Developer AD1 Puts 8-Hotel Florida Portfolio Into Bankruptcy

An eight-property portfolio of Florida hotels, spanning from Orlando to Palm Beach, has been put into bankruptcy after their owner went into default on a $165M loan.

Thirteen affiliated companies of AD1 Global, a Hollywood, Florida-based investor and manager of hotels, filed for voluntary Chapter 11 bankruptcy protection Sunday in Delaware court, estimating $186.4M in liabilities and $204.8M in assets.

In a sworn declaration filed Wednesday, AD1 Chief Financial Officer Alex Fridzon, who is overseeing the bankruptcy petition for the company, said the rapid rise in interest rates last year, coupled with inflation and construction delays, ate into the company’s cash flows to the point where it could no longer make payments on the loan, which it took out in December 2021.

AD1’s lender on the portfolio is HPS Investment Partners, an investment firm with $95B of assets under management, according to its website. Fridzon wrote that in September, HPS “began being inconsistent on providing access to cash for certain necessary expenses.” A month later, the portfolio’s interest reserve account was depleted, and in November, HPS placed the loan into default.

The properties in the portfolio are the Holiday Inn Palm Beach Airport Conference Center, the Home2 Suites by Hilton Palm Bay I-95, the Hyatt Place Melbourne Palm Bay, the Crowne Plaza Orlando Lake Buena Vista, the Aloft and Element hotels on International Drive in Orlando, the Staybridge Suites Orlando Royale Parc Suites and the Rushhh Daytona Beach Tapestry Collection by Hilton. 

Combined, they feature 1,210 rooms and have an estimated value of $210.5M, according to an estimate by Berkadia filed as part of the bankruptcy proceedings. Not all of the hotels are open; after acquiring the Daytona Beach Shores Hotel for $8.9M in 2018, AD1 was in the process of renovating the property into the Rushhh Daytona Beach when Hurricane Nicole hit the area in November, causing nearly $500M in estimated property damage across the region. The property has yet to reopen.

The bankrupt companies’ largest creditor is IHG, the flag of three of the hotels, which is owed $710K. Other creditors include Hyatt, which is owed $194K; CBC Hospitality, which is owed $161K; and Hilton and Duke Energy, which are each owed $117K. 

After HPS placed the loan in default, Fridzon wrote, it sent AD1 a proposed forbearance agreement that would require the hotel operator to hire third-party management firm Fulcrum Hospitality, put $15M back into the reserve account, buy an interest rate cap within a month and agree to transfer the deeds to the eight hotels into an escrow account.

If it couldn’t meet the terms by Jan. 31, HPS — which was formed as a division of J.P. Morgan Asset Management — would take over the hotels, according to Fridzon’s sworn declaration.

AD1 put $1.5M into the reserve account and has engaged an investment bank, Robert Douglas, to try to secure a new equity partner into the portfolio, but HPS was “uncooperative," Fridzon wrote.

“The Lender’s delays, refusals, and non-responsiveness to the Debtors’ requests to release the Debtors’ funds resulted in ‘slow-pays’ and ‘no-pays’ of certain of the Debtors’ vendors, including those vendors that provide staff for the Properties,” Fridzon wrote in the bankruptcy filing. “Despite having significant funds in their Bank Accounts, the Debtors’ inability to access their cash to fund operations, including payment of staff and contract labor, left them with no other option than filing for chapter 11 protection.”

An HPS spokesperson declined to comment. Fridzon and the debtors' attorney, Ian J. Bambrick of Delaware law firm Faegre Drinker Biddle & Reath LLP, didn't respond to requests for comment.

Fridzon oversees “every financial aspect of the company’s operations and management,” he wrote in his sworn statement. He started working at AD1 Global in 2009, the year he graduated with a bachelor’s degree from Wofford College, according to his LinkedIn profile. He also wrote in the filing that he “worked for Marriott Hotels in controller and operations positions” before his tenure at AD1, although he doesn’t list Marriott as work experience on LinkedIn.

AD1 was founded by Chairman and CEO Jose Daniel Berman and operates more than two dozen hotels across the country, including in Atlanta, Charlotte, North Carolina, and Portland, Maine. Berman, Fridzon and other AD1 executives also run developer Adëlon Capital, which reportedly bought 56 acres near Melbourne Orlando International Airport for almost $9M last year to develop an apartment-retail-resort complex anchored by a Crystal Lagoon.

Late Thursday, Delaware Bankruptcy Court Judge Karen Owens authorized the debtors to pay AD1 Management $224K to cover wages for the 136 personnel who work at the properties.