The Real Deal New York

JFK Hilton owners block chain from terminating franchise, forcing loan sale

By David Jones | February 19, 2013 08:30AM

Owners of the Doubletree New York JFK won a preliminary injunction on Friday against Hilton Hotels to block the termination of a franchise agreement, which they allege may be part of an effort by the chain’s parent firm, Blackstone Group, to acquire debt on the property.

The 385-room hotel, located at 135-30 140th Street in Queens, is owned by a Canadian firm called the Vista Group of Companies, founded by two brothers, Amin and Ally Visram. The Vista Group owns and operates hotels, shopping malls, retirement homes and office buildings in Canada and the Eastern U.S. The owners filed suit on Friday in New York State Supreme Court, alleging Hilton broke off the property’s franchise agreement in January, for what they claim was a “pretextual” failure to provide equipment for disabled guests.

The termination effectively led to a default on a $35 million mortgage on the hotel, as well as millions of dollars in other payments, they claimed. The Wall Street Journal reported on Friday that the loan had gone into default.

According to the owners, the Doubletree was the company’s second best performing hotel in the New York City area, despite suffering damage in Superstorm Sandy and subsequently housing many relief workers.

According to the suit, the mortgage was in called into default on Feb. 8, with the special servicer, Midland Loan Services, citing the franchise termination letter as cause.

As part of the termination, the hotel lost access to the Hilton reservations system last Thursday, and the company demanded the owners hand over a $4 million payment within 30 days, they alleged. However, the owners said they continued to make royalty payments to Hilton after the termination notice was sent, including sending $204,000 to the chain on Jan. 28.

The owners originally entered the mortgage with CIBX Commercial Mortgage in June 2011. They were notified that the loan was sold to a securitized pool of loans this past June, and more recently CIBX and an affiliate of Blackstone have acquired a stake in the loan, according to the suit.

Public records do not yet show a loan transfer, they said, and Property Shark records do not show any loan assignments since last June.

In court documents, lawyers for the Doubletree claimed they were told that Blackstone had acquired the subordinate “B piece” of the hotel’s debt. By controlling the B piece, Blackstone would have a certain level of control over the actions of the special servicer, lawyers for the owners claimed.

“B piece holders live to make money from special servicing opportunities,” KC McDaniel, an attorney for the Doubletree owners, told The Real Deal.

The Doubletree owners claimed that Hilton had launched three other branded hotels near JFK since their hotel originally opened—including the Hilton JFK, the Hampton Inn NY JFK and the Hilton Garden Inn Queens—which are lower priced and pay higher royalty fees. The other properties are non-unionized and therefore have lower operating costs, the Doubletree owners contended.

Oral arguments in the case are set for March 4.

A spokesman for Hilton declined to comment, citing the active legal case. Blackstone officials were not immediately available for comment.