Fort Worth developer worries ‘predatory’ investor is using COVID to seize luxury hotel
See full Fort Worth Star-Telegram article by Luke Ranker here.
The developer of a high-tech luxury hotel in downtown Fort Worth believes an investor wants to seize control of two valuable properties by taking advantage of the coronavirus recession.
Farukh Aslam, developer of the Sinclair Hotel and the adjacent Sanger office building, accused the investor of “predatory lending” to squeeze his Sinclair Holdings out of the real estate in a court petition this week.
The complex financial situation involves multiple channels of credit and investment, but essentially JM Cox Legacy, under the name Sanger Lender, wants to purchase a $25 million Simmons Bank loan that Alsam took out in 2017 to finance the purchase and renovation of the historic Sinclair building at 512 Main St.
JM Cox Legacy is a firm associated with Midland-based oil company JM Cox Resources, where TCU donor and trustee Kelly Cox serves as president.
Sanger Lender has the right to purchase the Simmons Bank loan, Sanger Lender’s attorneys from Dallas-based Reese Marketos argued in a legal brief, and accused Sinclair Holdings of gamesmanship.
The purchase would be damaging to Sinclair Holdings, Aslam’s attorneys argued, because he believes Sanger Lender will accelerate the loan and push him into default. The action could cause him to lose control of both properties.
His attorneys, Hallett & Perrin of Dallas, filed for a temporary injunction in Tarrant County civil court this week.
In January Sanger agreed to loan up to $11.36 million to Sinclair Holdings and advanced a little more than $9 million. Both parties agreed that if Sinclair Holdings defaulted on the original Simmons Loan, Sanger Lender could declare a default on the new loan.
Then the coronavirus struck, cutting into the hotel industry, including Aslam’s high-end hotel, which had just opened in January. The Sinclair projected to do about $680,00 in revenue in March. After shutting its doors March 20, revenue was around $190,000, Aslam said.
He declined to comment beyond discussing the impacts to revenue.
Without hotel revenue, Sinclair Holdings worked with Simmons Bank on an agreement to forego payments in April, May and June, according to the court documents. But the Simmons Bank loan briefly went into default before the bank resolved the issue.
Sanger Lender swiftly moved to exercise its default option and attempted to foreclose on the Sanger building and put it up for auction, according to court documents. There was no warning and Sanger Lender didn’t offer to work out the confusion, according to the court documents. Sinclair Holdings refinanced the Sanger Lender loan to avoid the foreclosure.
“If Sanger is permitted to purchase the Simmons Bank Loan ... the Aslams will be trading their longstanding banking partner for what is clearly a predatory and opportunistic lender,” the petition read.
Sinclair Holdings has found other partners willing to take over Sanger Lender’s share of investment, according to the petition.
But attorneys for Sanger Lender argue Sinclair Holdings has mischaracterized the situation, using it to gain leverage in an ongoing business dispute that is up for arbitration. Sanger Lender is concerned about potential misconduct and mismanagement, attorney Pete Marketos said in an email.
“Rather than addressing the parties’ business dispute in a confidential arbitration proceeding as Sinclair Holdings’ corporate documents require, the Aslams have chosen to go to court and apparently to litigate through the media in an effort to block Sanger from exercising its contractual right to buy the loan and protect JM Cox Legacy’s multimillion-dollar investment,” Marketos wrote in the email.
It is merely speculation that Sanger will accelerate the loan or disrupt business, according to legal flings. Sincliar Holdings lacks the authority to influence a sale of the Simmons Bank loan, the Sanger response says.
Sanger Lender’s attorneys further ague that a restraining order blocking the sale would “impose enormous costs” on Sanger Lander. The cost to purchase the loan increases by more than $4,000 a day, according to the filing.
The development has benefited from a city incentive that has paid more than $3 million for a special tax district to Sinclair Holdings. The tax incentive is unrelated to the legal dispute and shouldn’t be affected as long as the building remains a hotel, said Roberts Sturns, the city’s economic development director.
The hotel operates under the Marriott Autograph collection, but Marriott is not involved in the equity dispute.
The Sinclair Hotel’s situation, as far as massive hotel revenue decline, has been common for the hotel industry lately.
When the coronavirus outbreak hit the brakes on travel, hotels saw an immediate decline in business, according to the American Hotel and Lodging Association. Nationally, the association projects a 50% decline in hotel occupancy, which since mid-February has resulted in a loss of more than $40 billion in room revenue. The Bureau of Labor Statistics estimated 7.7 million hospitality and leisure-related jobs were lost in April.
In Texas, 101,972 jobs have been directly lost, according to the hotel association.
The Sinclair is one of the most technologically advanced hotels in the country, featured on both Fortune and the “Today Show.”
It boasts a super low energy power system that runs electricity over ethernet cables. The low voltage system powers everything from the lights and the TV to a fancy bathroom mirror with a built-in touchscreen info center.
The HVAC system is connected to a hub over the internet, allowing room temperatures to be adjusted remotely. Senors use Bluetooth technology to know when some has entered a room, adjusting the temperature and blinds accordingly.
Rather than rely on a diesel seal backup generator, both the Sinclair and the Sanger building use lithium ion battery generators.
Combined the tech makes the Sinclair environmentally friendly and quiet, Aslam has said.
Location Mentioned: The Sinclair, Autograph Collection Hotel