As Sharif El-Gamal stalls for time at his struggling Margaritaville hotel, his lender fears the property’s value is wasting away.
Craig Spencer’s Arden Group accused the hotel’s owner of fraud for allegedly lying about paying the Times Square hotel’s franchise fees for the Margaritaville brand, according to court filings.
The private-lending firm said the ownership entity, linked to El-Gamal’s Soho Properties, owes its franchisor $1.2 million since October, which jeopardizes its all-important licensing agreement.
“Franchise is everything to a hotel property,” attorneys for Arden Group wrote in response to El-Gamal’s putting his stake in the hotel into bankruptcy last week to delay foreclosure. “There is a real risk that the debtor’s conduct will cause the property to lose the Margaritaville franchise, and that risk increases every day that the debtor remains in control of the property.”
Arden also claims that Soho Properties’ LLC defaulted on its food and beverage agreements, and that the hotel, at 560 Seventh Avenue, has more than $4 million in unpaid bills.
El-Gamal declined to comment.
The developer defaulted earlier this year on Arden’s $57 million mezzanine loan backing the 234-key hotel and the lender moved to take control of the property through a UCC foreclosure.
After a state judge refused his request to postpone the auction, El-Gamal made a last-ditch effort on the eve of the sale by putting the property into bankruptcy.
Arden responded by suing El-Gamal and his partners, Flintlock Construction Services’ Andrew and Stephen “Chip” Weiss, claiming the bankruptcy triggered a “bad boy” guarantee that made the investors personally liable for the hotel’s debts.
El-Gamal’s group has claimed in court papers that it’s close to securing a new loan to refinance the property at a reduced pay-off. Arden’s filings give a glimpse into the negotiations around the debt, which is said to have risen to $85 million.
Arden said that in May of last year, Soho Properties offered to pay off the mezzanine loan at $65 million, saying the developer had secured financing from a large financial institution but was unable to share the term sheet.
Arden responded with a $74 million counteroffer, which Soho Properties did not accept. After negotiations fell apart, the lender sold half of its interest in the mezzanine loan to Delaware-based developer Corten Real Estate Partners.
Arden said that Soho Properties wasn’t aware of the sale to Corten, and that El-Gamal’s brother cold-called Corten asking if it were interested in refinancing the debt.
“The fact that the debtor was cold-calling prospective investors to find capital partners suggests that the debtor did not have capital sources lined up,” Arden’s attorneys wrote.
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