Attorneys in the branch of the Department of Justice that monitors bankruptcy cases are seeking to appoint an independent trustee to take over LuxUrban Hotels, claiming the way it operated before and since it filed for Chapter 11 bankruptcy amounts to “gross negligence.”
Bisnow/Ciara Long
LuxUrban Hotels operated The Tuscany hotel in Midtown Manhattan before abruptly ceasing operations and filing for bankruptcy.
LuxUrban filed for bankruptcy on Sept. 14, claiming it had less than $10M in assets and between $10M and $50M in liabilities. It said it operated four New York City hotels and needed to use the Chapter 11 restructuring process to keep the business going.
But that week, guests who paid for rooms at two of LuxUrban’s hotels showed up to find the hotels had shuttered, The New York Times reported. Even after that report, rooms were still available to book online, Bisnow reported.
In a motion filed Thursday night to the U.S. Bankruptcy Court for the Southern District of New York, an attorney under U.S. Trustee William Harrington described the bankruptcy as a “free fall” and said an independent fiduciary is necessary to prevent more “chaos” for LuxUrban’s customers and creditors.
“Although it is understandable that a debtor may have financial difficulties for which bankruptcy protection is sought, a hotel operator — such as here — that leaves customers stranded, places people in rooms where no services are available, and where union workers appear to have been unpaid, is untenable, and dangerous,” U.S. Trustee trial attorney Andrea Schwartz wrote.
Two unions representing employees at the 125-room Tuscany hotel at 120 E. 39th St. and 79-room Hotel 46 at 129 W. 46th St. say the workers at the hotels hadn’t been paid for five weeks leading up to the Chapter 11 filing and that $57K has been illegally withheld from their 401(k)s.
No fewer than 85 lawsuits are pending against LuxUrban in state and federal courts, Schwartz wrote.
The company’s bankruptcy attorney, Leo Jacobs, didn’t respond to a request for comment.
Schwartz wrote that LuxUrban has additional creditors and debts that it didn’t outline in its initial filing, including $118M in unpaid state sales taxes owed to New York going back to 2020, when it operated as a short-term rental company named CorpHousing Group.
The company was fined $1.2M by New York City for illegally operating dozens of apartments as short-term rentals. The city sued in April for nonpayment after LuxUrban allegedly bounced a check and then stopped responding to collection attempts.
Under founder and former CEO Brian Ferdinand, it pivoted its business in 2022 to master leasing troubled hotels that had closed during the pandemic. It had a licensing deal with Wyndham Hotel Group and, at one point, claimed to operate more than 2,000 rooms.
Wyndham also submitted a letter on Thursday to bankruptcy Judge David Jones, claiming it is owed more than $17M in fees for a licensing deal it struck with LuxUrban to brand 19 hotels operated by the chain. The New Jersey-based hotel company sued LuxUrban last year in state court, claiming it defaulted on the agreement and made false representations about their partnership.
Wyndham wasn’t listed as an unsecured creditor in LuxUrban’s Chapter 11 filing. In its support for the U.S. trustee’s motion, it said its affiliation with the bankrupt hotel chain “engaged in conduct that caused harm to the goodwill associated” with its brands.
“[LuxUrban’s] gross mismanagement is evident from its undisputed failure to secure and maintain possession of its hotel properties, or pay the salary and benefit obligations of its employees, causing them to walk off the job, and leaving, at least initially, multiple properties (and guests) vulnerable and less than secure,” Wyndham’s attorney wrote in the letter.
Ciara Long contributed reporting.