Wardman Hotel Owner files bankruptcy, cites pandemic, Marriott feud

By Sarah Lizee

Olympia, Wash., Jan. 12 – Wardman Hotel Owner, LLC filed Chapter 11 bankruptcy on Monday in the U.S. Bankruptcy Court for the District of Delaware with plans to sell substantially all of its assets, distribute the proceeds to creditors and wind down its remaining business.

Until immediately before the filing of the Chapter 11 case, the hotel was managed by Marriott Hotel Services, Inc. under a long-term management agreement.

“Despite its history and prime location in our nation’s capital, the hotel has struggled to remain profitable due to a number of factors, including consistent and growing competition in the greater Washington area, including competition generated by other Marriott properties, and Marriott’s failure to act as a reasonable and prudent operator of the hotel,” James D. Decker, the company’s independent manager, said in a declaration.

The debtor’s financial condition was exacerbated by the Covid-19 pandemic, which resulted in a cessation of all revenues from hotel operation.

On March 25, 2020, Marriott closed the hotel. Despite the termination of operations and furlough of employees, the hotel continued to lose roughly $1.5 million per month.

“On March 16, 2020, with no warning, Marriott demanded that Owner fund $10 million in working capital pursuant to the hotel management agreement between the debtor and Marriott. Further demands followed in the months after the shutdown,” Decker said.

“The debtor rejected each of these demands, in part, because Marriott failed to demonstrate that these vast sums were reasonably necessary for the operation of a shuttered, inoperative hotel.”

Decker said that after months of unproductive negotiation, Marriott filed a complaint against the debtor in Maryland state court alleging breach of contract. Marriott also sought an injunction to compel the debtor to pay its pending demands for working capital.

On Dec. 8, the Maryland state court entered an order compelling the debtor to pay money to Marriott upon Marriott's issuance of unilateral, future capital call notices.

In light of the injunction from the Maryland state court, and with no cash or available source of funding to pay ongoing capital calls, prior to the petition date the debtor permanently closed the hotel and terminated the hotel management agreement with Marriott.

DIP financing

Wardman is seeking court approval to obtain an up to $8 million superpriority secured debtor-in-possession facility from Pacific Life Insurance Co.

All of the debtor’s membership interests are owned by an affiliate of Pacific Life, which is also the debtor’s prepetition secured lender for the company’s $122.5 million term loan.

The company is requesting interim access to $3 million of the DIP loan.

The DIP loan would mature on the earlier of July 1, the effective date of a Chapter 11 plan, the closing date of a sale of the company’s assets, or default and acceleration of the loan.

Interest will be 5%.

A hearing on the DIP financing motion is scheduled for Wednesday.

Debt details

The company listed in its petition $100 million to $500 million in both assets and liabilities.

Washington, D.C.-based Wardman Hotel is the owner of a convention hotel, formerly operated as the Washington Marriott Wardman Park Hotel. The Chapter 11 case number is 21-10023.

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