The Nakash family’s woes at its Breakwater hotel in South Beach continue, this time because of a loan default.
The debt on the 100-key hotel at 940 and 960 Ocean Drive in Miami Beach entered special servicing after the Nakashes failed to pay off the loan at its maturity last month, marking the third time the financing is in special servicing, according to Morningstar Credit. The owners, through an affiliate, took out the $31.3 million loan in 2014 as a refinancing, with the debt’s balance now at $28.2 million.
The Nakash family –– led by brothers Joe, Ralph and Avi Nakash, who are founders of clothing firm Jordache Enterprises and also lead New York-based Nakash Holdings –– have a portfolio of South Beach hotels that includes the former Versace Mansion and the hotel portion of The Setai Miami Beach.
The Nakashes, through an affiliate, bought the Breakwater hotel out of bankruptcy in 2008 for $24.8 million, according to records. This amount may be lower than the true price because deeds generally don’t reflect furniture and fixtures usually included in hotel purchases.
The Breakwater, completed in 1939 and renovated in 2011, consists of a four-story building at 940 Ocean Drive and a five-story building at 960 Ocean Drive, according to records and Morningstar Credit.
Nakash family members and their representatives didn’t return a request for comment.
Although full-year financials for the hotel haven’t been provided for the past two years, the loan’s debt service coverage ratio (DSCR) has been near or less than the breakeven metric for the majority of the financing’s term, according to Morningstar Credit.
DSCR is a measurement of whether a property’s cash flow is enough to cover expenses, with a measurement of 1x considered the breakeven. Breakwater’s DSCR was last reported at 0.73x in 2023, according to Morningstar Credit.
The loan first experienced trouble in 2020, entering special servicing during the Covid lockdown, according to a June KBRA report.
At the start of the pandemic, tourism and hospitality business halted and hotels suffered a drop in bookings.
In 2022, Breakwater’s financing was taken out of special servicing following a forbearance agreement, KBRA’s report says.
But bigger trouble came, rooted not in bookings and revenue but in a legal dispute between the Nakashes and Ocean’s Ten, a restaurant tenant at the hotel owned by Catherine and Anthony Arrighi.
Ocean’s Ten had first sued the Nakashes’ Breakwater ownership entity in 2020, alleging the landlord was trying to illegally evict the restaurant. The Nakashes responded with a countersuit, arguing in part that the restaurant was violating noise ordinances and the lease due to loud noise, and also sued to evict Ocean’s Ten.
In 2022, Miami-Dade Circuit Court Judge Valerie Manno Schurr entered a scathing order for $17.4 million in punitive damages and $2.1 million in attorney fees against the Nakashes. The ruling was based on the determination that the Nakash family enterprise submitted fabricated evidence in the case, lied under oath, filed a false expert report to the court and lied to Miami Beach city officials and special magistrates, according to the order. The owners had allegedly hired a private investigator to pose as a hotel guest and made up sham noise complaints about the restaurant.
The hotel’s loan went into special servicing for a second time in 2022 due to the judge’s order, according to the KBRA report.
Most recently, the Nakashes got some good news in the case. In January, an appeals court agreed with the family and struck down the $17.4 million punitive damages award to the restaurant, court filings show. The appeals panel of judges determined Ocean’s Ten failed to establish “clear and convincing evidence” it’s entitled to punitive damages.
The appeals court still upheld the lower court’s decision to strike the Nakashes’ push to evict Ocean’s Ten, and its order for sanctions against the Nakahses.
In the meantime, the hotel’s loan matured in September of last year but a forbearance agreement between the lender and Nakashes pushed back the maturity to September of this year, according to Morningstar Credit. Last month’s default marked the third time the debt goes to special servicing.
It’s unclear who is the Nakahses’ lender on the Breakwater. Their ownership entity, 940 Ocean Drive, and Nakash Holdings recorded no mortgage on the property since 2008 in public records.
Morningstar Credit lists the lender as Pillar, though several financiers with variations of this name exist.
In South Beach, the Nakashes own Hotel Victor at 1144 Ocean Drive, Hotel Ocean at 1236 Ocean Drive and the commercial space at The Strand at 1052 Ocean Drive. In 2023, a Nakash affiliate and its partner VE Group paid $23.5 million for the 80-room, five-story Beacon South Beach Hotel building at 720 Ocean Drive, also in South Beach.
The family bought the former Versace Mansion, home of the late fashion designer Gianni Versace, out of bankruptcy in 2013 for $41.5 million. The property at 1116 Ocean Drive has been converted into a hotel and the name The Villa Casa Casuarina.
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