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Thomas Slome Noted in “No Stalking Horse for Madison 92nd Street Associates LLC”

Media Source: Westlaw.com

Thomas_R_SlomeMadison 92nd Street Associates LLC will not trot out a lead bidder at an auction next month for the debtor’s New York hotel.

Judge Stuart M. Bernstein of the U.S. Bankruptcy Court for the Southern District of New York in Manhattan on Feb. 23 signed an order approving the debtor’s amended bidding procedures, which removed a previously named stalking-horse bidder.

Madison 92nd Street’s minority equity holders on Jan. 6 filed a bidding procedures motion that sought to name CIM Group Acquisitions LLC as lead bidder with an $84.1 million offer. Because another potential bidder came forward, though, the auction will proceed without a stalking horse.

Under the approved bidding procedures, the hotel and certain other assets will be sold.

Interested parties have until April 12 to deposit $2 million and offer at least $82 million.

Bids at an April 16 auction must increase in increments of at least $250,000.

Objections to the sale are due by April 19, and Bernstein is set to preside over a sale hearing on April 23.

The sale will close no later than May 11.

The minority equity group and majority equity holders jointly filed the amended bidding procedures on Feb. 16. A source close to the case said both groups, which had been on opposite sides since the case commenced on Aug. 16, 2011, now support selling the hotel.

Examiner Thomas R. Slome of Meyer, Suozzi, English & Klein PC in a Dec. 12 report recommended the debtor pursue a sale of the hotel or its equity. He reported seeing no ‘concrete plan for a refinancing’ of the property.

A reorganization plan filed Dec. 14 by the minority equity group would distribute the sale proceeds.

According to the related disclosure statement, administrative claims totaling $2 million and secured mortgage lender GE Capital Corp. (owed $74.01 million on a $62 million promissory note issued May 12, 2008) would be paid in full in cash on the plan’s effective date. The creditors also would receive postpetition interest as determined by Bernstein.

Holders of general unsecured claims (owed $1.39 million) as well as an unspecified amount of other unsecured claims would receive an undetermined pro rata recovery of up to 100%.

Equity holders would receive a pro rata share of the sale proceeds after all other claims were paid in full.

Bernstein is set on March 7 to weigh the disclosure statement.

Madison 92nd Street’s equity holders include 92nd St. Hotel Associates LLC (which holds a 50% interest), controlled by bankrupt Louis Taic; JKNY LLC (3.26%), owned by Jeffrey Kosow; bankrupt Robert Gladstone (32.18%); Lucille Gladstone (5%); Andrew Harris (1%); and John Lesher (8.57%).

Taic and Kosow filed the Chapter 11 petition for Madison 92nd Street on Aug. 16. Gladstone leads the minority equity holders in the case.

Madison 92nd Street’s equity holders were ‘at odds with each other’ on the best way to reorganize their Upper East Side Courtyard by Marriott hotel, according to an Aug. 16 declaration filed by the majority equity holders. They expected the minority group to pursue a sale, which they termed ‘counterproductive’ at the time.

Instead, the majority group said it was working with Westport Capital Partners LLC to refinance GE Capital’s claim. Court papers filed since have not addressed the state of the negotiations or if they were suspended.

Madison 92nd Street’s minority equity holders later sought permission to reject the debtor’s management agreement with Courtyard Management Corp. The minority holders called the agreement ‘highly burdensome to the debtor and its estate’ and alleged that CMC engaged in ‘misconduct and self-dealing.’

In an objection, CMC termed a rejection ‘foolish’ and ‘premature’ because it would force the hotel to immediately shut down immediately. A hearing on the motion was scheduled for Tuesday, Feb. 28, but was continued until March 15 because of the forthcoming auction, the source said.

Madison 92nd Street’s hotel is at 410 E. 92nd St. near First Avenue in New York. The hotel has 226 rooms, including 16 suites, and opened in 2006. CMC, a subsidiary ofMarriott International Inc., manages the property.

The debtor listed $84.47 million in assets and $75.4 million in liabilities in schedules. Madison 92nd Street valued its hotel at $80 million.

Its net operating income has averaged $310,000 per month in the past year.

J. Ted Donovan and Kevin J. Nash of Goldberg Weprin Finkel Goldstein LLP are debtor counsel.

Adam H. Friedman, Eric Goldberg and Fredrick J. Levy of Olshan Grundman Frome Rosenzweig & Wolosky LLP represent the minority group.

William M. Goldman of DLA Piper US LLP is counsel to Marriott and CMC.

Michael C. Rupe and Heath D. Rosenblat of King & Spalding LLP represent GE Capital.