Blackstone sues over scotched $265M hotel deal

Buyer KS Development cited coronavirus downturn

TRD LOS ANGELES /
Mar.March 30, 2020 02:30 PM
Blackstone-owned Homewood Suites by SF airport (Credit: Hilton and iStock)
Blackstone-owned Homewood Suites by SF airport (Credit: Hilton and iStock)

The coronavirus is being blamed for a $265 million hotel deal falling apart with the Blackstone Group suing the suddenly recalcitrant buyer.

Six limited liability companies that trace back to Blackstone Real Estate Advisors, an affiliate of the mammoth New York City-headquartered company, filed a lawsuit Thursday against KS Development after the Arcadia-based real estate investment firm terminated a deal to buy nine hotels across California.

The lawsuit says that there was nothing in KS Development’s contract affording the buyer to abandon the deal due to an economic downturn, which has specifically ravaged the hotel industry with coronavirus-related travel bans and stay at home orders.

“Deteriorating market conditions” are of “no consequence” to the purchase agreement, according to the complaint filed in Los Angeles County Superior Court.

The Blackstone plaintiffs want to keep the $9 million escrow deposit plus interest that KS Development put down, and also get damages for the defendant’s alleged breach of contract.

Messages left Monday with KS Development, which is a subsidiary of Kam Sang Co., were not returned.

KS Development agreed to buy nine hotels from entities controlled by Blackstone in January, from a Homewood Suites by the San Francisco airport to a Residence Inn in San Diego and
three hotels in Thousand Oaks, with the multi-property deal slated to close by April 1.

According to the complaint, KS Development grew nervous in February that it could not get sufficient acquisition financing due to coronavirus lending jitters, prompting Blackstone offering to extend the closing date to June in exchange for another $1 million escrow deposit.

KS Development did not agree to Blackstone’s extension. According to a court exhibit, KS Development wrote a March 18 letter to Blackstone stating, “Buyer understands that the operations, occupancies, and revenues have significantly changed as a result of the COVID-19 virus since the time that the agreement was executed,” and that Blackstone should have accordingly provided KS Development revised revenue projects.

Blackstone fired back with a missive the next day, stating that while it is true “occupancy and revenue have dropped considerably since the onset of Covid-19 coronavirus,” the seller was only under obligations to maintain the hotel’s operations, which it had been doing, and did not have a duty to provide new financial statements.

KS Development responded by instructing the escrow agent, First American Title Insurance Company, to hold on to its $9 million, and indicated that the deal would be terminated.

The sale’s dramatic unraveling comes at a time of extraordinary uncertainty for the hotel industry. Early projections from the National Hotel and Lodging Association, an industry trade group, found that hoteliers are losing $200 million in revenue each day because of the coronavirus, and that there might be one million layoffs nationally at hotels.


Related Articles

arrow_forward_ios
Alicia Cohen, of Nourmand, and Governor Gavin Newsom (Credit: Anda Chu/MediaNews Group/The Mercury News via Getty Images)

“I won’t talk about unemployment benefits:” California agents choose between ego, handouts

“I won’t talk about unemployment benefits:” California agents choose between ego, handouts
Old Navy is facing two new lawsuits (Credit: iStock)

Mall owner sues Old Navy for abandoning ship

Mall owner sues Old Navy for abandoning ship
Hiten Samtani, Sally Forster Jones, Santiago Arana, and Aaron Kirman

For top LA resi agents, it’s strictly posi vibes

For top LA resi agents, it’s strictly posi vibes
Kevin Conway, director of acquisitions at IDEAL Capital Group in Clovis (Credit: iStock)

Don’t sound the alarm! CA May rent checks not in freefall

Don’t sound the alarm! CA May rent checks not in freefall
Alicia Cohen, of Nourmand, and Governor Gavin Newsom (Credit: Anda Chu/MediaNews Group/The Mercury News via Getty Images)

“I won’t talk about unemployment benefits:” California agents choose between ego, handouts

“I won’t talk about unemployment benefits:” California agents choose between ego, handouts
Jamie Duran and Coldwell Bankers Beverly Hills office

Brokerages are recruiting. But they’re not spending

Brokerages are recruiting. But they’re not spending
AEG CEO Dan Beckerman (Credit: Shaun Clark/Getty Images)

AEG plans 160-key hotel next to its DTLA headquarters

AEG plans 160-key hotel next to its DTLA headquarters
Gov. Newsom and Michael Weinstein (Credit: Justin Sullivan/Getty Images, Charley Gallay/Getty Images)

“We anticipate a tsunami of evictions”: Tenant advocates call on Newsom to tighten rent laws

“We anticipate a tsunami of evictions”: Tenant advocates call on Newsom to tighten rent laws
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...