Toby Moskovits’ Williamsburg Hotel is headed for receivership following $68M loan default
Judge approved lender’s request earlier this month
Months after defaulting on a $68 million mortgage and failing to secure refinancing, Toby Moskovits’ Heritage Equity Partners is set to see management of its Williamsburg Hotel taken over by a temporary receiver.
The New York County Supreme Court approved lender Benefit Street Partners’ request for a receiver earlier this month, court documents show. Both parties have until month’s end to propose a candidate for that role, and a receiver will be selected on Nov. 26.
“The operative transactional documents unequivocally entitle the plaintiff to appoint a receiver unless the Court, in its discretion, determines that there is good cause not to enforce the provision,” judge Barry Ostrager noted in an Oct.18 decision.
“The voluminous evidence submitted to the Court establishes that it appears unlikely that the hotel can satisfy its obligations,” the judge concluded.
The eight-story, 147-key Williamsburg Hotel, located at 96 Wythe Avenue, began opening in stages in February 2017. Construction began in 2013.
Commercial Mortgage Alert first reported news of the receivership order.
The mortgage at the heart of the dispute was provided to Moskovits’ Heritage Equity in December 2017, and was later included in a collateralized loan obligation (CLO) securitization known as BSPRT 2018-FL3, in which it was the single largest loan. Hutton Capital Management provided another $12.5 million in mezzanine debt as well.
Unlike more widely used commercial mortgage backed securities, commercial real estate CLOs are often riskier, short-term bridge or transitional loans. Such products have made a comeback in recent years, with CLO issuance on track to hit a new record in 2019.
The Williamsburg Hotel loan matured on June 9, and Benefit Street sued Toby Moskovits and partner Yechiel Michael Lichtenstein for foreclosure and receivership just two days later. The loan had already been in some trouble prior to maturity, with the interest carry reserve reportedly going unfunded for several months before the mezzanine lender stepped in to replenish it, according to Kroll Bond Rating Agency.
In March, Moskovits was reportedly considering a sale of the property, with one investor offering as much as $135 million for it. Moskovits has denied those reports.
Soon after Benefit Street began its foreclosure suit, Moskovits informed the court that she was lining up a $76 million loan from CREMAC Commercial Finance to refinance the property and save it from foreclosure. This financing did not come through, leading the court to decide that Benefit Street was entitled to a receiver.
Moskovits has vigorously resisted the appointment of a receiver for the hotel, arguing that it is a “a successful, luxury, revenue producing hotel” that gives the lender “no cause to believe it will not receive payment in full,” and that the appointment of a receiver would lead to “incalculable and irreparable reputational harm” as well as disruption of the hotel’s operations.
Benefit Street, for its part, argued that because Moskovits’ firm “has never previously managed a hotel” and “is clearly incapable of properly managing a hotel to market performance,” an experienced receiver is necessary to increase the hotel’s value and assure repayment of the loan.
In extensive court filings examining the hotel’s financial performance, Benefits Street’s attorneys argue that while the appraised value of the Williamsburg Hotel is $119 million, an assessment based on the hotel’s actual cash flows would value the property at a mere $11.2 million.
Representatives for Benefit Street did not respond to a request for comment, and Moskovits declined to comment. The lender has requested that Andrew L. Herz of Patterson Belknap Webb & Tyler LLP be appointed as receiver, while Heritage has not proposed a candidate.
The Williamsburg Hotel is the second property Benefit Street and Moskovits have locked horns over in the past two years. Last August, the developer managed to save the rental development at 564 St. John’s Place from foreclosure with a $97 million loan from Arbor Realty Trust. Benefit Street had provided a $81 million mortgage on the project, which it also packed into a CLO securitization, and alleged a number of technical defaults on the loan.
Moskovits sold 564 St. John’s Place to Harbor Group International for $117 million in July.
The long-delayed Williamsburg Hotel development, which became fully operational last December, has been involved in a number of other legal disputes in the past. In 2017, a non-compete suit between the hotel and star chef Adam Leonti led to the chef being barred from working at any New York City restaurant for several months. Leonti had been tapped to head the Harvey restaurant at the Williamsburg Hotel in 2015, but left after the restaurant failed to open on schedule.