Three big banks are suing Ashford Hospitality Trust over claims the real estate investment trust breached its contracts in defaulting on loans tied to 14 hotels in eight states. They are asking the court to appoint a receiver to ensure the hotels remain in compliance with their Marriott-brand agreements and retain their value.
The collection of hotels is among the 19 the Dallas-based REIT is seeking to hand back to lenders in an effort to shore up its balance sheet, according to court documents filed with the U.S. District Court for the Southern District of New York.
Morgan Stanley Bank, Barclays Bank and Bank of America originally provided $293.8 million backing the 14 hotels, according to court documents. An attorney representing the special servicer for their loans — Wilmington Trust, National Association, acting on behalf of Trimont Real Estate Advisors — has requested the court appoint a receiver to maintain and preserve the value of the hotels until a foreclosure process, which is expected to take several months, is completed, according to a motion before a court judge.
"The plaintiff has learned the hotels require a significant influx of cash to continue operating, and defendants do not appear to be able to provide the resources necessary to continue managing the hotels effectively," the attorney, Frederick Whitmer, said in an argument filed with the court. By appointing a receiver, Whitmer argued the plaintiff hopes to "avoid imminent and severe loss of value to the hotels and to secure plaintiff's remedies under the applicable loans."
He added that "given the number of hotels and number of states where the hotels are located, plaintiff anticipates it will take several months to complete the foreclosure process."
Ashford CEO Rob Hays told CoStar News in July its move to hand back the keys to 19 of its hotels was "a big step" to improve the REIT's capital structure and cash flow. The REIT, with more than 100 hotels in its U.S. portfolio, did not immediately respond to a request Monday from CoStar News seeking comment on this latest legal action.
During an earnings call earlier this month, Ashford's leaders told investors the 19 hotels were still in its portfolio, managed by its operational affiliate Remington, and they hoped to complete the transfer of those properties back to lenders by year's end. In that call, the REIT's executives told investors it opted not to pay the $255 million required to extend the loans tied to the 19 hotels. To gain control of the properties, the lenders must foreclose on the properties.
The Ashford-affiliated entities in default, with hotel properties used as collateral on the loans, are as follows:
Arizona:
- Ashford Scottsdale LP: Courtyard by Marriott Scottsdale Old Town at 311 N. Scottsdale Road in Scottsdale, Arizona.
- Ashford Phoenix Airport LP: Residence Inn by Marriott Phoenix Airport at 801 N. 44th St. in Phoenix, Arizona.
California:
- Ashford Newark LP: Courtyard by Marriott Silicon Valley at 34905 Newark Blvd., Newark, California.
- Ashford Oakland LP: Courtyard by Marriott Oakland at 350 Hegenberger Road in Oakland, California.
- Ashford Manhattan Beach LP: TownePlace Suites Los Angeles LAX Manhattan Beach at 14400 Aviation Blvd. in Hawthorne, California.
- Ashford Hawthorne LP: SpringHill Suites by Marriott Los Angeles LAX/Manhattan Beach at 14620 Aviation Blvd. in Hawthorne, California.
- Ashford San Jose LP: Residence Inn by Marriott Newark Silicon Valley at 35466 Dumbarton Court in Newark, California.
Indiana:
- Ashford Tipton Lakes LP: Courtyard by Marriott Columbus Tipton Lakes at 3888 Mimosa Drive in Columbus, Indiana.
Maryland:
- Ashford BWI Airport LP: SpringHill Suites by Marriott Baltimore at 899 Elkridge Landing Road in Linthicum Heights, Maryland.
Nevada:
- Ashford LV Hughes Center LP: Residence Inn by Marriott Las Vegas Hughes Center at 370 Hughes Center Drive in Las Vegas, Nevada.
New Jersey:
- Ashford Basking Ridge LP: Courtyard Inn by Marriott Basking Ridge at 595 Martinsville Road in Basking Ridge, New Jersey.
Pennsylvania:
- Ashford Plymouth Meeting LP: SpringHill Suites by Marriott Philadelphia Plymouth Meeting at 430 Plymouth Road in Plymouth Meeting, Pennsylvania.
Texas:
- Ashford Plano-C LP: Courtyard Dallas Plano in Legacy Park at 6840 Dallas Parkway in Plano, Texas.
- Ashford Plano-R LP: Residence Inn Dallas Plano Legacy at 5001 Whitestone Lane in Plano, Texas.
The lawsuits claiming breach of contract could open Ashford up for additional monetary claims from its lenders, such as accrued and unpaid interest on the loans and attorney's fees, according to the court claim.
Ashford has been working to pay down its debts that accumulated after the onset of the pandemic, selling off properties where it can — such as a lodging property near SeaWorld in Orlando, Florida — and has been aggressively marketing other hotels. The REIT's leadership team told investors it hopes to pay back Oaktree Capital Management next year after the firm loaned Ashford $200 million in January 2021.