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March 19, 2010 |
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| January 29, 2009 |
By: Paola Iuspa-Abbott |
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einaldo and Edith Gonzalez got their first taste of the Canyon Ranch Living brand while vacationing aboard the Queen Mary II.
It was such a great experience, that shortly after returning from the cruise to Miami, the couple visited the site of a condo project in Miami Beach that featured the Canyon Ranch brand. They made a $236,000 deposit and signed a contract for a $1.18 million unit.
“We were planning to retire so we went to check the place,” Reinaldo Gonzalez said. “We wanted to enjoy the Canyon Ranch lifestyle.”
Gonzalez, whose Miami company sells engine parts, didn’t mind paying a premium for the condo. After all, he thought, he was buying his retirement home at Canyon Ranch Living — Miami Beach. Tucson, Ariz.-based Canyon Ranch resorts are a favorite destination for people seeking fitness, nutrition, preventive health care and spiritual awareness programs. Canyon Ranch’s reputation sealed the deal for the Gonzalezes.
But as the project neared completion, the couple began receiving letters from the developer and soon realized they hadn’t bought a condo at a Canyon Ranch resort. Instead, they had bought a unit at the Carillon North Beach tower, which had an agreement with Canyon Ranch to provide spa services.
Gonzalez said he felt misled. He now wants his money back and the contract terminated.
The couple, and about five other buyers, have filed individual suits alleging the developer, WSG Development, falsely advertised the project at 6801 Collins Ave. as a Canyon Ranch resort.
The developer denies the allegations made in the lawsuit, the latest effort by condo buyers trying to get out of deals to buy units after the real estate market collapsed.
The buyers claim WSG promoted the project as “part of the Canyon Ranch brand and family” when in reality, the “Canyon Ranch brand is merely temporary,” according to the complaint.
“This was a classic bait-and-switch,” said Miami Beach attorney Aaron Resnick, who represents the plaintiffs. He said he expects to file 10 similar complaints by next week.
In a statement, WSG executives said the lawsuit was “frivolous and without merit and will be vigorously defended.”
Resnick claims WSG violated Florida’s Deceptive and Unfair Trade Practices Act. Under that state law, the plaintiff only need to prove deception or misrepresentation on the part of the developer and not that they relied on the developer’s statements.
The outcome of these suits could create a precedent in the condo litigation field.
“We are in a gray area, and the courts are going to have to sort out what crosses the line in terms of how do you really sell these projects,” said Miami attorney Jared Beck, with Beck & Lee Business Trial Lawyers. “The courts are going to have to decide what constitutes a deceptive practice in the marketing of a condo. To my knowledge, there is no case law on this issue.”
So far, plaintiff attorneys have been unsuccessful in getting their clients out of contracts. Previous suits filed under both state and federal laws have been tossed at the trial and appellate levels.
In the Canyon Ranch suits Resnick avoided claims under the U.S. Interstate Land Sales Act. That approach didn’t work in August, when U.S. District Judge Patricia Seitz in Miami dismissed 29 lawsuits against Opera Tower near downtown Miami. She ruled that buyers should not rely on written or oral misrepresentations that were contradicted by a subsequent purchase agreement.
The project has been delayed eight months.
Secrecy fuels uncertainty
Several other buyers are suing WSG to recover their deposits, arguing the developer didn’t complete the project on time.
With closings delayed by more than a year, the developer’s loans were coming due forcing WSG to look for financing in the midst of a credit crunch. WSG was able to extend its deadline by one year to pay off nearly $400 million in construction loans.
Shortly after the loan extension, WSG’s bankrupt lender, Lehman Brothers Holdings, pledged the loans as collateral to borrow from hedge fund Fortress Investment Group of New York.
For more than a year Gonzalez has unsuccessfully tried to obtain a copy of the agreement between WSG and Canyon Ranch. He wanted to understand the Canyon Ranch’s role in the managing of the property before closing the deal.
Gonzalez fears Canyon Ranch will pull out of the project at anytime, hurting the tower’s reputation and character. The buyers contend that would diminish the value of the condos, already deflated by a housing crash.
Values in some of South Florida’s neighborhoods have dropped more than 50 percent since the peak of the housing market in mid 2005. Sale prices dropped precipitously as buyers pulled out of deals, foreclosures mounted and banks stopped lending.
Resnick says he has been unable to get consistent information about the “phantom” agreement from the developer and Canyon Ranch.
In a letter to Resnick, WSG representatives claimed they aren’t required to release the document because it “is not a management agreement,” but a contract to provide spa-related services. But Canyon Ranch told buyers the agreement provides for affiliate Canyon Ranch CR Miami LLC to “manage and operate” the hotel, the spa and the two condo towers, according to a Nov. 12 letter by Gary Milner, Canyon Ranch vice president of legal and development.
“We have Canyon Ranch telling us one thing and the developer telling us another,” Resnick said.
Representatives from WSG and Canyon Ranch requested questions by email. Canyon Ranch did not respond and WSG issued a short statement but did not address the specific questions.
During the boom years, condo developers often associated their buildings with high-profile celebrities, vacation resorts and high-profile hotel flags to add value to their projects.
Trademark names often increase market values between 20 to 25 percent, said appraiser Philip Biber, managing partner of Watermark Valuation Services in Pompano Beach.
“[Trademark names] are a big draw card,” he said. “But a lot of these developers have nothing to do with Trump or Canyon Ranch. They are really trademarking [the name] out.”
As the housing downturn lingers, more buyers like Gonzalez may begin to revolt against developers with trademark agreements.
In June, buyers of 80 condos at the Trump Towers complex in Sunny Isles Beach sued the developer — a partnership including the Related Group and Dezer Development — with similar allegations. They argue the developer used the celebrated Donald Trump name to attract buyers. Yet, the billionaire’s name can only be used temporarily for promotional purposes and may be changed once the units are sold. That suit is pending in Miami-Dade Circuit Court.
“These [purchase] contracts are so grossly overly one-sided,” said Robert Cooper, the Aventura attorney representing the Trump Tower buyers. “Contracts said that whatever the developer promised doesn’t matter and you can’t rely on it and he can do whatever he wants. Buyers thought they were going to make giant profits and everybody was so excited that they basically ignored what they were signing.“
During the condo craze, developers made a lot of promises that in some instances they were unable to fulfill, Beck said. He represents three owners who bought units at a condo-hotel project in Miami Beach because they believed the property would be managed by Regent International Hotels — as advertised by the developer.
But since closing in 2006, the hotel has been plagued by mismanagement and broken promises, Beck said. In late 2007, Regent pulled out and was replaced by Spanish operator Vincci Hotels, which lasted three months. The defendant is now managing the hotel under the name of Hotel De Soleil at 1458 Ocean Drive in South Beach.
Gonzalez said there are no guarantees the North Carillon Beach won’t suffer a similar fate.
“As long as Canyon Ranch is associated with [the project], owners will be fine,” Biber said. “But what will happen when Canyon Ranch pulls its name out? Owners will be hurt.”
Paola Iuspa-Abbott can be reached at (305) 347-6657.
Canyon Ranch photo by Richard M. Brooks |
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