Hospitality Investors Trust (HIT), a non-trading REIT (formerly American Realty Capital Hospitality Trust), filed for Chapter 11 bankruptcy over the weekend leaving investors with massive losses. As a result, investors have filed lawsuits against financial advisor and their broker-dealers for the sale of Hospitality Investors Trust. They alleged that investors were unaware of the risks with the REIT and liquidity issues.
Haselkorn & Thibaut, a national law firm that represents Hospitality REIT investors, has warned investors for over a year that REIT could declare bankruptcy anytime. They have opened up a toll-free number 1-800-856-3352 for Hospitality Investors Trust investors to call for a free consultation and a guide on how to recover the maximum losses.
This comes after the REIT disclosed its liquidity dilemma and has taken a number of steps to maintain its short-term cash position. As previously reported, the Company was in discussions with its largest investor, Brookfield Strategic Real Estate Partners II (Hospitality REIT II LLC), and completed a number of deleveraging and restructuring transactions, including the filing of a prepackaged Chapter 11 bankruptcy.
The REIT entered into tolerance, modification, and extension agreements with lenders on three mezzanine mortgage loans with total outstanding capital of $86.61 million secured by the Company’s participation in 62 hotel properties. The tolerance and modification/extension agreements were concluded in May 2019 and the Company entered into a tolerance agreement with the lenders in June 2020.
The last forbearance, modification, and renewal agreement serve as lenders’ approval of the restructuring is now been a failure due to the bankruptcy. The Hospitality Investors Trust has agreed to continue to transfer the excess cash flow from 62 secured hotel properties to a property improvement reserve account, of which $8.3 million has been deposited in capital reserves under the Property Improvement Plan required by trademark law.
The Trust Fund’s obligation to fund the capital reserve is to postpone the additional payments necessary for the reserve until April 2022. The monthly capital reserve obligations for the repair and replacement of furniture, furnishings, and routine investments will not be required until 2021.
They are postponed until March 2021. The minimum interest rate on the loan will be reduced if certain changes are made to the calculation of the test. This will allow the company to meet the minimum test by receiving excess cash flow from the property secured by the loan, but the company will not receive any changes.
The maturity date of the loans has been extended to November 2022, with two additional extension options for one year after these maturities expire. The agreement does not provide for additional waivers against defaults. Lenders have agreed to waive any default resulting from the filing of the prefabricated bankruptcy before it takes effect.
Brookfield failed to make a scheduled reserve payment to upgrade the property in April 2020, which is a default. Before the bankruptcy takes effect, certain Brookfield subsidiaries have agreed to provide additional guarantees for the REIT and its operating partnership, as well as certain limited recourse obligations and environmental compensation obligations.
In February 2021, the REIT defaulted on a lease for the Georgia Tech Hotel and Conference Center in Midtown Atlanta, which it acquired in March 2014 as part of a $101.5 million portfolio acquisition for six hotels. The ground tenant terminated the lease on March 31, 2021. The hotel served as collateral for an interest-secured mortgage loan for 15 hotels. An agreement with the lender on the loan should expire on June 30, 2021, and the prefabricated bankruptcy will take effect if the event occurs on or before that date. Last week, REIT modified an outstanding $23.2 million loan backed by mortgages on 21 hotels.
The Hospitality Investors Trust invests in premium brands and select-service properties in the United States. The REIT has a $2 billion hotel portfolio which includes 101 properties as of the fourth quarter of 2020.
