Ryan Black vs Gerry Matthews, Palm House LLC

Filing Date:July 20, 2015

Case:Ryan Black v. Gerry Matthews and Palm House, LLC

Jurisdiction:Court of Appeals for the Fifth Circuit

Status:Pending

Civil / Criminal:Civil

Fraud

Securities Violations

The long-delayed Palm House hotel condominium is not only embroiled in an internal ownership dispute but also is in foreclosure proceedings, court documents show.

The foreclosure complaint centers on a $27.5 million mortgage made to the hotel-condominium’s ownership. The lender is a company controlled by Wellington developer Glenn Straub, who was the previous owner of the Palm House.

The Palm House serves as collateral for the loan, which was issued last year. The mortgage specifies that $400,000 from the sale of each condo-unit would go toward repaying the debt, court records show.

An attorney for the Palm House’s management filed a motion on Oct. 15 in response to the foreclosure complaint, which was filed last month. He asked a circuit court judge for more time to respond.

Straub’s lending company, KK-PB Financial LLC, filed for foreclosure against 160 Royal Palm LLC, which owns the property at 160 Royal Palm Way. The hotel’s ownership company is controlled by Gerry Matthews, the majority owner of its parent company, according to public documents that surfaced last week.

Matthews is the brother of Palm Beacher Robert V. Matthews, who bought the property in 2006 but lost it in foreclosure three years later to Straub, who turned the property over last fall to the present ownership.

He sold his membership interest for an undisclosed sum, business records show, but retained control of the mortgage.

Straub’s company had issued that mortgage on Aug. 31, 2013, according to records at the Palm Beach County Courthouse. In May, Straub signed a “notice of default” addressed to 160 Royal Palm LLC, Robert Matthews and his attorney, Leslie R. Evans, records show.

Accusations of ‘waste’

Under construction for eight years, the Palm House project has racked up more than $1 million in town fines related to construction delays.

In addition, town inspectors repeatedly have identified unauthorized revisions to already-approved designs — an issue discussed earlier this month by the Town Council.

The foreclosure complaint says design changes have reduced the number and size of rentable rooms, amenities and parking. The alterations have decreased the property’s potential to generate income “to satisfy the debt,” the complaint says.

“The borrower has removed and/or destroyed millions of dollars of improvements that had been made to the property prior to the date of the mortgage … in a manner that (is) harmful to the collateral of the mortgage,” according to the complaint filed Sept. 12 with the Palm Beach County Clerk’s office.

In addition, the extensive revisions delayed the project’s completion date, preventing the property from qualifying for a certificate of occupancy from the town, according to the complaint. That situation “further (impaired) the property with Town of Palm Beach liens that are increasing $2,000 per day.”

West Palm Beach attorney Alan M. Burger, representing the hotel’s ownership, said Wednesday that the foreclosure suit does not have any merit. The design changes have not decreased the value of the property or hurt the loan’s collateral, he said. Instead, the new ownership has made improvements that will make the property far more marketable, he said. He likened it to transforming a three-star hotel into a five-star resort.

“There’s no jeopardy that the lender is going to suffer any loss. It’s really a case of someone trying to assert control without having the right to control the project,” Burger said. “The law is that for a ‘waste’ (to occur), the value of the collateral must be less than the value of the mortgage. In this case, the value of the collateral exceeds the value of the mortgage.”

Straub said Wednesday that his foreclosure action is defendable. “We don’t sue without being able to prove (the claim),” he said.

In asking the court for more time to respond to the foreclosure complaint, Burger said he had only recently been hired for the defense. No action on his motion had been recorded as of Wednesday.

Newer mortgage

No matter how the foreclosure action proceeds, the Palm House’s ownership received a financial boost this month with a new $39.5 million mortgage – more than enough to pay off the previous loan. But language in the new mortgage states that the borrower must satisfy all terms of Straub’s original mortgage.

The new mortgage was issued by Palm House Hotel LLLP, a Florida limited liability limited partnership, and recorded Oct. 17 by the county clerk’s office.

The partnership is managed by Marc Payne and Joseph Walsh, who are listed in state business records at the same Boca Raton address as Walsh’s financial consultancy firm, USREDA (United States Regional Economic Development Authority).

Walsh is USREDA’s president and CEO; David C. Matthews – Robert and Gerry Matthews’ brother – holds the title of global chief operating officer at the company.

Among its services, the company helps clients take advantage of the government’s EB-5 Immigrant Investor Program, according to its website. The program was designed to promote job creation and capital investment by foreign investors in U.S. businesses.

The Palm House is listed under the “projects” category of USREDA’s website, which includes several businesses in which the EB-5 program is promoted as an investment opportunity. Although it does not mention EB-5 funding, the listing describes the Palm House as “one of the most unique and prestigious projects in the United States.”

Unlike three other projects on the website’s page, the Palm House is listed as “sold out” to investors.

Walsh could not be reached for comment, nor could David Matthews, who is traveling abroad, according to the USREDA office.

Another related loan

Yet another mortgage was recently recorded with ties to the Palm House — a $5 million loan issued on a vacant lot at 149 Brazilian Ave., immediately south of the hotel. An attorney for the hotel told the Town Council in September that the lot was being eyed for underground parking.

The property changed hands for $5.8 million, and the deed and the mortgage were both recorded on Sept. 26. The lender was recorded as Medici Finanza LLC.

The loan was made by a “private lender,” said Evans, who declined to comment further. He signed the mortgage as manager of the Delaware-based buyer, Mirabia LLC.

Management dispute

Although the front doors remained padlocked, construction gates at the Palm House were open Tuesday for the first time since early last week, when minority owner Ryan A. Black had the job site locked down. Black told police at the time that the building was being “seized.”

That ownership dispute centers on whether Black – who had been on the record as a managing member of Palm House’s ownership company – was authorized to be on the property.

On Oct. 21, attorney Burger, acting for 160 Royal Palm LLC, filed a civil complaint seeking emergency judicial relief to regain possession of the property and any seized assets. The complaint said Black and another unidentified person tried to “compel” the majority owner earlier this month to turn over all membership interests “or else face unspecified consequences.”

Black signed the most recent mortgage on the property, acting as managing member of the parent company, Palm House LLC. Last year he also signed the mortgage involved in the current foreclosure.

Talks have been ongoing since early last week to resolve the ownership dispute, said attorney Evans, who described himself as “temporary manager” of the hotel’s parent company.