Frost Brown Todd Assists CMBS Special Servicer with Deed in Lieu of Foreclosure Transaction and Subsequent Sale of Full Service Hotel

Client: Anonymous
Open date: 2009
Close date: 2011

Geoff White and a team of four attorneys and two paralegals assisted a CMBS special servicer client in closing (a) a deed in lieu of foreclosure of a full service hotel property in Louisville, Kentucky that included a de-flagging and re-flagging of the hotel at the closing and (b) the subsequent sale of the hotel that included the de-flagging, closing and subsequent re-flagging of the hotel.

Outcome

In 2009, a CMBS special servicer contacted Frost Brown Todd to assist to best advice them in handling a CMBS loan that was in default. The loan was secured by a full service hotel located in Louisville, Kentucky. The hotel was owned by a national hotel owner that was no longer able to operate the property on a profitable basis. There was, however, a level of trust between the borrower and the special servicer that the borrower would be able to effectively operate the hotel for the immediate future. Based upon these facts, the parties agreed to move forward with the project by entering into a deed in lieu of foreclosure agreement. 

The deed in lieu of foreclosure negotiations required Frost Brown Todd attorneys to understand the framework its client needed to consider due to the Pooling and Servicing Agreement, which governed its actions following the original securitization of the loan. They had to keep these complexities in mind in best handling the expectations and desires of the borrower throughout months of negotiations. 

The team also needed to assist the client in preparing for the ultimate ownership of the hotel. This resulted in Geoff White working with both the workout officer for the deed in lieu transaction and the asset manager in negotiating both the management agreement and franchise agreement (with a new flag) and assisting in maintaining the liquor permits for the hotel restaurant operations.

Following the closing of the deed in lieu transaction, Frost Brown Todd effectively served the client in its subsequent sale negotiations of the property to a national hotel owner that elected to introduce a new flag at the property. As a result, the client also turned to the team in negotiating a termination of the existing franchise agreement and orderly transition to the new flag.

Frost Brown Todd’s knowledge of CMBS transactions, special servicer requirements, real estate transactions, hotel franchise issues, and liquor licensing all proved essential in handling this complicated real estate transaction over the course of nearly two years.

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