North Carillon Beach condo association files motion to re-open bankruptcy case
Litigation surrounding the Carillon Miami Beach just got much more heated.
The North Carillon Beach Condominium Association filed a motion in federal bankruptcy court in New York on Thursday seeking to reopen a Chapter 11 case, as a step toward suing the building’s owner, Z Capital Partners, for alleged fraud and mismanagement.
The motion seeks unspecified damages for Z Capital’s alleged unlawful exploitation of the association and unit owners. It alleges that Z Capital fraudulently induced the association and unit owners to support its purchase of the oceanfront complex so it could gain control of the property and use its experience in asset stripping, cost cutting and restructuring for its own benefit.
Z Capital, based in Lake Forest, Illinois, did not respond to a request for comment from The Real Deal.
In January 2015, Z Capital bought the property at 6801 Collins Avenue, formerly called Canyon Ranch, out of bankruptcy court. The project’s condominium associations had originally opposed the bankruptcy auction results and had filed a lawsuit against the bankruptcy debtor.
The Carillon, whose original hotel dates back to 1958, now includes two condo towers completed in 2008: the South Tower and North Tower, as well as the Central Tower, which has both residential units and hotel suites. Z Capital owns nearly all the project’s amenities and common areas.
Since Z Capital’s purchase, the condo associations of the Central and South towers have filed separate suits against Z Capital. In May, condo owners at the Central Tower filed a suit seeking more than $100 million in damages, alleging that the private equity firm is artificially driving down property values to acquire units at below-market prices, and is assessing maintenance fees while denying unit owners access to building amenities and failing to allow them to see records.
In late March, the South Carillon Beach Condominium Association, made up of condo owners at the South Tower of the Carillon, also sued Z Capital, demanding access to financial records tied to millions of dollars in assessments.
Now, in a draft of the newly proposed lawsuit attached to the latest motion, the North Carillon condo association alleges that Z Capital, “a self-described ‘opportunistic’ hedge fund” has “systematically stripped away, and failed to replace as promised, the top-quality wellness brand and lifestyle” of Canyon Ranch which condominium unit owners counted on when buying their units.
The suit alleges that Z Capital had promised that if its acquisition were approved, it would either retain the existing Canyon Ranch brand name or bring an “equally exclusive, luxurious, and renowned five-star brand” to the property, maintaining the focus on healthy living and wellness.
It also alleges that Z Capital decreased services and staffing in vital areas like security and amenities, while imposing maintenance and capital assessments that place the financial burden of operating and renovating the property on unit owners, even though all revenue flows solely to Z Capital.
“All this while wresting away control and while asserting a complete absence of transparency and accountability over virtually every shared aspect of the property from [the association] and the unit owners,” the suit alleges.
The association further alleges that Z Capital breached contracts, including that it promised that the hotel operator would be a joint venture created among Adrian Zecha, founder of Amanresorts and director and non-executive chairman of General Hotel Management; Jonathan Breene, founder of Setai Group; and Z Capital, and that Z Capital would make good faith efforts to negotiate with Canyon Ranch to remain in the spa only.
Instead, the facilities at the Carillon are now being operated by Z Capital itself, according to the suit.
As a result, condo unit owners allege that that they have seen their property values fall, while hotel rates have plummeted, and that rooms, spa treatments and food and beverage deals are offered on discount websites.
A hearing to review the North Carillon condo association’s motion is scheduled in New York bankruptcy court on Sept. 6