The hotel was appraised for $83.2 million in January, according to Trepp LLC, with an occupancy rate of 55% and an average daily room rate of $158 in May.

“Sunstone is paying about $300,000 a room, which is on the high side in this market,” Mourier says. “You can buy properties in the region of $200,000 to $250,000 a room for that same four-star rating. So that’s not really a super deal.”

Beyond the initial investment price, Sunstone could spend millions on the comprehensive renovation it has planned for Royal Palm. Sunstone promises to transform the hotel into one of the premier destinations on South Beach, and in doing so better compete with Loews Miami Beach Hotel. But this wouldn’t be the first time industry watchers have heard a developer make promises about redressing the Royal Palm.

“There’s been a lot of controversy and a lot of problems with this property,” revPar Guru Vice President Bruno Perez tells GlobeSt.com. “It has stayed in limbo for years with litigation and promises of meeting space that didn’t happen. Without meeting space, it will be difficult to get the group business they need to fill the hotel.”

Still, Sunstone remains optimistic about the 1.9-acre beachfront property in the heart of South Beach. According to Smith Travel Research, Miami has the fourth strongest RevPar of the Top 25 markets, with 11% growth year-to-date driven by occupancy and rate growth of 8.1% and 2.8% respectively.

Despite the health of Miami’s hotel market, James Soble, a commercial real estate attorney at Ruden McClosky in Tampa, tells GlobeSt.com he expects to see more South Florida hotels go into foreclosure.

“Hotels have been one of the main targets of foreclosure,” Soble says. “Over the next year and a half to two years, you are going to see significant numbers of transactions that are almost identical to this one. The downside for Sunstone is the possibility of not recovering they money they are going to invest.”

And that’s a very real possibility, Mourier says, because every investor he’s seen try to make the Royal Palm work since it reopened in 2002 has lost money.

“If you look at $300,000 a room, that’s on the high side in a period where everybody is having financial troubles. It’s going to be a challenge to make money from this deal,” Mourier says. “If they have to invest hundreds of thousand of dollars more to make this a viable property, it’s going to be an uphill battle.”