Monroe, Witkoff Lose Appeal in Benny Shabtai Shore Club Suit

An appeals court upheld a $5 million judgment against the developers of the Shore Club project in Miami Beach.

The latest decision reinforces a judge’s order from more than a year ago to award about $5 million to watch mogul Benny Shabtai in his lawsuit against the current and former developers of the Art Deco hotel.

Shabtai sued HFZ Capital Group, Ziel Feldman, the Shore Club entities managed by Monroe Capital and Witkoff, and former HFZ executive Nir Meir in 2021. Monroe Capital and Witkoff, the current developers of the planned luxury condo and hotel project, are on the hook for the judgment. They said they plan to appeal to a higher court.

Shabtai invested $3.5 million in the planned redevelopment in 2013, when Fortress and HFZ joined SC Philips Clark to redevelop the property at 1901 Collins Avenue. He was to receive Class B interest in the project that he planned to redeem to purchase a unit on the 18th floor of their development, court records show.

HFZ, the New York-based firm that was led by Feldman, planned a Fasano-branded condo and hotel on the site but canceled it and returned buyers’ deposits in 2018 due to difficulty securing financing and other roadblocks.

In an affidavit filed last month, Feldman said that the developer had issues “at the onset” because of a neighboring property owner that was trying to block the project. (The Nakash family, which owns the nearby Setai resort, also challenged Monroe and Witkoff’s approval.)

“Those attempts significantly delayed Defendants’ efforts to develop the Shore Club,” he said. The developer and Douglas Elliman, the brokerage tapped to lead sales and marketing of the project, presold about one-third of the units, but “that number was insufficient” and the shaky financing market in 2016/2017 resulted in the “financial collapse” of the project, Feldman said in the affidavit.

Shabtai was not considered a buyer in the traditional sense. Feldman said Shabtai’s investment “was utilized in good faith for the purpose contemplated in the [agreement].”

HFZ lost its ownership of the historic Shore Club when Monroe foreclosed on the property.

HFZ would later face a number of legal battles with former lenders and partners, including Meir.

After securing approvals for their project, Monroe and Witkoff again tapped Elliman to lead sales and marketing of the Shore Club, which is expected to be an Auberge-branded hotel and condo development with fewer than 50 luxury condos, 110 hotel rooms and a new 17-story tower designed by Robert A.M. Stern Architects and Kobi Karp Architecture & Interior Design.

The latest decision from the New York appeals court hinges on an administrative error. Witkoff and Monroe failed to change the address for the Shore Club affiliates, and was not served Shabtai’s lawsuit at the same time as HFZ and the other defendants.

In the decision, dated Oct. 10, the court states that “the failure to maintain a current mailing address for service of process is not a reasonable excuse for defaulting” the judgment.

“It sends a strong message to the real estate community that if you have an investor that invests a significant amount of money, those investment monies need to be handled properly and with the utmost integrity,” said Shabtai’s attorney, Ethan Kobre of New York-based Schwartz Sladkus Reich Greenberg Atlas LLP.

A spokesperson for Witkoff and Monroe said in a statement provided to The Real Deal that they “believe the decision was unfair and inconsistent with controlling law.”

“This is a case concerning the conduct of Ziel Feldman, Nir Meir, and HFZ,” the statement said. “… Once Monroe and Witkoff became aware of the lawsuit, [they] quickly took steps to defend the case. But the Plaintiff successfully achieved a default judgment against the Property.”