Distrikt Hotel, Facing Foreclosure, Must Pay $46M Debt

The owners of a long-troubled Midtown hotel are on the verge of checking out.

A referee ordered the owners of the Distrikt Hotel to pay up after defaulting on a $40 million loan from U.S. Bank, the CMBS lender, court documents show.

Three individuals — Scott Schroeder, Victor Afonso and Kevin Fee — were named alongside ownership entity 342 Property LLC in court filings.

The Distrikt went into foreclosure in 2021 after shutting its doors throughout the pandemic. But the 32-story, 155-key hotel at 342 West 40th Street reopened when the court appointed a receiver in the case — though possibly too late for the owners to hang on to the Midtown property.

The Distrikt had stayed shut even as many hotels had reopened. Lawyers for U.S. Bank argued that the Midtown hotel could have started paying its debt had it started back up when the rest of the industry did.

Lawyers for Axonic Credit Opportunities Master Fund, a separate lender that became a third-party defendant, made a similar claim in the case.

“They really just wanted to throw in the keys,” said an attorney for Axonic, according to a court transcript. “They didn’t really want to reopen the hotel. They didn’t want to do anything that would potentially pay my client’s debt service.”

Axonic had made a $16 million mezzanine loan on the Distrikt.

The hotel had financial problems well before the pandemic. Soon after it opened in 2010, the ownership entity sued its lenders after they refused to grant an extension on its mortgage. The lenders noted the hotel failed to maintain the requisite debt service coverage ratio, meaning cash flow was too weak to reliably cover the debt payments.

Its revenues battered by competition, the Distrikt saw its coverage ratio fall throughout 2019, and when the pandemic struck in early 2020, things got worse. About a month into the pandemic, a $35 million loan on the hotel that had been securitized was sent to special servicing, the Commercial Observer reported.

With the latest court ruling, the star-crossed hotel again hangs by a thread.

Lawyers for U.S. Bank and the hotel owners did not respond to requests for comment.