Struggling hotel chain overstays welcome at Hotel 57

Miami-based subletters at Hotel 57 allegedly stopped paying rent last summer

LuxUrban Sued For Squatting at Hotel 57
LuxUrban's Justin Knight and Shanoop Kothari with 30 East 57th Street (Planet MicroCap, LinkedIn, Property Markets Group)

LuxUrban Hotels is being sued by a subsidiary of Apple Hospitality REIT for allegedly squatting at Hotel 57 in Midtown East, owing $1.8 million in rent and failing to pay unionized employees. 

The beleaguered Miami-based hotel chain began subletting the 17-floor property at 130 East 57th Street from Apple Eight Hospitality Ownership in May of last year. Apple Eight sued this week in New York, alleging that LuxUrban defaulted on its rent obligations soon after the 15-year lease agreement went into effect.

LuxUrban, which specializes in leasing hotel properties in New York, Miami, Los Angeles and New Orleans, is facing multiple lawsuits as losses mount for its investors. 

LuxUrban has had a terrible year. In January, Bleecker Street Capital released a scathing analysis of the company’s financial reporting and numerous lawsuits. In February, New York City fined the hotel company $1.2 million for operating 70 illegal short-term rentals, according to the West Side Spirit, leading LuxUrban Hotels founder Brian Ferdinand to step down from his co-CEO role. Its stock price on the Nasdaq has dropped by 96 percent this year.

Lux Holdings LLC recently announced the formation of a special committee to try to salvage whatever value it can for LuxUrban shareholders. Company stock closed Wednesday at just 25 cents a share.

According to the latest lawsuit, LuxUrban Hotels stopped paying rent last August to Apple Eight, which issued a notice of default in February and terminated the sublease in March. Apple Eight served Lux Holdings notice to vacate in early April, by which point it owed nearly $1.8 million in rent.

Meanwhile, LuxUrban’s operations at the hotel continued. Rooms are listed online for $793 to $2,210 per night.

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“Lux Holdings’ actions have allowed it to reap a daily windfall from Hotel 57’s reservations and guest stays, while Apple Eight incurs increasing daily expenses and liabilities resulting from Lux Holdings’ illegal holdover,” the lawsuit states.

In addition to unpaid rent and squatting, Apple Eight’s lawsuit accuses LuxUrban of failing to disclose two union arbitration proceedings that resulted in Lux Holdings’ responsibility for over $3 million in liabilities. Lux, as a part of its lease at Hotel 57, agreed to a union contract and owner agreement, but was brought to court for failures over employee pay at five of its hotels, including Hotel 46 in Times Square. 

Apple Eight said that the union in April demanded outstanding wages and benefits owed to members.

“Lux Holdings never provided Apple Eight with notice of the arbitration hearings, precluding Apple Eight from participating and raising any defenses at the hearings,” its lawsuit charged.

Apple Eight is seeking damages in excess of $83 million.

Apple Eight and LuxUrban Holdings could not be reached for comment.

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