Tillary Hotel owner objects to lender’s disclosure statement

By Sarah Lizee

Olympia, Wash., March 30 – 85 Flatbush RHO Mezz LLC, the owner of the Tillary Hotel in Brooklyn, N.Y., objected on Wednesday to prepetition lender TH Holdco LLC’s disclosure statement for a Chapter 11 plan, according to court documents filed with the U.S. Bankruptcy Court for the Southern District of New York.

On Nov. 24, the debtors filed their plan of reorganization, which was premised on a sale of the hotel through the marketing efforts of its broker, Jones Lang Lasalle. The debtors intended to seek approval of bid procedures based on a stalking horse bid for the property, which would be submitted with the debtors’ disclosure statement.

However, TH Holdco had acquired the mortgage loan encumbering the property in January from prepetition lender 85 Flatbush Avenue 1 LLC, which had advanced a $70 million loan secured by a first-priority mortgage on hotel.

The company said the debtors’ negotiations regarding a letter of intent for a proposed $87.5 million sale of the property came to a “crashing halt” upon TH’s acquisition of the mortgage loan.

TH then filed its own plan and disclosure statement, which are premised on a sale of the property, permitting TH to credit bid, and to the extent TH is the successful purchaser, a commitment by TH to fund the sum of $200,000 for pro rata distribution to the debtors’ unsecured creditors.

The debtors recently filed an amended plan, which will be funded by available cash, exit financing, which will be used to pay the allowed amount of the TH Holdco claim, and an equity contribution to be funded by current holders of equity in the debtors in exchange for their maintaining their equity in the debtors as well as from the reorganized debtor’s post-confirmation operations. In total, the debtors expect the plan fund to be about $88.61 million.

The debtors’ plan is premised on an anticipated lease with the New York City Department of Homeless Services. Currently, DHS leases the hotel property on a month-to-month basis to provide shelter services. The debtors are now working with DHS to secure a long-term lease for the entirety of the hotel property and residential property, which will result in a stream of monthly rental income to maintain the property going forward and to make post-confirmation payments to creditors.

The company said it plans to apply for examination of TH and other parties to investigate the circumstances surrounding TH’s acquisition of the secured claim from the prepetition lender. The debtors believe that TH Holdco may have improperly acquired the secured claim and should not be allowed to credit bid the claim at any proposed sale, and that TH Holdco is not entitled to any default interest in connection with its secured claim.

There is also an adversary proceeding started by 85 Flatbush Mezz LLC, the prepetition mezzanine lender, against TH Holdco. The company said the adversary proceeding needs to be fully adjudicated before the court can consider TH Holdco’s disclosure statement.

The company added that the lender’s disclosure statement doesn’t provide adequate information.

The owner of the boutique hotel in Brooklyn, N.Y., filed bankruptcy on Dec. 18, 2020 under Chapter 11 case number 20-23280.

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