When an Indiana county court approved a special servicer’s application for receivership over one of Andy Vasani’s 13 hotels, he thought he would have time to tie up loose ends.
Instead, the CMBS special servicer, Midland/PNC, told him it would move in right away.
“They want to take over the property immediately and I'm asking for a few days to manage everything,” Vasani told the Washington D.C. Business Daily. “The employees are not aware. I want to sit down with my employees and inform them of what's going on. They have been with me for a long time.”
The Ohio resident said he landed in this situation after a cash-management for technical default was triggered that he could not control.
“My case has more issues than just cash management but yes they used this tool to make their case stronger,” he said. “It’s horrible. I plan to call the receiver and attorney back to plead for more time to travel to Indiana and hold an employee meeting.”
Vasani’s hotel is among the 8,000 across the nation at-risk for foreclosure or being placed in a court-appointed receivership, according to the American Hotel and Lodging Association.
“This whole process is so one-sided and it does not help when a hotel owner is going through financial hardship due to the pandemic, which pushes us toward bankruptcy,” Vasani said. “This is an eye-opening experience. I look at this country and whatever I do here from a completely different perspective now.”
Vasani’s receiver, Jeff Kolessar with GF Hotels, did not respond to requests for comment and their attorney, Jeanna M. Weaver of Plunkett Cooney law firm, declined to comment when reached by telephone.
“These court-appointed receivers already understand that there's not enough cash flow to support the payments and special servicers are willing to accept it from their receiver but unwilling to accept that truth from the existing owner borrower,” said Girish Patel, principal at NewGen Worldwide and owner of The Blu Hotel in Blue Ash, Ohio. Patel's special servicer is Rialto.
A GlobeSt.com article reported that special servicers are not beyond launching cash-management tactics due to technical defaults.
Manav Singh of Sintel Hotels has, so far, been able to stay above the fray.
“I haven't defaulted on any payments but the special servicer has tried to tell me that if I don't meet the debt-service coverage ratio, that they will trigger cash management,” said Singh, whose CMBS special servicer is LNR. “They have pre-empted me to that and I’ve expressed that I'm not going to allow that to happen. I will not fall under cash management for a global pandemic as long as I'm able to.”
The mechanism Singh foresees LNR potentially employing to trigger cash management in his case is a lockbox agreement.
Singh owns two hotels in Ohio that are under commercial mortgage-backed security (CMBS) loans.
“They can trigger their lockbox on the operating account through the accounts that were set up for the operations of the hotel,” Singh told Washington D.C. Business Daily. “That's how they would typically do it.”
There are multiple combinations from which default can be triggered because of the pandemic, Singh added.
“They're asking for $7,500 to $10,000 to not trigger the debt-service ratio and that’s only for the debt-service ratio and not to prevent every sort of trigger,” he said. “There are several other triggers and they will charge you separately for each potential trigger.”
If an owner does pay thousands of dollars to stay out of cash management, for example, some CMBS special servicers will forego the tactic.
“They are charging anywhere from $500, $5,000 and $7,500 just to engage with them in order to get any requests put in and this is not necessarily to accept the request but simply to engage them for a request,” said Vimal Patel, who owns eight hotels in Louisiana of which two are under CMBS loans. “In our case, when the occupancy dropped to 10%, we automatically defaulted on a bunch of agreements, not just the debt service ratio agreement. Any exceptions that we want to request, we have to request through this attorney, pay a $500 fee and then wait at their mercy for the time they come back to you.”