By KRIS HUDSON and TAMARA AUDI
MIAMI -- South Florida's Soffer family, already roiled by the June bankruptcy of its $3 billion Fontainebleau casino-hotel project in Las Vegas, is grappling with troubles at another cornerstone of its $7 billion real-estate empire: The original Fontainebleau hotel in Miami Beach.
The Soffers bought the 55-year-old hotel in 2005 and embarked on a 2½-year, $500 million renovation aimed at returning it to its former glory, when it was a playground for stars including Elvis Presley and Frank Sinatra. But the 1,504-room property, which appeared in films such as "Scarface" and "Goldfinger," now faces problems with the debt it took on, according to people familiar with the matter.
Lenders, led by Bank of America Corp., could declare a default on a $670 million construction loan for various reasons, including Fontainebleau's failure to keep reserves to cover more than $60 million in contested liens against the property by contractors who have not been paid, these people said. A 45-day agreement not to declare default expired Monday, they said.
In a statement, Fontainebleau executives declined to comment on the expired forbearance deal, calling it a "private document." They said the hotel is "engaged in constructive negotiations with our lenders." The hotel has not missed a debt payment and the executives point out that it is faring better than its South Florida rivals since reopening in November.
The Miami troubles mark the latest setback in the Soffers' recent push into big hotel projects, spearheaded by 41-year-old Jeffrey Soffer, the son of founder Donald Soffer. Known for racing cars, sailing on his 257-foot yacht and dating supermodel Elle MacPherson, Jeffrey Soffer extended the family's luxury-property holdings with the Fontainebleau projects and the $130 million renovation of the 392-room Fairmont Turnberry Isle Resort in Aventura, Fla.
The Soffers' biggest problem is the Fontainebleau Las Vegas, which filed for Chapter 11 bankruptcy protection in June after its lenders refused to provide it funds from its $800 million revolving loan to complete the project. Jeffrey Soffer signed $220 million in personal guarantees to secure financing for the project, Fontainebleau confirms.
Mr. Soffer, who has put his yacht, Madsummer, on the market for $175 million, says his family's empire will persevere. "As with most businesses during these particularly difficult economic times, we are facing challenges," he said in a statement. "But our family has always worked its way through the inevitable downturns that occur in the real estate market."
The Soffers aren't the first real-estate clan to be clobbered by the recession. Chicago's Bucksbaum family lost $4 billion in the value of its stake in General Growth Properties Inc. as the mall owner descended into bankruptcy earlier this year. New York developer Harry Macklowe and his son, William Macklowe, were forced to sell the GM Building and hand over several other Manhattan skyscrapers to lenders.
The Soffers' problems stem partly from the U.S. hotel downturn, which has pushed occupancy to its lowest levels in more than 20 years.
The Miami Fontainebleau is doing better than many. Executives say it is often more than 70% occupied, compared with 67.2% from January through July for the Miami market, according to Smith Travel Research. Dubai World, the investment arm of the Persian Gulf state, paid $375 million last year for a 50% stake in the hotel.
The Soffers stripped the iconic hotel to its foundation and shell, reconstructed each room, installed a massive swimming pool and added a spa, health club and trendy restaurants. The reopening gala was a lavish, celebrity-filled affair that featured a Victoria Secret lingerie show.
But lenders are withholding a final $26 million yet to be drawn on the construction loan until the Soffers resolve the problems with contractors, people familiar with the talks say. Those people say the lenders could also declare a default on the loan because the hotel had not delivered audited financial statements to the lenders or maintained cash-management records for the lenders' review.
Fontainebleau executives say the contractors' bills remain unpaid because an outside audit commissioned by Fontainebleau found that some contractors were overbilling or falsifying their work records. Attorneys for several of the contractors say they never saw results of the audit.
"I think it's obvious there was no money to pay them," said Herman Braude, one of the contractors' attorneys. A spokesman for Fontainebleau declined to comment on the specific allegation from Mr. Braude.
Donald Soffer, 76, began building the family empire in 1967, when he bought 785 acres of swampland in northern Dade County to develop Aventura, a collection of country clubs, condominiums and office buildings. Last week, a Miami bankruptcy judge refused to force the Fontainebleau Las Vegas banks to pay.
"We're working through these issues now," the company said in its statement, declining further comment.