Millions of dollars from the sale of the never-finished Palm House
hotel-condominium in Palm Beach are finally being disbursed to claimants as
part of a a complex bankruptcy case involving foreign investors who lost
money in the project.
The never-finished Palm House hotel-condominium at 160 Royal Palm Way in Palm Beach was deeded in May to a new owner for $39.6 million.
The foreign nationals invested through the federal EB-5
program, expecting in return a chance to have their immigration papers
expedited, court documents show. Those investments typically totaled
$500,000 each, mostly from Chinese nationals but also residents of Turkey
and Iran, according to court filings.
Under the terms of the liquidation plan approved Tuesday by a federal bankruptcy judge in West Palm Beach, the foreign investors will be paid 80 percent of their “allowed” claims, Glickstein said. That averages to about $150,000 each for the foreigners who were “represented by counsel” in the bankruptcy case, Glickstein said. Some EB-5 investors did not participate in the court proceedings, he added.
“Nobody is getting 100 percent on the dollar,” Glickstein said. “I would have loved to have returned 100 percent on the dollar to those investors. It’s unfortunate that we couldn’t get more for them.”
He added: “Given the complexities and given the difficulties, the feedback that I am getting is that most (of the investors) are appreciative of what they’re getting.”
Attorneys for the investors couldn’t be reached.
According to federal prosecutors and court testimony, the foreign nationals were defrauded by convicted developer Robert V. Matthews and others involved in the Palm House project, where construction ceased abruptly in October 2014. Matthews last April pleaded guilty to felony fraud, money-laundering, conspiracy and tax evasion charges related to the Palm House project. He and others are awaiting sentencing in a U.S. district court in Connecticut.
Last March, bankruptcy judge Erik P. Kimball approved the property’s sale to LR Palm House LLC. That company is associated with a North American affiliate of London + Regional Properties, a foreign-based hospitality and real estate investment company with offices in Great Britain and North America, among other locales.
A British-based company representative and a Palm Beach County attorney who has represented LR Palm House LLC couldn’t be reached Thursday for comment about plans for the property.
More money in the pipeline?
The deed of sale for the Palm House property was recorded in May, but the money remained in an escrow account until this week’s approval of the bankruptcy-liquidation plan.
Bankruptcy attorney Philip Landau, who worked with Glickstein on the case, said creditors with legitimate claims recognized by the bankruptcy court may get more money at some point, pending the outcome of ongoing litigation against other players in the Palm House saga.
“To be clear, the money they’re getting now (may be) an interim distribution. We’re hoping to get more money,” Landau after Kimball approved the liquidation plan.
Glickstein echoed Laundau, noting that ongoing litigation involves “parties that in some way were connected to disbursements of funds related to the Palm House.”
Among the creditors Glickstein paid Thursday was the town and its Code Enforcement Board, which settled more than $4 million in fines, the bulk of which were related to construction delays.
Town officials agreed to settle the fines for a total of $250,000 to help expedite the sale — and presumably encourage the re-start of construction — at the property. Under the settlement agreement, $150,000 was paid after the bankruptcy court approved the sale of the property. Glickstein said he expected to hand-deliver a check for the remaining $100,000 today.
The Securities and Exchange Commission is due about $5.5 million, Glickstein said. He and Landau said the agency “has discretion to make disbursements to those investors.”
Of the building-sale proceeds, $487,000 is being disbursed to “subcontractors and other professionals” who had legitimate liens on the Palm House property before Glickstein brought its ownership company into voluntary bankruptcy in the summer of 2018.
Glickstein got involved with the property about five years ago, when he was appointed the court-sanctioned receiver for Palm House ownership company, 160 Royal Palm LLC. He said Thursday that he always believed the only way to recoup money owed to creditors and investors was to have a bankruptcy court clear the property’s title so that the property could be more easily sold.
In addition to Matthews, two other men are awaiting sentencing in a U.S. district court in Connecticut after entering guilty pleas that they misused investor money earmarked for the Palm House project. Another man is facing a criminal trial in the same case. Matthews’ wife, Mia Matthews, has pleaded guilty to tax evasion.
A key player in the bankruptcy case has been Wellington developer and private lender Glenn Straub, a former owner of the Palm House property. Straub, through one of his companies, KK-PB Financial LLC, has filed several appeals — and either lost or was denied them -- in different courts. Straub’s filings challenged decisions made by the bankruptcy court, including the one last year authorizing the Palm House property’s sale.
Last year, the bankruptcy court effectively dismissed Straub’s claim that he held a defaulted $27.5 million mortgage on the property and was owed $39.68 million as a result. In his Feb. 3 order approving the settlements with the EB-5 creditors, Kimball acknowledged that although Straub’s appeal of the sale order “technically remains pending, it is extremely unlikely that the sale order will be overturned.”
On Tuesday, the U.S. District Court of the Southern District of Florida denied a motion made on behalf of Straub for an emergency “stay” based on his mortgage claim. “The Court is unpersuaded that (Straub’s company) has shown a substantial likelihood of success on the merits” of the appeal, a ruling stated.
Straub’s attorney on Wednesday also asked the bankruptcy judge to stay his approval of its confirmation of the liquidation plan, but Kimball denied the request Thursday.
And on Wednesday, Straub’s attorney filed notice in Kimball’s court that Straub’s company would appeal in district court the judge’s approval of the liquidation plan.
Once the funds from the sale are distributed, Glickstein said, Straub’s appeals should become moot under the law.
“Because the money has been disbursed and the property has been conveyed, there is no remedy that the court can craft. So those appeals are moot,” Glickstein said.
Only one of Straub’s claims was deemed immediately payable under the liquidation plan — an $11,000 claim he purchased from a creditor during the bankruptcy proceedings. His company will be paid $2,000 for that claim, Glickstein said.
A spokesman for Straub did not immediately return a request for comment.