Williamsburg Hotel owner seeks money judgment against Benefit Street

By Sarah Lizee

Olympia, Wash., Jan. 7 – 96 Wythe Acquisition LLC, the owner of the Williamsburg Hotel in Brooklyn, N.Y., has filed an adversary proceeding against lender Benefit Street Partners Realty Operating Partnership, LP, according to a Thursday night filing with the U.S. Bankruptcy Court for the Southern District of New York.

Benefit Street was brought in to replace the company’s previous construction lender following the opening of the hotel, and to allow for the final completion of construction when the hotel was already mostly operational, 9 Wythe said.

The company said the purpose of the loan was to provide a bridge loan for up to two and a half years, during which time the hotel’s construction would be completed and its operations would stabilize at or near full capacity, after which the debtor would then refinance into a permanent mortgage loan.

“The debtor instead found itself dealing with a predatory lender, whose apparent goal was to seize ownership over the hotel from the debtor by any means necessary, causing the debtor and its equity holders to lose all of their value and investment in the hotel project,” the company said in the filing.

“Instead of allowing the debtor to move forward with a refinancing of the lender’s debt, as had always been contemplated, the lender engaged in a course of misconduct designed to enrich itself while depriving the debtor of the benefit of its bargain.”

The debtor claims Benefit Street improperly refused to acknowledge the completion date of the hotel, increased the interest rate, withheld debtor funds, claimed the debtor’s interest reserve was not sufficiently funded, and fabricated several defaults, which gave the lender “an unfair advantage” and leaving the company no choice but to either pay “exorbitant and unauthorized” interest and fees or jeopardize the hotel project.

The company said it believes the lender’s conduct was “intentionally conceived” so that it could seize the hotel for itself at a substantial discount to the market value, and then turn around and sell it at the market price while capturing additional profits.

“Separate from its endless litigation against the debtor, and its efforts to stymie the orderly progress of the bankruptcy case, the lender now apparently wishes to propose a Chapter 11 plan of liquidation pursuant to which the hotel would be sold, with the lender itself serving as stalking horse bidder and being entitled to credit bid the full amount of its inflated claim, effectively precluding competitive bidding in what is still a troubled market in light of the pandemic,” the company said.

The company said the court should equitably subordinate or equitably disallow the portion of the lender’s claim that arises from “additional and improper” purported charges under the loan agreement.

The debtor also said it should be compensated for the lender’s misconduct in violation of express and implied terms of the contracts between the debtor and lender, and misappropriation of the debtor’s own funds.

“The lender’s claim lacks legal and factual support in numerous material respects and, for that reason, should be disallowed to the extent it cannot prove its entitlement to excessive charges asserted in its proof of claim,” the company added.

The Brooklyn, N.Y.-based hotel owner filed bankruptcy on Feb. 23, 2021 under Chapter 11 case number 21-22108.

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