The owner of New York’s Margaritaville Resort Times Square hotel has filed for Chapter 11 bankruptcy protection in a move aimed at preventing a planned Monday foreclosure auction on the high-profile property.

SoHo Properties, the developer of the hotel located at 560 Seventh Ave., views the auction as “predatory” and “commercially unreasonable.” SoHo made the filing Sunday with U.S. Bankruptcy Court’s Southern District of New York, citing “challenging market conditions arising in connection with the COVID-19 pandemic” that led to “operating shortfalls during its stabilization period” since the hotel opened in 2021.

The property was headed for a public sale without a judicial process as higher interest rates have slowed lending and led to defaults across property types. The 32-story, $370 million hotel development 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 immediate purpose of this Chapter 11 case is to stay a UCC foreclosure auction sale” of SoHo’s 100% interest in the hotel after the firm was denied a temporary restraining order in state court to keep the planned auction from taking place, Sethian Pomerantz, a top SoHo executive, said in the filing, adding the scheduled auction was “triggering the urgency for the bankruptcy filing.”

The auction was planned after developer Sharif El-Gamal’s SoHo was said to have defaulted on a $57 million loan provided by Arden Group. Arden had said the two-year loan it originated in late 2021 for the 234-room hotel, located by 40th Street just south of the tourist and entertainment hub of Times Square, was used to help refinance existing construction debt. In a lawsuit filed last week, SoHo described Arden's attempt at an auction as "improper" and "predatory" and one that would allow it to receive "an unlawful windfall" should the auction proceed.

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 the lawsuit.

Arden declined to comment to CoStar News.

Margaritaville Holdings, the operator of hotels, restaurants and casinos named after musician Jimmy Buffett’s signature song, said the Chapter 11 filing won’t affect the hotel’s operations.

“The bankruptcy filing will not impact resort operations,” Evan Laskin, Margaritaville’s chief investment officer, said in an emailed statement. He added that the property is under a license agreement with Margaritaville Holdings.

“The property will remain open and staff members employed," he said. "The resort continues to perform well, with outstanding satisfaction ratings. Margaritaville looks forward to delivering fun and escapism through the resort and restaurant experiences for guests and New Yorkers for a long time.”

The Chapter 11 filing comes as the hotel’s “revenues are improving and are projected to exceed $25 million by the end of 2024 once various vacant retail space is leased,” Pomerantz said in the filing.

He said the hotel, employing about 75 people, was appraised in May as having a value of between $266 million and $350 million. Even as the hotel has braced a challenging start, Pomerantz said, revenue is improving and projected to exceed $25 million by the end of 2024 once various vacant retail space is leased.

“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,” he 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 a total of $309 million in 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.

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, the CoStar report said.

At the time of the Margaritaville Resort Times Square opening, El-Gamal told CoStar he was a “little nervous” about the reopening of New York after the havoc wreaked by COVID-19.

He said at the time a clear hopeful sign was a retail tenant agreeing to pay “an arm and a leg” for a 5,000-square-foot retail space on the ground floor of the hotel. That space still looks to be vacant.

The hotel isn’t the only one facing challenges in the wake of the pandemic. The 190-key Mondrian Park Avenue boutique luxury hotel in Manhattan has recently been sold to Global Holdings Management Group, the international real estate development and investment firm led by its billionaire chairman and founder Eyal Ofer, after Moin Development failed to pay off a senior mortgage loan.