In an “extremely unusual” situation brought about by the economic fallout of coronavirus, Ashkenazy Acquisition has found itself in the position of forcing a borrower into bankruptcy to protect its collateral.
The investment firm filed an involuntary Chapter 11 petition in late April to force the 190-room Surrey Hotel at 20 East 76th Street into bankruptcy, Commercial Observer reported. The move came after the hotel owner, Denihan Hospitality Group, missed its ground lease payment for April.
Ashkenazy, which took over a $45 million leasehold mortgage on the hotel in 2018 — when it was already in maturity default —would see its collateral wiped out if the ground lease were terminated, the motion notes. The lender accuses Denihan of “working with the ground lessor” to terminate the lease.
“Ground lessor seeks to take advantage of a worldwide crisis as a means to take back the valuable ground lease,” Ashkenazy’s lawyers wrote in the filing, noting that bankruptcy court is “the only available forum for relief at this time as the New York State courts are closed to commercial disputes.”
Although CO could not determine the identity of the ground lessor, Surrey Realty Associates LLC, property records indicate that the Kaufman Organization was the owner of the fee interest as of 2009.
A source told the publication that Ashkenazy’s filing is “anything but a regular bankruptcy,” as it is much more common for borrowers to file for bankruptcy to stave off foreclosures, and involuntary bankruptcies tend to be filed by several parties rather than just one.
With the coronavirus crisis reducing the value of the hotel to less than that of the loan, it may have made economic sense for Denihan to simply lose the ground lease and back out of the deal, the source noted. [CO] — Kevin Sun