The Real Deal Miami

Twenty-one EB-5 investors sue developers of unfinished Fort Lauderdale hotel

The Las Olas Ocean Resort is entangled in bankruptcy and will go up for auction Aug. 15
By Keith Larsen | July 18, 2018 05:45PM

The incomplete Las Olas Ocean Resort on Seabreeze Boulevard

Twenty-one Chinese EB-5 investors are suing the development group and a bank behind an unfinished hotel in Fort Lauderdale Beach, alleging fraud.

The EB-5 investors allege in a suit filed in U.S. Bankruptcy Court on Monday that Ray Parello, Ken Bernstein, Jack Kessler, Eugene Kessler and Bancorp Bank engaged in a fraudulent scheme to entice investors into putting $500,000, each, into the Las Olas Ocean Resort, a planned 12-story, 136-room hotel project at 550 Seabreeze Boulevard. The project is still not completed and is currently entangled in Chapter 11 bankruptcy. The property will go up for a bankruptcy auction on Aug. 15.

The lawsuit is seeking monetary damages and is seeking to give the creditors priority to collect funds before the bank does.

The new lawsuit highlights some of the issues facing EB-5, the federal program in which foreign investors can invest $500,000 into certain projects in exchange for residency. The program has become less heavily relied upon by South Florida developers in recent years.

According to the lawsuit, in 2012 the development group began soliciting 60 EB-5 investors to raise money for the project. Bancorp and the development group allegedly assured the EB-5 investors that their investment would be protected if the debtors defaulted on their loan. The group also told investors they would each receive one unit in the building as collateral if the project were to fail, according to the lawsuit.

“The developer group issued a letter that you would be getting this hotel unit as collateral,” said Matthew Sava of Reid & Wise LLC’s, an attorney who is representing the EB-5 creditors along with Miami-based LKLSG’s Jeffrey Schneider.

In actuality, the lawsuit alleges these provisions were never included in the loan documents and the development group never provided a unit in the hotel.

Paul Singerman of Berger Singerman, who is representing
Bernstein, Jack Kessler and Eugene Kessler, declined to comment on the case. Parello and Bancorp Bank did not immediately respond to a request for comment.

In January, Bancorp Bank filed a foreclosure suit against 550 Seabreeze Development LLC and Jawof 515 Seabreeze LLC, alleging default on a mortgage loan with an unpaid principal balance of $36.9 million. Last month, the developer filed a motion in bankruptcy court to establish procedures for the sale and auction of the property, scheduled for Aug. 15.

Last week, the hotel project secured a stalking horse bidder for $38.6 million by an affiliate of Magna Hospitality Group. The bid has since been increased to $39.1 million, according to Glenn Moses of Genevese Joblove & Battista, who represents the developer.

Following the August auction, 550 Seabreeze will ask the court to approve the sale to the highest and best bidder. The buyer would be able to close on the property free and clear of any liens and claims on the property.