Midtown faces class action lawsuit
South Florida Business Journal – July 6, 2007 by Susan Stabley
The class action suit involving Two Midtown Miami has grown from eight buyers to 17, but 50 buyers reportedly have closed.
Miami attorney Michael J. Schlesinger expects more plaintiffs to join the class action suit surrounding the 337-unit Two Midtown Miami in the Wynwood neighborhood just north of downtown Miami. He is also planning a class action suit over Four Midtown Miami, a 32-story building with 398 units.
The lawsuit contends units were not substantially completed within two years, as required in contracts. The developer’s law firm, Greenberg Traurig, however, responded with letters that said the two years is subject to legally defendable delays – in this case general construction delays in South Florida and materials and labor shortages.
An increasing number of buyers nationwide, many in South Florida and the Gulf Coast, are scrutinizing contracts to see if they can get out of deals as the residential market cools. Law firms are gearing up teams of attorneys to deal with the litigation.
“It is a growing problem that I expect will persist for at least the next three years,” said Jack McCabe, CEO of Deerfield Beach-based McCabe Research & Consulting. “It will be interesting to see if the courts will rule that delays in materials or shortages of labor rank like hurricanes as an act of God for developers who have run over their contractual two-year construction deadline.”
With the residential downturn, speculators who had dreams of finding a pot of real estate gold now are having nightmares of losing their deposits or worse, said McCabe, who is frequently quoted in the national media about the state of the South Florida residential market.
Schlesinger said the current craze over canceling condo contracts is a byproduct of “a miscalculation of the Miami boom.”
“Just two years ago, people were waiting in line,” he added.
The two towers at Midtown are the first of eight planned for the 56-acre former Buena Vista rail yard between Northeast 29th and 36th streets. The project is expected to cost $2.3 billion and have 3,900 units when built out.
Originally filed June 5 by eight buyers, the suit charges that the building is still not finished nearly three years after a fall 2004 groundbreaking.
Under the purchase agreement, the developers agreed to “substantially complete construction” no later than two years after purchasers signed the contracts in May and June 2004, the suit states.
“It’s been three years and two months, and they’ve just started to do some closings,” Schlesinger said.
Also at issue: promised assigned parking spaces that were for “exclusive use,” the suit states. Buyers were told they would have a contracted valet service instead of the single exclusive space that was agreed to in the condo contract.
According to the suit, about 50 units have closed. A review of closings available at the Web site for the Miami-Dade Clerk of Courts shows 36 closings from April 30 to June 19.
The buyers Schlesinger represents put down initial 10 percent deposits, then 5 percent on April 1, 2005, and 5 percent on Sept. 1, 2005.
In May, Schlesinger sent out letters for the buyers exercising their right to cancel, but the developer refused to return the deposits.
“Contractually, they were able to cancel their contracts,” he said. “There’s no defense that will prevent them from doing so.”
Schlesinger said an argument that the delays were cause by “acts of God” – also known as the hurricane hits of 2005, Katrina and Wilma – won’t hold water because he has examples of other area projects that were completed on time.
Midtown’s development is led by Michael Samuel in Miami in partnership with Joe Cayre and Daniel Pfeffer of Midtown Equities of New York.
Samuel and Pfeffer partnered as SoBay Partners to convert the Banyan Bay Apartments into a development dubbed Nirvana.
As previously reported in the Business Journal, SoBay faces a suit filed by Nirvana’s five condominium associations upset with the quality of the work. Reserve funds were not set aside for the Nirvana conversion, according to the association’s suit and, by the end of 2006, owners were facing special assessments of nearly $20,000 each to fix problems at the complex, including work on roofing, plumbing and elevators.
According to the suit, pre-construction units sold within 48 hours in May 2004. About 700 people were on a waiting list for units.
Schlesinger said he opted to put together a class action suit because about eight lawsuits regarding the Midtown project were pending. The disputes share common issues, and a class action dodged duplication while giving the plaintiffs an economical way to resolve their concerns, he said.
The attorney said he averages about 20 calls a week from upset buyers who want out of contracts.
“I don’t take all those cases,” he said. “Only the ones that are viable like this one.”
The amount of calls has sharply increased in the last seven months, he said.
In late June, he received a call from a woman investor who lived in Colombia. She had about 12 units throughout Florida, at an aggregate investment of $1.7 million in deposits.
“She’s seeking to get out of them all,” he said. “They were bought as an investment and she can’t even resell them. The developer’s prices are below what she bought them at.”