Faced with foreclosure, The Tillary Hotel in Downtown
Brooklyn filed for bankruptcy last week in yet another example of New York
City’s hospitality woes.
The 174-room boutique
hotel and residential building, located at 85 Flatbush Avenue, is owned by
Isaac Hager’s Cornell Realty Management and partners, including Rubin Equities.
The ownership entity filed a Chapter 11 petition in New York bankruptcy court
on Dec. 18th.
FIA Capital Partners principal David Goldwasser, a debt workout expert hired as ownership’s chief restructuring officer for the bankruptcy, said the hotel is staying open. A UCC foreclosure auction over the mezzanine debt on the hotel scheduled for Dec. 18 was halted because of the bankruptcy filing, Goldwasser said.
“The plan is to
operate the hotel and increase occupancy, and work through the pandemic,” said
Goldwasser. “The goal is to stabilize it … a Chapter 11 bankruptcy is meant to
reorganize. It keeps the dream alive.”
Hager’s firm and its
partners paid $95 million for the building, which also features 64 rental
apartments and 6,000 square foot parking garage, in September 2019. Madison
Realty Capital provided a $76 million acquisition loan for the purchase.
Earlier this year,
Eli Tabak’s Bluestone Group issued the ownership group a $6 million mezzanine
loan, which it defaulted on. The owners, doing business as 85 Flatbush RHO
Hotel LLC, were told back in August that Bluestone was foreclosing on the
Goldwasser, the hotel was closed at the start of the coronavirus crisis and
operated as a homeless shelter in May and June. It reopened to the public on
July 15 but has been operating at reduced occupancy, the owners stated in the
bankruptcy petition. In the filing, the hotel ownership claims it has assets
between $10 and $50 million and liabilities between $50 and $100 million.
Only five of the 64
apartments are occupied, the hotel owners said in the filing, and they plan to
convert the apartments into condominiums if the hotel is allowed to emerge from
Its largest unsecured creditors are a Brooklyn-based
security company, Greater Shield, which is owed nearly $370,000, and Chesky
Berkowitz, a leader of the Satmar community of Orthodox Jews in Brooklyn, who
is owed $250,000 according to the filing.
The Tillary is far from alone in its financial woes. In New
York City alone, nearly one third of all hotels are delinquent in their loan
payments, according to debt analysts at Trepp, and several have closed for
good, including the Hilton Times Square and Embassy Suites in Midtown West. 14
New York City properties with loans in the commercial mortgage-backed
securities universe are 60 days or more behind payment, according to Trepp.
CBRE Hotels Research reported that hotels were able to adapt
to COVID challenges they faced and implement cost-cutting measures early in the
summer that allowed them to achieve a 16.7 percent gross operating profit (GOP) margin through August less than half what they made last year but
enough to keep many afloat.
With a resurgence of COVID-19 and renewed travel
restrictions enacted in many states, the American Hotel & Lodging
Association (AHLA) reported seven in ten hoteliers (71 percent) don’t believe
they can make it for another six months without further federal assistance,
which came on Monday when the Government announced its new $900 COVID stimulus.
The bill includes the reopening the Paycheck Protection
Program for small businesses which, despite flag affiliation with a major brands,
most hotels are. Businesses that took an
initial PPP loan and can prove their revenues fell by at least 25 percent will
qualify for a second loan under program whose maximum loan amounts for hotel and restaurant perators have been
increased to 3.5 times their average monthly payroll, according to the AHLA.
But the hospitality trade group said it will takes hoteliers years to dig out of the pile of debt they’ve amassed during the pandemic.
On Monday, Chip Rogers, president and CEO of the AHLA called
the relief package a temporary lifeline, saying, “This will provide a critical
lifeline for hotels and other businesses that have been decimated by the
“Other hotel industry priorities include a one-year
extension for Troubled Debt Restructuring (TDR) relief so that banks can
continue working with borrowers to gain additional forbearance and debt relief,
business meal deductibility through 2022, and expanded Employee Retention Tax
“We look forward to working with Congress and the new
Administration on a longer-term stimulus package that will ensure our industry
survives and is well positioned to help the country recover economically once
the public health threat subsides.”
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