Case Profile: Aloft Hotel Hits Bankruptcy

CASE PROFILE: Mary Brickell Village Hotel, Miami hotel operator stung by pandemic-fueled travel downturn, hits bankruptcy following mortgage default
22 July 2021 | 12:06 EDT
  Legal Analysis  
| USA | Case Profile
Mary Brickell Village Hotel LLC (MBVH), the owner of the Marriott International-branded Aloft Miami Brickell in Miami, Florida’s financial district, kicked off a Chapter 11 case hoping to reorganize and cure defaults on a USD 17m mortgage.

MBVH filed a Chapter 11 petition on Wednesday (21 July) in the US Bankruptcy Court for the Southern District of Florida, reporting total assets of USD 33.97m against total liabilities of USD 18.4m. The company, which counts the Aloft hotel in the Miami financial district’s Mary Brickell Village as its primary asset, said in bankruptcy court filings that its finances came under duress during the coronavirus pandemic.

A first-day hearing, which would take place before Judge Robert Mark in Miami, has not yet been scheduled.

DebtwireDockets: Mary Brickell Village Hotel LLC 

The company

MBVH began operating the Aloft Miami Brickell in 2013, a hotel located not far from a major public transit station in Miami and within walking distance of the Brickell City Centre, an area of the city that’s been developed in recent years with a variety of shopping and mixed use buildings, according to a first-day declaration from Pedro Villar, the company’s manager.

Villar said that he’s served as manager of MBVH for eight years, and oversaw the construction of the Aloft hotel. While MBVH owns the hotel, it operates through a management company, ARVI Management Corp.

The debt

MBVH’s primary debt obligation stems from the mortgage that the company tapped to own the hotel. The mortgage was entered into in January 2012, and Villar said MBVH owes USD 17.84m under the loan as of its Chapter 11 petition date. The lender on the mortgage is Torchlight Special Services LLC (Torchlight 1) affiliate DF VII REIT Holdings LLC (Torchlight 2).

In addition to the secured debt, MBCH identified trade payables and other unsecured claims totaling just less than USD 558,000.

The full total of the debt is far less than the full value of MBVH’s assets, according to Villar’s declaration. MBVH pegs the fair market value of its hotel at USD 32m, also identifying about USD 1.13m in cash plus other assets, such as fixtures and furniture and accounts receivable, bringing the total asset value to approximately USD 33.97m.

The descent

Villar points to the disruption stemming from the COVID-19 pandemic as a cause of MBVH’s Chapter 11 filing, along with unsuccessful attempts to negotiate with an allegedly uncooperative mortgage lender.

Specifically, Villar said that since the inception of the mortgage in 2012, MBVH had never missed a payment prior to the pandemic’s onset. In March 2020, as the COVID-19 crisis gripped the US economy, MBVH had “hundreds of thousands of dollars in reserves” to support its mortgage payments. When the pandemic began, the company attempted to reach out to Wells Fargo, which was at the time the master servicer of the loan, “to ensure that the parties could contingency plan, and amicably forge a go-forward path in case loan service became difficult during COVID.”

Villar said that despite MBVH’s proactive efforts to talk to its lenders, it took months before the company heard from Wells Fargo, which informed the company that any modifications to the mortgage would have to be worked out with the special servicer of the loan, Torchlight Special Services. MBVH had difficulty communicating with Torchlight and, at some point reached back out to Wells Fargo to say the company wanted to bring all of its payments on the loan current.

“Only then did Torchlight 1 become responsive to the Hotel and began demanding default rate interest, special servicer fees and legal fees,” said Villar. “The Hotel disputed many of these amounts, particularly because representatives of the Hotel reasonably relied on representations made by Wells Fargo that they would help the Hotel, and, at minimum, that they would help to liaise with Torchlight 1.”

Villar went on to say that after months of attempted communications, Torchlight “went dark” in November. Several months passed again, and in February, Torchlight affiliate DV VII REIT—the current lender on the hotel mortgage—told MBVH that it had acquired the loan. The secured lender demanded that MBVH pay the legal fees of the Torchlight affiliate that previously serviced the loan. Shortly after that, the lender launched a foreclosure action against MBVH, and negotiations have since gone nowhere, according to Villar.

“MBVH has made no headway in negotiating with Torchlight 2 and is of the view that Torchlight 2’s legal positions are legally unsound, and even potentially expose a nefarious business model through which a lender can seemingly acquire a loan from itself (in its role as a fiduciary) and turn around within a matter of weeks and demand an approximately 25% return on its investment at the expense of the borrower and its business. During a global pandemic,” said Villar.

The Chapter 11 case

Without having made headway in negotiations with Torchlight, MBVH made the decision to seek Chapter 11 protection based on the belief that “optionality is the best path forward and is the only way to achieve 100-cent recoveries for all stakeholders in MBVH,” Villar said in his declaration.

During the bankruptcy case, MBVH hopes to either address the alleged defaults on the mortgage loan and reinstate it on “fair market terms” or, as an alternative option, to pay down its current lender in full after “right-sizing the alleged outstanding liability” on the mortgage. If MBVH is able to address the loan liability in some form or another, Villar said, the company is confident that the Chapter 11 case would set the hotel on a path toward long term success.

“Torchlight 2 is, and has always been, unwilling to engage in negotiations to achieve a workout,” Villar said. “The Debtor is seeking relief from this Court to preserve the going-concern value of their business and dozens of full-time jobs, implement a reorganization, through which the Debtor intends to exercise its rights to cure any alleged defaults related to the mortgage, … and continue operating in the ordinary course.”

The advisors

by Scott Flaherty, Sara Tapinekis and Rong Ren

Related links: 

First-day declaration 
Cash collateral motion 
DebtwireRestructuring Database: Mary Brickell Village Hotel LLC

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Mary Brickell Village Hotel LLC
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Zarco Einhorn Salkowski & Brito
Torchlight Investors LLC