The Bryant Park Hotel has filed a $10 million lawsuit against lenders Wells Fargo and Berkadia Commercial Mortgage, alleging that its mortgage loan was transferred to special servicing firm, C-III Asset Management without any justification and it cannot withdraw money from its reserve fund for repairs.
The owners of the hotel, located at 40 West 40th Street near Sixth Avenue, is asking a New York state Supreme Court judge to force the lenders to release the funds and block them from declaring the loan in default, even though, according to the recently filed suit, the owners are current on payments.
“Any perceived downgrade in service — or even failure to upgrade the most current amenities or accommodations — will result in an irreparable blow to the hotel’s and the [onsite] Cellar Bar’s reputation and success,” according to an affidavit by Michael Strauss, the director of finance at the property.
While the owners claim they are on time with payments, the Wall Street Journal reported in May 2011 that the hotel was late on a March payment due to insufficient cash flow, citing data from Realpoint.
Strauss declined to comment on the suit.
PKF Consulting analyst John Fox told The Real Deal that he was aware of debt issues at the property, but did not have specific knowledge of the hotel’s finances, and stated that the property was doing relatively well on rate and occupancy. The hotel has been one of the most highly touted boutique properties in the city, attracting an A-list of celebrity clientele.
According to the suit, filed Dec. 29 in New York state Supreme Court, the owners refinanced the hotel’s $90 million mortgage in December 2006 through CIBC, and by February 2007, the loan was assigned to Wells Fargo, the trustee of a group of securitized loans.
The suit alleges that on Oct. 28, Berkadia, the master servicer of the loan, sent a letter to the owners that the loan had been transferred to C-III, led by billionaire investor Andrew Farkas, without any explanation. The owners, as they do on a regular basis, say they submitted a $156,000 request to C-III for reimbursement from its furniture, fixtures and equipment account, which is funded by the owners and held in reserve for major repairs. C-III has refused to reimburse the owners, according to the suit.
The hotel owners, which include investors Phillip Pilevsky, Century 21 owner Ray Gindi and Joseph Chebehar, owner of Rainbow Shops, say the hotel is planning several additional upgrades to elevators at the hotel and to alleviate overcrowding at its Cellar Bar, according to the suit. But the owners are still required to deposit funds into the account. They warned that if this continues, the lenders may attempt to call the loan into default.
The suit comes at a time when Farkas has begun to rebuild a multi-platform brokerage and servicing empire to acquire distressed loans and other assets across the U.S. In November, C-III acquired two multi-family property companies, Pacific West Management, in Irvine, Calif., and U.S. Residential Group, in Carrollton, Texas.
C-III declined to comment through a spokesperson. Wells Fargo officials were not immediately available for comment.