Troubles Hit Real Estate at High End http://www.nytimes.com/2007/03/10/business/10real.html By CHRISTINE HAUGHNEY Published: March 10, 2007 Until now, deep-pocketed Wall Street tycoons and foreign investors benefiting from a weak dollar seemed to be holding up the luxury real estate market even as the low-end fractured. But there are signs that some high-end real estate developers are also being hit by the slowdown. Last night, a condo-hotel developer who was a partner with celebrities in selling luxury perches from Miami to Chicago let the mortgage on the Royal Palm Hotel in South Beach, a trendy section of Miami Beach, expire. The missed deadline places another luxury condo project into the hands of bankers specializing in troubled mortgages. Jack McCabe, a real estate consultant in Deerfield Beach, Fla., said there would be more troubles for developers, lenders and title insurance companies. âThis is the first of what will probably be several high-end developers who had a number of luxury projects,â he said. âWeâre going to see some where the banks take them back. Weâre going to see some sold to other developers. Weâre also going to see a lot of litigation.â The developer, Robert Falor, planned to turn 160 of the Royal Palmâs more than 400 rooms into condo-hotel units with a Maxim-themed bar operated by Cindy Crawfordâs husband, Randy Gerber, in the same complex. According to a report this week by the rating agency Standard & Poorâs, Mr. Falor, whose company is Robert Falor Investments, did not sell any condos and has put the hotel up for sale. As a result, the agency lowered its rating on the commercial mortgage-backed security â a type of bond â that includes Royal Palmâs mortgage; the mortgage had been packaged into the security by Credit Suisse. Last night, Mr. Falor let his $109 million mortgage mature without any payment or refinancing. Mr. Falor also failed to meet requirements for an extension set by Wachovia Securities, which services the loan. Both banks declined to comment about the status of the loan made to Mr. Falor. âThe financing was based on a successful condo-hotel conversion,â said Larry Kay, director of structured finance ratings for Standard & Poorâs. âMy understanding is that the conversion or renovation is moving forward. But there have not been units sold to date.â Mr. Falor did not return calls made to his office in Florida and to one of his lawyers in Chicago. A spokeswoman for Mr. Gerber did not return calls. While Wall Street bonus money and foreign investors have kept the luxury market far stronger than most segments of Florida real estate, Seth Semilof, a former broker and publisher of the Miami lifestyle magazine Haute Living, says that buyers are becoming more cautious about the types of Miami luxury condo projects they will buy. Consumers are rejecting any projects that involve developers turning existing hotel units into condominiums because the consumers fear that they could lose their deposits if these projects are never converted. Instead, Wall Street bankers, baby boomers and Europeans are more often snapping up condominiums from developers with projects that are being built from the ground up. âThe market is separating the contenders from the pretenders,â Mr. Semilof said. âThe consumer is not buying projects where they sell units and then do the conversions. People are willing to put money where they know where the building is going to be built.â In February, Mr. Falor sued Paris Hiltonâs sister, Nicky, and her agent, Paul Fisher, over their former proposed partnership to open in South Beach the âNicky Oâ condo hotel. The hotels, he told The Miami Herald, were supposed to feature cupcakes with turn-down service. Mr. Falor started a partnership with Ms. Hilton less than a year ago to redesign the Blake Hotel in Chicago and the Breakwater-Edison condominium in Miami under her name. Court documents state that she failed to meet her plans to design the Blake Hotelâs interiors, misrepresented herself as having experience in hotel design and gave parties for herself and friends that never promoted the projects. He says that Ms. Hilton owes him more than $1 million on hotel rooms, public relations fees and travel. âNicky and Fisher intended to use the Falor group to promote Nicky and underwrite a lavish lifestyle for both Nicky and Fisher,â according to court documents. Ms. Hilton and Mr. Fisher did not respond to e-mail messages and phone calls. On March 2, Mr. Falor filed for bankruptcy against a mezzanine lender on a 454-unit conversion project in Chicago called Hotel 71. Now his mezzanine lender, Oaktree Capital Management of Los Angeles, may face more roadblocks in foreclosing on the property from Mr. Falor after he defaulted on a $27 million loan. Oaktree declined to comment on the negotiations.