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Judge postpones auction of Palm House to consider whether to allow a lender to bid
Wellington real estate investor Glenn Straub wants to submit a "credit bid" because a company he controls is holding a defaulted loan to the owner of Palm House
A federal judge postponed a bankruptcy auction to sell the unfinished Palm House hotel-condominium building in Palm Beach.
The auction, which had been scheduled to happen Nov. 16, is now scheduled to start at 10 a.m. on Dec. 14 in the West Palm Beach courtroom of Bankruptcy Court Judge Erik P. Kimball.
On reason the judge postponed the auction was to give himself more time to decide whether to allow Wellington real estate investor Glenn Straub to participate in the auction by submitting a so-called “credit bid.”
The judge approved a plan that would allow New York-based Related Companies to buy the Palm House property for $32 million unless a higher bid is submitted at the auction.
Straub, who formerly owned the Palm House, contends that a company he controls has a secured claim on the property at 160 Royal Palm Way in Palm Beach that exceeds $37 million.
Straub’s company sold the Palm House in August 2013 for $36 million and provided a mortgage loan of more than $27 million to the buyer, 160 Royal Palm LLC, which defaulted on the loan.
Philip J. Landau, a bankruptcy attorney for the debtor, 160 Royal Palm LLC, argues that Straub’s company, KK-PB Financial LLC, should be barred from participating in the bankruptcy auction by submitting a bid equal to the amount of the defaulted loan.
In an Oct. 5 filing with the court, Landau said Judge Kimball should prohibit Straub’s company from participating in the bankruptcy auction because of lingering uncertainty with respect to the loan by KK-PB Financial, Straub’s role in the Palm House project, and his relationship with indicted developer Robert V. Matthews.
Proceeds from the auction would compensate creditors of 160 Royal Palm LLC, the owner of Palm House, which has $115 million of debt. The company’s creditors include foreign investors who put more than $40 million into the Palm House project through the federal EB-5 visa program. Construction work on the project stopped in 2014.
Matthews and Leslie R. Evans, a Palm Beach attorney, are defendants in a trial that will start in July at a federal court in Connecticut. They face charges of fraud and money laundering in connection with the Palm House project. Federal prosecutors say Matthews and Evans used the federal EB-5 visa program to defraud foreign investors in the Palm House project.
In a related civil case, the Securities and Exchange Commission has charged Matthews and Joseph Walsh, director of the South Atlantic Regional Center, with fraudulent misappropriation of funds from foreign investors in the Palm House project. [Palm Beach Daily News] – Mike Seemuth