A New York judge’s ruling last year left mortgage lender Argentic Real Estate Finance with little choice but to repurchase a $50.6 million loan on a Houston hotel.
The decision stemmed from Melville, New York-based The Levine Organization failing to make debt payments on the 152-key Aloft Houston by the Galleria, at 5415 Westheimer Road, starting in October 2021, the Houston Business Journal reported.
The debt has been in receivership for the past four years, with an outstanding balance of $30.8 million ($203,000 per key) as of February. The property was purchased by a Levine subsidiary in 2014 for $40.5 million, accompanied by a $32.7 million loan from Silverpeak Real Estate Finance, which later rebranded as Argentic Real Estate Finance.
However, financial struggles emerged in 2017, with the loan being added to a servicer watchlist due to declining income. By that time, the hotel’s annual revenue had dropped to $6.4 million, down from $7.5 million in 2015.
The hotel faced stiff competition from hotel developments in the Galleria area, including the 325-room Hyatt Regency and 157-room Hyatt Place, which opened nearby in 2015 and 2016. The pandemic exacerbated the hotel’s financial challenges, cutting revenues by more than half in 2020.
Despite efforts to improve profitability, including cost-cutting measures, the hotel’s revenue for 2022 remained low, at $4.1 million, while occupancy rates had plummeted to 53 percent.
Midland Loan Services, the hotel’s special servicer, sued Argentic, alleging the lender improperly sold the loan to a commercial mortgage-backed trust without notifying Aloft’s franchisor, Marriott International.
This led to a prolonged legal battle, culminating in New York Judge Jennifer Schecter granting a summary judgment last November in favor of Midland, which sought to have Argentic repurchase the $50.6 million loan — $41.6 million for the original purchase price of plus $9 million in interest.
Although Argentic appealed the ruling, it was denied four months later on the grounds that by that time, the company had already repurchased the loan. With the legal dust settling, the hotel’s future remains uncertain. Midland continues to manage operations while potential solutions, including a possible sale or refinancing of the property, are explored.
— Andrew Terrell
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