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Developers misrepresented Z Ocean Hotel’s dire finances: judge
Balance sheet showing condo hotel had $31.4M in assets didn’t match up to 2007 tax return showing $12.3M in assets and negative equity of $7.3M
A New York investor was duped into buying a money-losing Miami Beach condo hotel, according to Miami-Dade Circuit Court Judge William Thomas.
Thomas recently ruled in favor of Louis Taic and his company So. Beach Hotel LLC in a seven-year legal fight with the Miami Beach developers who sold him a majority share of the Crowne Plaza South Beach Z Ocean Hotel at 1437 Collins Avenue in 2008.
Thomas hinged his ruling on financial and tax documents that provided conflicting information about the viability of Z Ocean Hotel when Taic was courted by the project’s developers. Ronald Molko and the Grabarnick family wanted Taic to invest in South Beach Resort Development, the entity they formed to build the condo-hotel.
Before Taic bought into the company, a Grabarnick family member provided him with a balance sheet showing South Beach Resort Development had $31.4 million in total assets that made it appear the property was profitable, Thomas’ order states. The Grabarnicks vouched for the accuracy and truthfulness of the balance sheet. However, the limited liability company’s 2007 tax return filed in 2009 — a year after Taic purchased two-thirds of Z Ocean Hotel — showed South Beach Resort Development only had $12.3 million in total assets and negative equity of $7.2 million.
“The truth, however, as revealed only after the filing of the 2007 tax return in 2009, was that South Beach Resort Development was a terribly struggling company on the verge of insolvency, with negative equity,” Thomas wrote. The judge also concluded the Grabarnicks used fraudulent inducement in the sale.
Richard Sarafan, a partner with Genovese, Joblove and Battista, who represents Taic and So. Beach Hotel LLC, said the judge’s decision vindicated his clients’ position that they were the victims of a fraud. “The claims against our clients, which the court has now held to be without merit, could have put our clients out of business.” Sarafan said.
South Beach Resort Development was formed in the early 2000s to develop the project. It was led by Ronald Molko, who owned half of the limited liability company, and the Grabarnick family, which divvied up the other half. The Grabarnicks are Philip Gene Grabarnick, wife Pauline Grabarnick and son Garett Grabarnick.
Abbey Kaplan, a Kluger, Kaplan, Silverman, Katzen & Levine shareholder representing the Grabarnicks, said his clients intend to appeal. “Although we have great respect for Judge Thomas, in this instance we believe he misinterpreted the law and disregarded uncontroverted testimony that supported the Grabarnicks’ position,” Kaplan said.
The 80-unit Z Ocean Hotel was completed in 2006 and is designated as transient use, which allows for short-term stays. Shortly after, Crowne Plaza was brought in to manage the hotel operations. Owners who rent their units can do so on their own or through Crowne Plaza.
In 2008, the Grabarnicks began seeking investors when South Beach Resort Development was behind on a loan with an outstanding balance of $17 million, according to Thomas’ order. When accountants working for Taic’s So. Beach Hotel LLC found poor record-keeping by South Beach Resort Development, Phillip Gene Grabarnick put together the balance sheet showing nearly $31.4 million in assets.
The document was crucial in So. Beach Hotel moving forward with the purchase of two-thirds of South Beach Resort Development, Thomas concluded. He also determined the $31.4 million weren’t real assets.