The developers of Miami Beach’s Goodtime Hotel are in for a not-so-good time over a payment guarantee tied to an allegedly defaulted $149.3 million mortgage.
Eric Birnbaum and Michael Fascitelli allege CIM Group is seeking to illegally collect at least $10 million via the payment guarantee, even if they turn over the 266-key hotel at 601 Washington Avenue via a deed-in-lieu of foreclosure. That’s according to a counterclaim filed in New York Supreme Court this week against an affiliate of the Sacramento-based lender.
In July, the CIM affiliate sued Birnbaum and Fascitelli, who lead New York-based Imperial Companies, for allegedly breaching the payment guarantee by failing to make the $10 million payment and giving up the property, which is part of Marriott’s Tribute Portfolio division.
The CIM affiliate alleges the Imperial Companies affiliate that owns Goodtime Hotel failed to repay roughly $149.3 million when the loan matured last year.
Attorneys for Birnbaum, Fascitelli and CIM declined comment.
Goodtime Hotel opened in 2021 with a lot of fanfare. At the time, Birnbaum and Fascitelli touted celebrity Pharrell Williams, hospitality mogul David Grutman and designer Ken Fulk as partners in the project. They developed the hotel with a $45 million construction loan after acquiring the property for $36 million in 2015.
A lawyer’s costly mistake
According to court filings, Goodtime Hotel’s owners signed the payment guarantee agreement in 2021, when they obtained a $164 million financing from CIM that was subsequently reduced to $152 million. Birnbaum and Fascitelli allege the agreement was supposed to state that they would pay for three months of carrying costs in the event the lender foreclosed on the property or the hotel owners relinquished the property in a deed-in-lieu of foreclosure.
But their lawyer, Gary Axelrod with Chicago-based law firm Lathan & Watkins, allegedly missed an error in the agreement that did not explicitly state Birnbaum and Fascitelli would only cover costs for three months, the counterclaim states. As a result, their obligation for the hotel’s operating costs, taxes and debt service could be interpreted as a potentially perpetual obligation until the Goodtime Hotel was in the black.
Axelrod allegedly did not realize the mistake until 2023 when Birnbaum and Fascitelli initially decided to go ahead with a deed-in-lieu of foreclosure because Goodtime Hotel was not profitable, the counterclaim states. The attorney allegedly advised the hotel owners to “kick the can” until the property was stabilized. Axelrod did not respond to requests for comment.
Birnbaum and Fascitelli allege the CIM affiliate has sought to capitalize on the error by refusing to correct the agreement, asserting that the hotel owners could be liable in perpetuity. The lender allegedly leveraged the erroneous payment guarantee agreement to force Birnbaum and Fascitelli into forbearance in 2023 and a $10 million supplemental guarantee, per the counterclaim.
The alleged mortgage default
Birnbaum and Fascitelli accuse the CIM affiliate of repeatedly stalling their efforts to do a deed-in-lieu of foreclosure deal and initiating a UCC foreclosure action that the lender did not follow through on. The CIM affiliate also allegedly torpedoed their attempts to refinance the mortgage debt with a new lender by increasing the payoff quote by more than $20 million, the counterclaim states.
The CIM affiliate alleges in its lawsuit that it sent the Goodtime Hotel entity a deed-in-lieu of foreclosure notice in January, but that the owners failed to deliver closing documents and fulfill other requirements for transferring the property. A month later, after demanding the $10 million payment, the lender provided Birnbaum and Fascitelli extensions to complete the deed-in-lieu of foreclosure, which they failed to meet.
Birnbaum and Fascitelli are seeking a court order to rescind the payment guarantee agreement or allow it to be amended to include the three month requirement for the carrying costs.