A hotel chain that once boasted its aim was to compete with Marriott and Hilton has ceased operations amid a torrent of controversy.
LuxUrban Hotels’ Chapter 11 bankruptcy case has been converted to a Chapter 7 liquidation overseen by an independent trustee, according to filings in the U.S. Bankruptcy Court for the Southern District of New York.
LuxUrban abandoned its New York hotels like The Herald, leaving landlords and lenders to deal with the disarray in its wake. The above photo was submitted by the building’s lender in LuxUrban’s bankruptcy case.
A Chapter 7 trustee was appointed by the U.S. Trustee, a branch of the Department of Justice that monitors bankruptcy courts, to oversee the process and determine what, if anything, can be sold off to pay LuxUrban’s creditors.
Attorneys for the U.S. Trustee filed an emergency motion earlier this month seeking a takeover of LuxUrban’s restructuring, citing “gross negligence” by the company’s management.
LuxUrban, which filed for bankruptcy Sept. 14, was found to be booking rooms online and collecting payments while not operating the hotels and failing to pay employees. Guests from other cities and countries arrived at the properties bags in hand, only to be turned away.
Bankruptcy attorneys who spoke to Bisnow said the speed of the U.S. Trustee’s motion and Chapter 7 conversion speaks to the perception of potential harm to the public — and the potential for more damage — if the case dragged on.
“It is rare for something to happen that fast,” said Andrew Gottesman, head of Rosenberg & Estis’ restructuring and bankruptcy practice, who isn’t involved in the case. “This seems like a kind of firestorm mess, where everybody jumped in very quickly. The longer you let this go, the worse it was likely to get.”
The hotel chain listed four Manhattan buildings it leased as its assets when it filed for bankruptcy, one of which had already stopped operating as a hotel. It has been sued by the owners of the other three hotels — The Herald at 960 Sixth Ave., The Tuscany at 120 E. 39th St. and Hotel 27 at 21 E. 27th St. — and been served with eviction notices at each property, according to a Bisnow analysis of New York court records.
The Herald has been the subject of a foreclosure lawsuit after its owners were unable to pay off their mortgage when it matured in August in part because of LuxUrban’s rental arrears.
The lender, Aareal Capital Corp., filed a motion in LuxUrban’s bankruptcy case last week that included pictures of hazardous conditions left behind from the hotel chain’s sudden exit.
“At the Herald, which is located in the building that secures Aareal’s loan, Debtors have not operated for weeks, and there are mounting safety issues, persistent leaks, accumulating garbage, and other pressing security concerns impacting the other tenants, their customers, and public safety in general,” Aareal’s attorneys wrote in the filing.
Aareal asked bankruptcy Judge David Jones to convert the case to a Chapter 7 because its attorneys said it was clear there were no assets to recover.
“The picture is grim,” the filing states. “Debtors have no meaningful assets, significant and unresolvable liabilities, and no viable path forward.”
LuxUrban’s attorneys from Jacobs PC consented to the conversion, which Jones ordered on Tuesday. Through a spokesperson, Jacobs PC founder Leo Jacobs declined to comment.
Kenneth Silverman was named Chapter 7 trustee and scheduled a meeting of creditors for Dec. 2. He submitted a list of 412 creditors, including unions, vendors and landlords past and present, that were sent invitations to the meeting, which could be contentious — there are $123.6M in claims against the estate of LuxUrban, according to bankruptcy court records.
“No property appears to be available to pay creditors,” Silverman wrote in his Chapter 7 notice filing.
Silverman didn’t respond to Bisnow’s request for comment.
The largest creditor is the New York State Department of Taxation and Finance, which submitted an amended claim on Oct. 8 that stated it is owed $118.6M in unpaid taxes and penalties. Nearly $1.5M of those liabilities are secured claims, which means they get paid back first, while $91.2M are unsecured priority claims and the rest are general unsecured claims.
The bulk of the secured claims, more than $14M, are held by LuxUrban’s prebankruptcy lenders. Elan Blutinger, who served as chairman of LuxUrban’s board from April 2024 until he resigned in December, submitted a $214K secured claim for money he lent the company and was never paid back.
Blutinger didn’t respond to a request for comment.
“Everything gets paid out pursuant to the waterfall,” Gottesman said. “If there is a $90M priority claim … I would think the answer is everybody else is going to get nothing.”
Other creditors include two guests who filed for a combined $4,500, claiming they booked reservations that weren’t honored and haven’t gotten a refund. New York City is also a creditor, owed $1.2M for a fine levied in 2024 after LuxUrban admitted it had illegally operated dozens of apartments as short-term rentals. The hotelier agreed to pay the fine but bounced its check and never paid a cent.
“The Mayor’s Office of Special Enforcement held LuxUrban accountable and brought an end to its illegal short-term rental scheme,” a spokesperson for the mayor’s office told Bisnow in a statement Thursday. “We are pursuing the promised $1.2 million payment in the bankruptcy proceedings. We remain committed to holding bad actors responsible and protecting the availability of housing for New Yorkers.”
LuxUrban and its executives, including founder and former CEO Brian Ferdinand, are still embroiled in a class-action fraud lawsuit levied by investors that is scheduled to go to trial in 2027. And they could be at risk of legal action stemming from the messy bankruptcy.
LuxUrban and its executives didn’t respond to multiple requests for comment but have previously denied any wrongdoing in court filings.
“The trustee will investigate what happened prebankruptcy, whether there are transfers that should be recovered, whether the behavior of management was appropriate, and consider whether there would be claims to pursue,” said Kirk Brett, chair of the bankruptcy and creditors’ rights practice at Adler & Stachenfeld.