Three and a half years ago, Howard Wu’s Los Angeles–based hospitality firm, Urban Commons, made its first foray into New York City, acquiring the Wagner Hotel for $147 million.
But things went south fast, according to Highgate Hotels, the hotel operator he inherited at the Downtown Manhattan establishment.
The pandemic emptied the hotel, forcing it to close in April 2020. While some hospitality businesses in New York have since come back, the Wagner never did. Calls to the hotel go straight to a voicemail recording that says it is closed.
Wu hit bottom in December, filing for personal bankruptcy. In court filings, he reported $15.9 million of assets and $29.9 million in liabilities.
Now Highgate, a hospitality management firm, has filed a claim in California bankruptcy court in an effort to get paid.
According to Highgate’s contract with the firms that sold Wu the Wagner, Millennium Partners and Westbrook Partners, the owner was required to cover the hotel’s operating expenses and to defend the operator from lawsuits and liabilities stemming from its work there.
Urban Compass snubbed several of the agreement’s key terms, Highgate alleges.
Highgate said its operating expenses at the 298-key Wagner totaled $42 million, but Urban Compass only forked over $19.2 million. As a result, Highgate said it hasn’t been able to pay wages and benefits for hourly employees, including severance pay mandated by a controversial de Blasio administration law. The shortfall forced Highgate to stiff some vendors, it claimed.
Amidst uproar over the nonpayment, Wu signed an agreement in Jan. 2021 promising to fulfill all payment obligations under the contract. Throughout last year, Highgate says it sent Wu weekly emails detailing the amounts he owed, as well as three written demands in 2021 for full payment. But Wu came up short.
The problems compounded when the New York Hotel and Motel Trades Council, the hotel workers’ union now called the NY/NJ Hotel & Gaming Workers Union, started arbitration against Highgate for failing to pay into union funds as required. Highgate is demanding Wu also cover the costs of the union arbitration, citing the operating agreement.
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Highgate says its weekly tab for mandatory severance pay alone reached $124,850, and that it fronted over $350,000 in October and November paying employees. In all, the hotel operator says, it’s spent more than $1.67 million to make up for Wu’s underpayment.
The operator finally terminated its agreement with Urban Commons in November, and is asking the court to confirm that Wu has to pay the debt to Highgate as he fends off a laundry list of creditors.
Highgate operates hotels across the United States and Latin America, with more than 65,000 rooms in its portfolio. It was founded in 1988 by Mahmood and Mehdi Khimji. It recently teamed up with New York private equity firm Cerberus Capital Management to buy CorePoint Lodging , a hospitality REIT, for $1.5 billion.
Urban Commons has other problems, including being sued in October for allegedly absconding with a $1 million investment for a hotel acquisition that never happened.
Highgate’s attorney didn’t respond to requests for comment by press time. Wu could not be reached.