When buyers of a planned condominium in Palm Beach Shores learned their developer was unable to finish the project, they decided to take over the construction job themselves.
The deal was agreed upon by both the buyers and the developer of Icon Palm Beach Shores, a small condo complex being built on the southern tip of Singer Island, according to a real estate attorney involved in the transaction.
The arrangement appears to be unprecedented.
“We don’t think it’s a solution that anybody has done before,” said Henry Handler, a Boca Raton-based lawyer who represented the Icon buyers.
But while the pact could resolve the unfinished condo, it also could leave the project’s sales agents out in the cold.
Global real estate brokerage Sotheby’s International Realty says it is out $1.6 million in unpaid commissions, according to a lawsuit filed by Sotheby’s against Icon’s developer. The lawsuit says Icon’s developer and the project’s title agent “conspired” to deprive Sotheby’s of its earned commissions on 10 sales worth a combined $24.9 million.
More: Cannonsport Marina sells for $58.5 million in big deal for tiny Palm Beach Shores
Such is the messy state of affairs at Icon Palm Beach Shores, a 15-unit, three-building condo
at 150, 200 and 206 Inlet Way.
The project’s uneasy status also is a cautionary tale for South Florida’s go-go real estate market, especially in the wake of the COVID pandemic, one condo analyst said.
With the migration of wealthy residents to the state, developers both locally and from outside the state have descended on Palm Beach County trying to find land along the coast, preferably on the water, to turn into high-priced residences.
“There are a lot of newbie real estate developers coming to town,” said Peter Zalewski, a Miami condo consultant. “That’s the risk of buying pre-construction because of war stories
like this.”
A person answering the phone at Icon’s office said the company had no comment.
Developer Icon’s promise: Waterview Singer Island residences for millions of dollars
Developer Icon Development Holdings I LLC of Delray Beach and New Jersey, led by Marc Shulman and Anthony Shafer, promised buyers a boutique luxury complex in tiny Palm Beach Shores.
Starting in 2021, they dangled the prospect of direct water views of the Palm Beach Inlet from the living areas, a modern design, high-end finishes and expansive balconies.
Buyers, most of whom are from out of state, snapped up the units ranging in price from $1.9 million to $4.9 million. The project’s 14 available units quickly sold out.
Construction was supposed to take about two years to complete.
Sotheby’s was the exclusive brokerage for two of three Icon buildings. A listing agreement shows the brokerage was to receive 6% commission on sales, according to court records.
Then earlier this year, Icon’s buyers noticed liens piling up on the project, Handler said.
A problem in paradise? Buyers take action in Palm Beach Shores condo
In February, general contractor Cannetelli Builders of Pompano Beach placed a lien on the property for $233,033 in unpaid fees, according to the Palm Beach County Clerk’s office.
In March, plumbing supplier Ferguson industries slapped a lien on the project for $409,348, public records show.
Buyers became concerned the project could not be completed, and the money they spent on deposits and unit improvements might be lost to bankruptcy or foreclosure, Handler said. He added the buyers also faced having to spend even more money to chase down their deposits in court.
Their concerns are not unfounded.
In Boca Raton, pre-construction buyers are suing the developer of the unfinished Mandarin Oriental Residences because the condominium still isn’t complete after five years of on-andoff construction.
One couple, Michael and Elyse Filan, recouped their $700,000 deposit on a $2.5 million unit only after filing a lawsuit in early July. The lawsuit now is closed, court records show.
But another couple, Michael and Trish Polk, just filed a lawsuit seeking the return of $2.3 million in deposits on a $7. 7 million unit. That lawsuit remains pending.
More: Buyers sue to recoup Mandarin Oriental deposit on unfinished Boca Raton condo
Handler said he could not speak for the developer, but he said it became clear there was an “irreconcilable dispute between the contractor and developer” that affected the developer’s
ability to complete the project.
Handler said a firm attorney, Shawn Butters-Kirlan, devised a creative solution: let the buyers take control of Icon and finish its three buildings.
Butters-Kirlan realized that nothing in state law prevented buyers from buying condo units that were not completed. And Icon’s developers agreed to a plan to sell the units to buyers to
complete the job, Handler said.
“My colleague created a pathway to make something productive and conclusive out of what usually ends quite badly for contract purchasers,” Handler said.
This year, 14 Icon buyers bought their units from the Icon developers, Handler said.
An undisclosed portion of the money went to the developers, but the majority of the money was placed into an escrow account to pay Cannatelli, the general contractor, to finish the condominium, Handler said.
During a recent visit to the Icon job site, construction workers were seen laying pavers and making other exterior improvements.
Handler said the deal between the Icon buyers and developer worked because the Icon project is very small, and therefore there were few buyers involved in the negotiations,
Handler said.
In addition, the buyers are “very intelligent, with the (financial) means and the commitment to listen to alternatives,” Handler said. “Nobody wanted to see this project go to waste.”
Zalewski, the condo analyst, called the arrangement “unique.”
Usually, developers unable to finish construction file bankruptcy or their loan is sold to a private equity group or hedge fund, Zalewski said, with little money recouped for buyers who
put down deposit money.
Icon’s construction is expected to be completed in October.
Public records show the Cannatelli Builders lien was satisfied in June.
Sotheby1s International Realty: We want our money
The sale of the Icon units may have revived construction on the project, but it’s no solution for Sotheby’s International Realty.
The brokerage alleges it was cut out of $1.6 million owed on commissions for 10 sales, according to a July 25 lawsuit. The Sotheby’s lawsuit names the Icon Development Holdings I LLC, Shulman and Shafer.
The lawsuit also names the title company that handled the closings, Kensington Vanguard National Title Services.
Sotheby’s said its 6% commissions were to have been paid at the units’ closings on June 10, according to a listing agreement between Sotheby’s and Icon included in court records. But Sotheby’s claims the commissions, once a line-item on HUD settlement statements for the closings, were eliminated by Kensington Vanguard “at the direction of Icon,” the lawsuit said.
The complaint alleges the Icon developers crafted a “hold harmless” letter with the title company in exchange for removing the commissions payment from the closing settlement statements.
Sotheby’s said its commissions then were used to pay off a loan on an Icon penthouse unit owned by the developer at 150 Inlet Way, an Icon unit not part of the Sotheby’s listing
agreement.
Subsequently, the Icon developers placed a $4.9 million mortgage on the penthouse, according to the lawsuit and county records.
The Sotheby’s lawsuit alleges breach of contract and conversion against Icon’s developers; negligence and fraud against Kensington Title; and civil conspiracy against the developers and the title company.
The Palm Beach County Circuit Court lawsuit doesn’t say how Sotheby’s knows its commissions allegedly were used to pay off a mortgage at the Icon penthouse.
Neither an attorney for Sotheby’s nor a Sotheby’s broker returned calls seeking comment.
A person answering the phone at Kensington N ational’s New York office said the company had no comment, then hung up the phone.
Handler said Sotheby’s commissions are not the responsibility of the buyers, and any agreement to pay commissions is between the developer and the real estate brokerage.
Most firms want to avoid public litigation and settle business disputes in a low-key manner, especially when they are as high-profile as Sotheby’s, which has more than 1,000 offices worldwide, real estate experts said.
“They don’t want to have a reputation for being litigious,” said John Shubin, a West Palm Beach lawyer not connected to the case.
On the other hand, “brokers have to protect the rights of their agents working to sell out the project,” Shubin said. “And if a brokerage agency does not support their agents, they lose the
loyalty of the agents.”
Palm Beach Shores: a holdout against tall towers, but still a busy real estate scene
Up until recently, tiny Palm Beach Shores mostly has been immune from new development.
Unlike West Palm Beach, where high-rises are slated to crowd the Intracoastal waterfront, government leaders in Palm Beach Shores have held the line on tall buildings.
But in the past few years, old, low-rise properties in Palm Beach Shores have been traded to developers wanting to build new, and pricey, low-rise properties.
In addition to Icon Palm Beach Shores, the former Cannonsport Marina is being refashioned into HA VN Residences & Yacht Club, featuring 36 luxury condo units.
Units start at $1.7 million, and a penthouse just sold for $3.6 million.
Alexandra Clough is a business writer at The Palm Beach Post. You can reach her at [email protected]. X: @acloughpbp. Help support our journalism. Subscribe today
