LuxUrban Faces $83M Lawsuit From REIT As More Landlords Try To Evict 'WeWork For Hotels'

LuxUrban Hotels is in hot water again as New York City hotel landlords chase it down for millions of dollars in unpaid rent and try to kick the publicly traded hotel operator out of their properties.

The Miami-based firm operates budget hotels via master leases with landlords  — a model that has been compared to WeWork — and has recently seen its share price nose-dive into penny stock territory in the wake of a short seller report, self-inflicted wounds and leadership shake-ups. 

In the last three months, three property owners who lease their buildings to LuxUrban have filed suit, claiming the company has failed to pay rent and should be evicted from the hotels. A fourth landlord is facing foreclosure at a Midtown LuxUrban property after missing debt payments.

Now, the hotel company could look to sell or liquidate following the creation of a special committee of its board tasked with exploring strategic financing initiatives, it announced Monday.

In the largest of the lawsuits, Apple Hospitality REIT filed a federal complaint on Monday, alleging a LuxUrban affiliate hasn't been paying full rent since August at its second-largest hotel and has since been unlawfully occupying the building after Apple notified it that its lease had been terminated. 

“Lux Holdings has refused to surrender possession of Hotel 57, willfully withholding holdover payments that are due and owing to Apple Eight, and collecting funds from Hotel 57’s operations,” reads the complaint, filed in the U.S. District Court for the Southern District of New York. 

Apple Hospitality, a $3.5B, publicly traded hotel landlord, signed a 15-year contract with LuxUrban last May for the 216-room hotel at 130 E. 57th St. for a total rent of $95M, but it said in the lawsuit its new hotel operator “almost immediately ... began defaulting on its rent obligations.”

The REIT is asking the court for damages of at least $83M, claiming LuxUrban's default requires it to immediately pay all future rent owed. 

The sum is more than four times the publicly traded company’s market value. It also far exceeds the $994K in cash and cash equivalents that LuxUrban said it had on hand at the end of March in its most recent quarterly filing. PincusCo first reported the lawsuit. 

The hotel REIT was trying to sell Hotel 57, formerly the New York Renaissance Hotel 57, before the pandemic and doesn't own anything else in the city. Its affiliate, Apple Eight Hospitality Ownership, ground leases the building from Solil Management and had hoped to use LuxUrban's rent to cover its real estate taxes.

But LuxUrban's stewardship of the building has caused it to pile up headaches, including a dispute with the New York Hotel Trades Council and Hotel Association of New York City for union fees LuxUrban failed to pay or notify its landlord about, Apple Hospitality said in the suit.

“Apple Eight sustains substantial daily losses, including rental income from reletting Hotel 57 and lost revenue from the hotel’s operations, while continuing to make monthly rental payments under the Overlease without the benefit of any rental income or revenue from the hotel’s operations,” it wrote.

Apple Hospitality and its attorneys didn't immediately respond to Bisnow’s request for comment. 

LuxUrban previously told investors it expects a resolution soon, although Apple Hospitality's lawsuit this week seems to dispute that notion. LuxUrban's most recent quarterly report, filed last month, said the company has “defaults across certain properties totaling 216 keys” — the same number as in Hotel 57 — that it expected to cure “in the near term.”

LuxUrban CEO Shanoop Kothari didn't immediately respond to Bisnow’s request for comment.

Elsewhere in New York City, BD Hotels, which leases the 117-room The Blakely hotel at 136 W. 55th St., sued LuxUrban May 10 in New York Supreme Court, claiming it has failed to pay more than $550K in rent and fees and ignored a notice that its lease had been terminated.

BD Hotels co-owner Richard Born declined to comment.

LuxUrban's landlord at the 35-key Condor Hotel in Williamsburg, Brooklyn, has also tried to kick it out of the property.

After the landlord, 56-58 Franklin Ave LLC, sued LuxUrban April 12 for not paying rent for months starting in January, a Kings County judge approved a warrant for eviction on April 30. Shortly thereafter, the parties reached a settlement in which LuxUrban admitted it didn't pay rent and agreed to pay $207K to the landlord by June 3 to avoid eviction.

Lawyers for the landlord didn't respond to Bisnow’s request for comment. Nothing has been filed on the docket in the dispute since the settlement agreement was reached May 16.

The beleaguered hotel firm has surrendered five properties this year, as its ambitions to take over thousands of rooms across the country flamed out amid a cash crunch and various legal entanglements. Its portfolio has shrunk from 18 hotels to 13, according to regulatory filings, although that 13 includes The Blakely, Hotel 57 and the Condor.

“We've made mistakes,” Kothari told investors earlier this year. “I've been the first to admit that.”

LuxUrban has racked up millions of dollars in legal fees over the past year, paying a $1.2M fine for illegally operating short-term rentals and dodging lawsuits from vendors and former employees who claim they were stiffed.

It has attracted the attention of class-action lawyers, who are seeking to sue it for misleading shareholders after it claimed to have a signed lease for The Royalton hotel in Manhattan when no such deal was struck. 

The company was on a growth trajectory last year when it secured a licensing and development deal with Wyndham Hotels & Resorts, but that deal was terminated last month, leaving LuxUrban with an $8.9M liability on its books from an advance it received from Wyndham.

The company's founder and former CEO, Brian Ferdinand, resigned from his role at the company and stepped down from the board, although he is still the largest individual shareholder. Several other board members have been replaced, and a new chief operating officer with hotel experience has been installed, but it hasn't stopped the company's bleeding.

LuxUrban's stock is trading at 25 cents a share, having lost 96% of its value since the start of the year. It reported a $40.2M loss in the fourth quarter, following an audit of its financials, and followed it up with a $16M loss in the first quarter.

It had an $18.2M stockholder deficit at the end of March but nevertheless paid owners of its preferred stock $239K in dividends during the period.

Even for landlords that aren't suing LuxUrban, the chain's presence has been followed by financial distress.

On Tuesday, lender W Financial REIT filed to foreclose on the owners of 129 W. 46th St., the location of the 79-room Hotel 46 by LuxUrban, for failure to make mortgage payments, court records show.

Key Hotels LLC, which leased the property to LuxUrban last summer, hasn't made payments on its $16.8M mortgage since December, W Financial REIT claims in the foreclosure suit, which names LuxUrban as a defendant. The attorney representing W Financial declined to comment to Bisnow. A representative for Key Hotels couldn't be reached.

Ethan Rothstein contributed reporting for this story. 

CORRECTION, JUNE 6, 10 A.M. ET: A previous version of this article misattributed a quote to Richard Born via text message. The quote has been removed.