Bankrupt Washington Hotel Gets Loan for Sale as Marriott Balks

Wardman Park Hotel was approved to borrow an initial $3 million in bankruptcy to preserve the historic property and find a buyer, despite objections from its former manager Marriott International Inc.

Wardman Hotel Owner LLC, the debtor for the century-old Washington hotel, can make an initial draw on its $8 million debtor-in-possession loan while it looks for a buyer for the property, U.S. Bankruptcy Judge John Dorsey ruled in a Delaware court Wednesday.

Wardman Park received the loan from a unit of Pacific Life Insurance Co., its owner and pre-bankruptcy lender, with a six-month term and 5% annual interest rate, according to filings. Wardman Hotel Owner owed Pacific Life $130.5 million as of Dec. 21, according to court papers.

“It’s time to hit the refresh button,” Laura Davis Jones of Pachulski Stang Ziehl & Jones, an attorney for Wardman Hotel Owner, said in the hotel’s first-day bankruptcy hearing. Selling the Wardman Park is the best way to maximize value for all stakeholders, she said.

Wardman Park Hotel, which opened in 1918 at the height of the Spanish Flu pandemic, filed for bankruptcy this week after closing in late March due to the outbreak of Covid-19. The historic hotel is one of the largest in Washington, and has played host to numerous presidential inaugural balls and been home to former presidents Herbert Hoover, Dwight Eisenhower and Lyndon Johnson, according to court filings.

‘Bad Faith’

Marriott, which had the contract to manage the hotel until “minutes before” the bankruptcy filing, according to its attorneys, filed a raft of objections to the first-day motions, calling the move “a bad faith bankruptcy.” Marriott alleged in court filings that the Wardman bankruptcy filing is an attempt to avoid paying Marriott claims awarded by a Maryland state court.

“Through this bankruptcy, Pacific Life is attempting to avoid paying Marriott potentially tens of millions of dollars of damages resulting from the debtor’s and Pacific Life’s breach of their contractual obligations to Marriott,” according to a DIP objection filed in bankruptcy court.

The Pacific Life DIP is an insider transaction and there is no evidence of “imminent and irreparable harm” if the loan were not approved, Marriott said in its objection.

The hotel struggled to remain profitable due to greater competition in the capital region, as well as “Marriott’s failure to act as a reasonable and prudent operator,” according to the declaration of James Decker, the manager of Wardman Park. The hotel’s net income dropped 80% from 2010 to 2018 under Marriott’s management, he said.

While Wardman Park was struggling with lost revenue from the pandemic in March, Marriott, which has managed the hotel since 1998, demanded $10 million of working capital under its hotel management agreement, Decker said in the filing. Marriott continued to ask for money after Wardman Park shuttered without explaining why it needed the funds, according to the declaration.

Marriott filed a complaint against the hotel in Maryland state court, saying it had paid $5.5 million out-of-pocket to cover hotel expenses, according to the Marriott objection. The debtors were compelled in December to pay money to Marriott, which led to the bankruptcy, Decker said in his statement.

The case is Wardman Hotel Owner LLC, 21-10023, U.S. Bankruptcy Court (Delaware).

©2021 Bloomberg L.P.

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