair, renovate and upgrade the hotel to “luxury standards,” plus $5 million to be paid to the city of Coral Gables, which owns the hotel.
The proposal additionally offers the option for the partners to retain an interest in the hotel following Merchants’ acquisition, subject to certain conditions.
“What we have proposed is a purchase of the entire property with an opportunity for the current investors to stay invested as much as they wish,” Ed Ristaino, a partner with Akerman, who represents Merchants, told TRD.
Yet at the same time, a different deal is in the works for the Biltmore, sources say: Prescott would buy out Kay’s interest for $28 million, below the $35 million he would receive in Merchants’ deal. The transaction is scheduled to close on Aug. 15, according to sources. Prescott, Kay and Kay’s attorney did not respond to requests for comment Thursday from TRD.
Kay and Prescott have been deadlocked in dispute over selling the hotel lease
Prescott’s buy-out of Kay follows a legal petition New York-based Kay filed in June 2015 in Delaware, seeking to discontinue the joint venture partnership for Seaway Biltmore and dispose of its assets.
The petition cited “strong demand for hotels in the Miami market” as offering Kay and Prescott the chance to cash out their interests rather than continue to operate the Biltmore.
“Kay has made clear his desire to take advantage of this sales opportunity to monetize his interest in Seaway… by hiring an investment banker to explore transaction opportunities…. Prescott, however, has stated his unwillingness to sell Seaway and that he is only willing to consider a transaction that will result in his continuing to manage the Biltmore Hotel indefinitely,” the filing alleges.
“This disagreement is making it impossible to arrange a sale,” the petition further says, citing “a number” of potential buyers. “None of those potential buyers, however, is willing to to engage in a transaction that is conditioned on Prescott continuing to manage the Biltmore Hotel,” the petition alleges.
Kay and Prescott had not been able to agree on a buy-out of Kay’s interest by Prescott at the time of the filing, which asks the court to discontinue the joint venture and order a distribution of assets if an agreement has not been reached in one year.
According to Merchants’ letter of intent, the litigation has been adjourned, but it has not yet been dismissed nor resolved. Merchants states that its deal is contingent on it being dismissed or resolved.
Launched in 1926, the Biltmore, at 1200 Anastasia Avenue, is currently listed on the National Register of Historic Places. The iconic property’s storied past includes serving as a hospital during World War II, as a VA Hospital and the University of Miami’s medical school until 1968.
In 1992, a consortium led by Seaway Hotels Corp., headed by Prescott and Kay, took over a 99-year lease and began operating the hotel. The group invested $40 million in repairs, including adding a fitness center and spa, restoring the 18-hole golf course and refurbishing the hotel’s landmark hotel, which ranks as one of the largest hotel pools in the United States, according to its website.
Yet in 2011 the Coral Gables City Commission said the Biltmore was two years and $5.5 million behind in rent and golf management fees.
Merchants’ plans for the hotel
Today, the 273-room hotel has fallen into disrepair, according to Merchants’ letter of intent, which cites “numerous life safety deficiencies, including elevator safety issue and balcony structural issues, that must be repaired and improved as soon as possible.” Merchants states that it also plans to improve the hotel’s event spaces, restaurants, retail and conference center space. The letter of intent also says Merchants would make an effort to bring in a major operator of luxury hotels to manage the property.
“From Merchants’ standpoint, they really like the idea of bringing some new restaurants and dining opportunities there and making the property more of a dining destination for city residents and visitors,” Ristaino said.
Merchants has been trying to enter South Florida for months, and had vied to buy the Sagamore Hotel in Miami Beach earlier this year. The firm owns the Hyatt Andaz and Philippe Chow in New York and the Westin Aruba Hotel & Casino, among other properties.
According to its letter of intent, Merchants and its legal teams have spent the last four months evaluating the Biltmore, including physical and financial diligence, legal diligence and an analysis of the approval process relative to the city of Coral Gables.
Any change of ownership would need to be approved by the Coral Gables City Commission, according to the lease documents, though a change in interest in the partnership that currently holds the lease does not require city approval, Ristaino said. A message left for Coral Gables’s city attorney was not returned.
As of Thursday, Ristaino said Prescott and Kay had not signed Merchants’ letter of intent.
“We’re hopeful that there will be an opportunity to work together,” Ristaino said. “But at this point, it’s still a work in progress.”
Yet on Friday afternoon, Prescott issued a statement saying his agreement to buy out Kay is completed and he is the majority shareholder of the operating company for the Biltmore — and he is not interested in a deal with Merchants.
“After concluding the buyout agreement with Robert Kay, we were approached by representatives of New York-based Merchants Hospitality about purchasing the operating lease for the hotel,” Prescott, president of the Biltmore, said in the statement. “We stated that we had no interest in selling. Subsequently, Merchants Hospitality prepared a letter of intent document. We appreciate their interest but we have no interest in a sale of the operating lease agreement. It’s business as usual at the Biltmore.”