In the latest twist in the drama surrounding New York’s Margaritaville Resort Times Square hotel, some of its lenders have sued the property’s developer and other guarantors to hold them personally liable for nearly $86 million.
Arden Group and Corten Real Estate Partners filed a lawsuit against Sharif El-Gamal, founder and chief executive of developer SoHo Properties, and his partners, Andrew Weiss and Stephen Weiss. The amount sought includes interest of $1.4 million.
SoHo on Sunday filed for Chapter 11 bankruptcy protection to thwart a planned foreclosure auction Arden had planned for Monday.
The 32-story, $370 million hotel features what it bills as the only year-round outdoor heated pool in Times Square, a 32-foot replica of the Statue of Liberty holding a margarita, and views of the iconic ball used in New Year’s Eve celebrations as well as the Manhattan skyline. It was a foray into the Northeast by the brand known for its island-inspired theme.
The lawsuit says SoHo defaulted on its loan in March. Arden’s involvement came after it lent $57 million to SoHo in September 2021, according to the bankruptcy filing. Later, in July 2022, Corten bought half of Arden’s interest in the debt.
“Lenders bring this action to enforce an ‘irrevocable,’ ‘absolute’ and ‘unconditional’ guaranty of payment,” the Tuesday lawsuit said.
SoHo said in its bankruptcy filing that “challenging market conditions arising in connection with the COVID-19 pandemic” led to “operating shortfalls during its stabilization period” since the hotel opened in 2021.
SoHo and a lawyer representing the firm didn’t respond to a CoStar News request seeking comment. Arden declined to comment.
Margaritaville Holdings, the operator of hotels, restaurants and casinos named after musician Jimmy Buffett’s signature song, told CoStar News this week that the Chapter 11 filing won’t affect the hotel’s operations. Evan Laskin, Margaritaville’s chief investment officer, said that the resort “continues to perform well.”
Located at 560 Seventh Ave. by 40th Street and just south of the tourist and entertainment hub of Times Square, the 234-key hotel’s features include touches such as a ceiling fan a traveler would find more often in tropical climates than in urban New York.
According to the lawsuit, El-Gamal and his partners are “personally, and jointly and severally, liable for the entire amount owed on the loan in the event” of a bankruptcy filing.
SoHo had described the bankruptcy filing as “a last-ditch effort to stop” the foreclosure auction.
For its part, SoHo had filed a lawsuit against Arden last week, where it described Arden’s attempt at an auction as "improper" and "predatory," and one that would allow Arden to receive "an unlawful windfall."
Arden "is seeking to conduct a rushed auction on commercially unreasonable terms, aimed at chilling other bidders, and discouraging full and fair bidding," according to that lawsuit.
The hotel, employing about 75 people, was appraised in May as having a value of between $266 million and $350 million, according to SoHo’s bankruptcy filing. Even as the hotel has braced a challenging start, revenue is improving and projected to exceed $25 million by the end of 2024 once various vacant retail space is leased, Sethian Pomerantz, a top SoHo executive, said in the filing last week.
The twists and turns surrounding that property come as New York has turned from one of the worst-performing largest 25 U.S. markets at the end of 2021, to one of the best-performing markets at year-end 2022, according to a CoStar report.
Hotel revenue per available room in New York is expected to top 2019's level by 8% this year, led by an 18% jump in average daily room rate even as the occupancy rate still lags 2019's level by nearly 7 percentage points, according to CoStar.
“Given the projections for future income, the appraised value of the hotel, and the solid location in Times Square where tourism is reviving, [SoHo] believes that a refinancing of the hotel can ultimately be achieved within a reasonable period of time,” Pomerantz said, adding an auction would mean the “opportunity to pay creditors will be lost.”
The portion owed to Arden, a lead mezzanine lender, was part of $309 million senior mortgage loan, senior mezzanine loan, and junior mezzanine loan, plus accrued interest, that the hotel owner owes to different lenders, according to the bankruptcy filing.