City Will Spend $90,000-Plus Per Day for 15 Months to Rent Bankrupt Hotel in FiDi for Migrants
The administration of Mayor Eric Adams plans to rent a bankrupt Holiday Inn hotel in the Financial District at a cost of more than $34 million per year, and operate it as a shelter for illegal immigrants who have newly arrived in the United States, but have been forcibly expelled from states such as Florida and Texas. The terms of this agreement will pay the operators of the hotel a premium of at least $10.5 million more than they would have made in the course of ordinary business, according to legal documents reviewed by the Broadsheet.
The Holiday Inn at 99 Washington Street (on the corner of Rector Street) filed for bankruptcy in late 2022. The 492-unit lodging (which boasts of being the world’s tallest hotel branded as a Holiday Inn) closed twice during the pandemic, causing the business to default on a $137 million loan. This led lender Wilmington Trust to begin foreclosure proceedings aimed at seizing the hotel.
That development spurred hotel owner Jubao Xie (doing business under the corporate name of Golden Seahorse) to file in November for Chapter 11 bankruptcy protection, to buy time by halting foreclosure while the business was reorganized and new terms were negotiated with creditors.
In December, Mr. Xie was approached by the City’s Health and Hospitals Corporation (HHC), which is the lead agency in the effort by City Hall to house tens of thousands of immigrants seeking asylum who entered the United States by crossing its southern border, and were sent to New York by local governments. HHC plans to house roughly 1,000 of these asylum-seekers at the Holiday Inn on Washington Street.
HHC initially hoped to rent only about 20 percent of the rooms at the FiDi Holiday Inn, but Mr. Xie demurred, “as the logistics of housing asylum seekers in only 100 rooms, while also servicing hundreds of other tourists were too difficult,” according to court documents. Mr. Xie “was also understandably concerned about potential backlash from tourists using the hotel at the same time as asylum seekers.” Faced with this objection, HHC agreed to rent the hotel in its entirety, through April, 2024.
The filings indicate that, under the final terms of the agreement, “owner will make available to HHC 100 percent of the 492 rooms in the Hotel at a rate of $190 per room per day for the term of this Agreement and HHC shall pay for all such available rooms regardless of whether they are occupied by HHC or its guests…. As such, as of March 1, 2023, HHC shall pay Owner monthly and on the first day of each calendar month the Room Rate for the full Hotel at $93,480/day.” This translates to an average payment of $2,804,400 per month, based on a 30-day calendar month.
Because the Holiday Inn at 99 Washington Street is in bankruptcy proceedings, all major decisions about the business must be cleared with a federal judge. For this reason, Mr. Xie and Golden Seahorse sought permission from the U.S. Bankruptcy Court to finalize the contract with HHC.
The creditors who hold the mortgage on the Holiday Inn opposed the motion to rent the hotel to HHC. In court papers, they argue, “the risk of reputational loss is real. Vacation and business travelers who learn of the Hotel’s use as an asylum-seeker housing facility could be dissuaded from making their reservations at the Hotel, seeking out competitors not burdened by such a reputation…. Such impairment is at risk of coming from a reluctance of customers to stay at the Hotel if it becomes perceived not as a hotel but rather as a public short-term housing facility.”
They also urged the court to consider that “unlike hotel guests, the asylum seekers will not be paying their own money to stay at the Hotel and will not be making reservations with credit cards that secure claims for damages to property.”
In the court papers, the creditors note concerns about the hotel’s insurance, compliance with the certificate of occupancy and fire safety, potentially impaired future financing, and “the economics of refurbishment after asylum-seeker departures.” The lenders also claim that “the extended stays of the asylum seekers could turn them into residents instead of guests. That would entitle them to eviction-prevention rights that transient hotel guests lack. Subjecting Lenders to the risk of involuntary tenancies of insolvent tenants with heightened eviction protections is an unfair exposure.”
They voiced particular concern about fire risk, citing the possibility that migrant guests would begin cooking in their rooms with hot plates, noting that “experience teaches that expecting occupants to use cooking equipment is prudent. The cooking equipment heightens fire risks and other property damage risks. The risk of fires is a particularly acute concern given the physical structure of this Hotel,” where the 485-foot height, combined with the small size of each of the 50 floors (less than 3,000 square feet), could create obstacles to evacuating the building quickly in an emergency.
Mr. Xie and Golden Seahorse responded that the $2.8 million monthly rent “will generate additional guaranteed net operating income of approximately $10.5 million that would not otherwise be possible.” But this may underestimate how lucrative the deal with HHC could be. The same court documents note that for January, “current occupancy [is] “60 percent at $102 average price per night.” Extrapolating these metrics forward would mean that during the period covered by the agreement with HHC, the Holiday Inn might collect only $902,700 per month from paying customers, which boosts the hotel’s monthly bonus to $1.9 million. Collecting this additional monthly profit through April, 2024 could translate into a premium of $28.5 million in extra revenue.
These outlays do not represent the full expense contemplated by HHC, which (according to court filings) will also be providing three meals per day for each guest, along with appliances (such as refrigerators and microwave ovens), as well as laundry and housekeeping services, and security. The Holiday Inn is also required to furnish complimentary wireless internet access and unlimited domestic landline calls.
The legal briefs described above were filed with the federal Bankruptcy Court last week, followed by seven hours of oral arguments on Friday. Yesterday (Monday), judge Philip Bentley granted his approval for the Holiday Inn’s agreement with HHC to proceed.
Rocco Cavaliere (part of the legal team from the firm of Tarter Krinsky & Drogin, representing the hotel, told the Broadsheet that, “as a result of the Court’s decision, within the next week, this Holiday Inn location will temporarily stop accepting reservations from tourists and instead provide much needed accommodations and food to asylum seekers for the foreseeable future, under the supervision and oversight of the New York City Health & Hospitals Corporation. By providing such accommodations, the hotel is proud to be involved in helping the City in their efforts to humanely address the sudden influx of asylum seekers in New York City.”
Attorneys representing the creditors in the Holiday Inn bankruptcy case did not respond to a request for comment.