By Francisco Alvarado, FloridaBulldog.org
For the past four years, about 40 investors and snowbirds who own 42 rooms in a landmark oceanfront art deco hotel have been locked in a pitched court battle with one of Miami Beach’s most politically connected families to keep their units.
An ongoing civil lawsuit in Miami-Dade Circuit Court alleges that Miami Beach developer Russell Galbut, along with relatives and business associates, broke Florida condo association laws by passing nearly $30 million in illegal assessments for renovations at what is now the Shelborne Wyndham Grand South Beach. That works out to roughly $107,142 per room.
The group, 10 of whom spoke with a reporter but asked that their names not be used, claim Galbut stacked the condo association’s board with flunkies and is trying to take control of the entire building by initiating foreclosure proceedings against them for refusing to pay what they believe are outrageous assessments. They also alleged that their rooms were demolished without their consent during the renovations, resulting in the City of Miami Beach revoking their certificates of occupancy until they fixed their units.
“They are using the old game of charging us exorbitant assessments to push us out,” said one New Yorker who purchased two rooms in the late 1990s as an investment. “There is a conspiracy to take our deeds for peanuts. Their end game is to own all the units.”
Galbut is not a defendant in the case, but a Galbut company that owns 100 rooms and 57 commercial spaces at the Shelborne is a defendant. Other defendants with Sherborne Property Associates are four shell companies Galbut controls, his cousins Keith Menin and Joan Brent and the Sherborne Ocean Beach Hotel Condominium Association.
Ronald M. Rosengarten of the Greenberg Traurig law firm represents Sherborne Property Associates.
“While it is true that friends and supporters of the Galbut family projects may sit on the board, the Galbut family does not ‘control’ their votes,” Rosengarten said. “Currently, Galbut family related entities only have a minority interest in the Shelborne, owning less than one sixth of the units and certainly do not control the units.”
Rosengarten said court records also show the Galbuts’ renovation of the Shelborne “has been a financial boon for the unit-owners and not a fraud.”
Built in 1940, the iconic hotel at 1801 Collins Avenue was entirely owned by Galbut and his relatives in the 1980s. A decade later, the Galbuts began selling some of their units to outside investors when the property was converted to a condo-hotel, according to the 10 owners and Rosegarten. The new owners were allowed to rent their rooms to tourists through a Galbut entity that managed the hotel or other companies that provided booking services.
Galbut family big political contributors
Galbut family members and companies they control have contributed tens of thousands of dollars to political committees supporting Miami Beach city commission candidates. Through six companies he controls, Russell Galbut also has raised $10,000 for a PAC supporting Miami-Dade Mayor Carlos Gimenez’s re-election. Three Galbut family members have contributed a combined $15,100 this year to Republican congressional candidates including Sen. Marco Rubio, and Republican U.S. Reps. Carlos Curbelo and Ileana Ros-Lehtinen.
Things began going awry in 2010, a year after management of the Shelborne was handed over to Menin Hotels, a company controlled by Galbut and his cousin, Keith Menin, the lawsuit states. From 2006 through the beginning of 2015, Menin also served on the condo association board. The lawsuit alleges Menin and the board voted in favor of a $15 million renovation in 2011 to redo the Shelborne’s common areas, from the hotel hallways to the lobby to the pool deck without obtaining approval from at least 75 percent of the unit owners as required by state law.
Yet the non-Galbut owners still got a bill for the $15 million through a series of special assessments between 2011 and 2012.
“Keith Menin knows the Menin Alterations are unlawful,” the lawsuit states. “But he caused or allowed the partnership to make them anyway.”
The lawsuit also claims that Joan Brent, the other Galbut cousin who served on the condo association’s board from November 2011 and June 2013, knew the Menin Hotels renovation was unlawful.
Barely a year later, Galbut and his alleged surrogates signed an agreement with Wyndham Hotel Management allowing them to market 125 rooms and the common areas of the hotel under the Wyndham brand, the lawsuit states. The non-Galbut owned-rooms were not part of the deal.
Despite just finishing the $15 million update to the building, the condo board initiated another renovation project in the summer of 2014 in order to meet Wyndham standards, the lawsuit states. This time, the non-Galbut owners were assessed a combined $28.7 million, according to the complaint.
Again, the condo board did not obtain consent from 75 percent of the owners, the lawsuit alleges. It also says Galbut, Brent, Menin and their allies on the board devised a plan to lie to the non-Galbut owners about the extent of the renovations – saying only that they were replacing the Shelborne’s windows and making repairs required by the City of Miami Beach.
In the ensuing months, the lawsuit say, the non-Galbut owners learned that the scope of the work was much bigger than they were told and that the developer and his cohorts barred them from entering the hotel, preventing them from seeing what was actually happening in the building.
“While the property was closed, the conspirators caused or allowed the structure to be completely gutted,” the lawsuit states. “By closing the property, the unit owners were simultaneously deprived of the use and income generated by their residential units.
Many Shelborne owners “forced to sell”
Predictably, many members could not afford this wave of special assessments with or without the building being closed so they were forced to sell their units.”
The lawsuit also notes that Shelborne Property Associates obtained a $125 million loan around the same time the deal with Wyndham was signed. The proceeds were used to buy rooms from non-Galbut owners who wanted out, the lawsuit alleges. Court and property records confirm that Galbut-owned shell companies purchased 120 units at the Shelborne since 2012, the complaint alleges.
“There were not $125 million worth of units for sale when Shelborne Property Associates obtained this financing,” the lawsuit alleges. “But SPA knew that the association was about to levy tens of millions of dollars of additional special assessments against its members, and close the condominium property for over a year.”
The purchases gave Galbut controlled entities 75 percent ownership of the Shelborne, and the board the necessary majority to approve the Wyndham renovation after the construction had already begun.
A non-Galbut owner who identified himself as “Jackie” said Galbut and his accomplices are squeezing them out because they don’t want to pay them fair market value for their rooms. “They saw that Miami Beach real estate in general was skyrocketing, especially beachfront hotels,” Jackie said. “Rooms have been going for $700,000 to $800,000 a room. That was the case with Raleigh Hotel, the SLS South Beach and the Shore Club.”
According to a review of some of the Shelborne units purchased by Galbut-related entities in the last four years shows rooms have sold for an average between $150,000 and $250,000. Rosengarten countered that non-Galbut owners who sold rooms to his client got good deals.
“Property records evidence that the overwhelming majority of transfers occurred in sales whereby the owners received vastly greater prices for the units they sold compared to what they paid for them,” Rosengarten said. “In other words, the condo owners were not victims but were beneficiaries of the increasing valuation which resulted from maintaining and improving the building.”
Adding insult to injury, construction workers entered their units without their consent and destroyed their rooms, the non-Galbut owners allege. “When we finally gained access to our units, we found our rooms completely wrecked,” said the New Yorker who owns two rooms. “They demolished my kitchen, my bathroom and my living room. They never repaired the damages.”
The owner said city inspectors flagged his units for 20 life safety violations and told him he couldn’t use the rooms until he fixed it. He spent close to $25,000 per room after paying nearly $40,000 in special assessments, he said.
Another owner, a retiree who lives in Atlanta, said she had to dip into her 401K to finance her repairs. She had plans to live out her retirement in her Shelborne unit.
“In anticipation of losing my unit, I tried to buy a house,” she said. “But I was denied a mortgage when the bank saw I was shelling out these huge sums of money and that my income had dropped to $50,000 a year. All because of the Galbuts.”