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Owner Philip Pilevsky and Operator Morgans Hotel Group Fending
 Off Foreclosure Proceedings at the 309-room Shore Club Hotel
 in Miami Beach


Hotel Once Valued at $176 million with Latest Appraisal at $86 million

By Douglas Hanks, The Miami HeraldMcClatchy-Tribune Regional News

March 12, 2010 --Even $3,000 suites weren't enough to keep the lenders at bay at the Shore Club, which got hit with a foreclosure suit this week.

The swank South Beach hotel is still open and charging premium rates but last made a mortgage payment in September. A dismal year walloped the financials at the oceanfront property.

Home to a Robert DeNiro restaurant and a long pedigree of celebrity guests, the Shore Club saw profits collapse last year -- down 62 percent as it cleared just $328,000 before taxes and debt payments, according to filings by its operator, Morgans Hotel Group.

Room rates and occupancy both dropped 20 percent, slides that sent the revenue generated by a typical room down 37 percent to $156 a night.

Now forced to fend off foreclosure proceedings over a $126 million loan from 2005, the Shore Club probably qualifies as South Florida's most high-profile hotel drama. Long a source of gossip-column fodder since its 2001 opening, the Shore Club got hit by the recent hotel downturn just as it faced more competition for a shrinking pool of free-spending vacationers.

"A lot of that high-end boutique South Beach product appealed to the Wall Street crowd -- the 38-year-old, 39-year-old executive who got six-figure bonuses," said hotel broker Dan Carlo, of Holliday Fenoglio Fowler in Coral Gables.

With that customer mostly gone, the Shore Club was left to duke it out with high-profile newcomers, including the newly renovated Fontainebleau and the nearby W South Beach.

Owner Philip Pilevsky did not respond to an interview request Thursday. Morgans Hotel Group, which owns the nearby Delano and manages Shore Club for Pilevsky, said the debt dispute would not affect operations.

But the loan problems have threatened to spillover into the 309-room hotel, where the cheapest beds go for $445 a night this weekend and the most expensive suite available sells for $3,000.

SOME GOOD NEWS

Last fall the Shore Club's loan servicer, LNR Property Corp., disclosed to investors that Pilevsky's team had threatened to shut down the hotel unless it could use loan reserves to make payroll. But its financial picture has brightened amid a recovery by hotels throughout South Florida.

For January, Smith Travel Research reports per-room revenue rose 4.2 percent at Miami-Dade hotels -- the first increase since August 2008, the start of the global financial crisis.

The American Academy of Dermatology's annual meeting brought an estimated 19,000 people to Miami Beach this week, which the trade group says is a record for the yearly convention.

The improvement showed in the Shore Club's numbers, too. The hotel's per-room revenue drop narrowed to 23 percent in the last three months of 2009 and lenders reported the hotel is generating enough revenue to pay expenses but not cover loan payments.

Still, for hotels like the Shore Club that borrowed big in the boom times and now must contend with recession-era revenue and values, the good news only goes so far. Valued at $176 million at the time of the 2005 loan, the Shore Club was appraised at $86 million in September, according to lender reports.

"In general terms, 2010 is not going to provide any real relief for borrowers," said Gregory Rumpel, a broker with Jones Lang LaSalle Hotels in Coral Gables.

LNR, a Miami Beach company that manages delinquent loans across the country, has control of the Shore Club mortgage, which was sold as part of an investment pool on Wall Street.

AUCTION?

The federal foreclosure suit asks a judge to order the entity that owns the hotel, Philips South Beach, to either pay off the loan or surrender the hotel in a courthouse auction. No hearing has been set in the case.

Victor Diaz, a lawyer at Miami's Podhurst Orseck who represents the LNR entity managing the loan, said in a statement Thursday that the loan dispute "will not affect the guest experience at the Shore Club."

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Copyright (c) 2010, The Miami Herald

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