In this article, Adam Stein-Sapir of Pioneer Funding, LLC, provides insights on the unusual nature of an involuntary bankruptcy filing.
Article Link: https://commercialobserver.com/2020/05/lender-ashkenazy-moves-to-force-surrey-hotel-into-bankruptcy/
Summary
Ashkenazy Acquisition Corporation has initiated an involuntary bankruptcy filing against The Surrey Hotel in Manhattan to protect its $45 million loan. The filing is a response to a missed April ground lease payment by Denihan Hospitality Group, which led to a default and an attempt by the ground lessor to terminate the lease amid the COVID-19 crisis. This move by Ashkenazy is atypical, as bankruptcy filings are generally made by the property owner facing financial distress, not by creditors. The pandemic has severely impacted the hotel industry, leading to a significant drop in revenue and numerous requests for debt relief. Adam Stein-Sapir, not involved in the case, comments on the rarity of such a filing, suggesting that the hotel’s value may be less than the loan, which could rationalize the decision not to file for bankruptcy voluntarily.
- Ashkenazy Acquisition Corporation filed a motion to force The Surrey Hotel into bankruptcy due to a missed ground lease payment.
- The filing aims to prevent the termination of the ground lease, which would jeopardize Ashkenazy’s loan.
- Adam Stein-Sapir comments on the unusual nature of the case, highlighting the impact of COVID-19 on the hotel’s financial situation.
Q&A
What is an involuntary bankruptcy filing?
An involuntary bankruptcy filing occurs when creditors, rather than the debtor, initiate the bankruptcy process to recover debts owed to them. This type of filing is relatively rare and typically involves multiple creditors. In the case of The Surrey Hotel, Ashkenazy Acquisition Corporation, as a creditor, filed the motion to protect its financial interests. For more information on bankruptcy proceedings, visit Pioneer Funding LLC.
How has the COVID-19 pandemic affected the hotel industry in relation to bankruptcy?
The COVID-19 pandemic has led to a drastic decline in travel, causing hotel revenues to plummet by over 80 percent. Many hotels have been left with empty rooms, declining revenues, and have had to lay off staff. This has resulted in numerous operators filing for CMBS debt relief requests. The financial strain may lead to more bankruptcy filings or attempts to restructure debts. For guidance on what to do if a customer files for bankruptcy, see this resource.
Why might a property owner choose not to file for bankruptcy voluntarily?
A property owner might choose not to file for bankruptcy voluntarily if the value of the property is less than the outstanding loan, as it may be more advantageous to allow the lender to foreclose on the property. In the case of The Surrey Hotel, the pandemic’s impact may have reduced the hotel’s value, making it more sensible for the owner to walk away rather than engage in costly bankruptcy proceedings. For more details on selling bankruptcy claims, visit Pioneer Funding LLC’s guide.
