The Real Deal Miami

Conrad Fort Lauderdale Beach partners are in court over $41M dispute

Allegations in dueling lawsuits include contract breaches, self-dealing arrangements and stalling the sale
By Francisco Alvarado |
Research by Laura Hanrahan
May 02, 2018 03:30PM

Conrad Fort Lauderdale Beach

Seven months after finally opening Conrad Fort Lauderdale Beach, its developers are embroiled in a nasty legal fight for control of the long-delayed, financially troubled condo-hotel project.

Between February and March, the developers — JJN FLB LLC and CFLB Partnership — filed dueling lawsuits against each other in Miami-Dade Circuit Court. The suits allege breaches of contract, self-dealing arrangements and delaying a $40.9 million sale of the property at 551 North Fort Lauderdale Beach Boulevard.

JJN FLB, an entity controlled by Pierre Heafey and the Pegula family, became a 51 percent owner in the Conrad Fort Lauderdale Beach in December 2016, according to its Feb. 15 suit. Heafey is president and founder of Canada-based Heafey Group, and the Pegula family owns the NFL’s Buffalo Bills.

CFLB is an an affiliate of Conrad FLB that is managed by South Florida developers Jose and Joseph Cabanas. Four entities controlled by the Cabanas, including CFLB, own 49 percent of the Conrad Fort Lauderdale.

The Cabanas’ partnership sold 232 units plus commercial and common space to the Heafey-Pegula company and other Heafey-affiliated companies in four separate transactions totaling $100 million. The Heafey affiliates also assumed a $236.5 million mortgage from Ladder Capital Finance.

Their partnership has long since soured.

The Heafey-Pegula company alleges that the Cabanas partership has refused to execute part of the agreement that allows the Heafey-Pegula company to buy 20 percent of the condo-hotel units. The lawsuit claims the Cabanas partnership initially agreed to consummate the deal after Heafey and Pegula raised their offer from $37.5 million to $40.9 million last October, when the Conrad Fort Lauderdale Beach opened for business.

Attorneys for both sides did not respond to phone messages and emails requesting comment.

On March 14, the Cabanas-managed partnership sued Heafey and Pegula’s company, accusing the company of “profound breaches of the operating agreements and several instances of gross self-dealing.”

Among them, Heafey-Pegula executed a sales and marketing agreement with Cervera Real Estate — which is not party to the suit — that provided the Heafey-Pegula partnership with an allegedly illegal 1.75 percent marketing fee calculated on the purchase price. That was done in connection with sales of certain condo-hotel units, the Cabanas-managed entity’s complaint alleges.

The Cabanas entity claims it did not authorize Heafey-Pegula to collect the 1.75 percent fee and that its partners made misleading statement about the Cervera agreement.

Heafey-Pegula also awarded the Pegula family an overly lucrative agreement to operate an oceanside restaurant on the Conrad property despite strenuous objections by the Cabanas entity, the lawsuit states. The Cabanas wanted to bring in the owners of Yolo and Tarpon Bend and claimed the Pegulas do not have any experience managing South Florida restaurants.

The 24-story condo-hotel has 290 units including studios, suites with one to three bedrooms, and three penthouses that come equipped with galley kitchens with touch-screen stove tops, marble bath tubs and rainfall showers. Amenities include a 4,000-square-foot spa, a 20,000-square foot sky deck with a heated pool on the sixth floor and 10,000 square feet of meeting space. One night at the Conrad Fort Laurderdale Beach starts at $339.

The project has been marred by setbacks and funding issues since it was conceived in 2004 as the Trump International Hotel & Tower. Developer Roy Stillman’s SB Hotel Associates had obtained a licensing agreement with the Trump Organization, but litigation between buyers and SB resulted in the builder running out of money. That project ultimately failed.

The Cabanas entered the picture as part of an investment group led by hotel developer Orchestra Hotels + Resorts that bought the project in 2013 for $115 million. They had planned to spend $40 million to finish the Conrad as a 290-unit tower with 109 condos and 181 condo-hotel units. However the budget soared by at least $70 million and the completion date was pushed back several times.