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Law360 (Jul 12, 2021, 6:37 p.m. EDT) – The owners of a historic Pittsburgh estate and the lenders who assisted its renovation made another attempt to oust the Ace Hotel Group, telling a Pennsylvania court that the hip hotelier did it a long time ago left the property it wanted to keep its name on and had no right to get the court to return it.
Y Hotel LP, PNC Bank and two Community Development Entities that were tax credit-secured lending channels for the redevelopment of the former YMCA in Pittsburgh’s East Liberty said that while the owners were investigating the sale of the property, such a sale would not be possible It set off the “subordination, non-interference, and assignment agreement” under which Ace sued, and Ace allegedly violated its hotel management agreement even before the pandemic brought the hospitality industry to a standstill.
“Ace has given up the business and terminated the relationship with the hotel by September 2020 at the latest,” wrote the building owners in an abridged version submitted on Friday as the closing argument for Ace’s application for an injunction. As a result, all of his current claims that the actions of Y Hotel or the main tenant (or PNC or the lenders) will result in either procedural or irreparable damage, sound hollow. Ace harmed itself and did so a long time ago. “
In its own closing letter, Ace argued that it had not violated the management agreement that defaulting reminders to lenders of default were sufficient to trigger its rights under the SNDA and that any abandonment of the property was due to the refusal of hotel owners during the pandemic Shut down the lights and keep the staff paid.
In addition, Ace argued that a section of the SNDA that the defendants repeatedly referred to was “red herring” and that Ace’s rights to continue running and branding the hotel were protected from more than the foreclosures or transfers described therein should be section.
“The SNDA does not provide for Ace to lose the right to run the hotel if Section 3 (a) is not triggered. Rather, the HMA and SNDA require Defendants to protect Ace’s right to manage the hotel for the entire term of the HMA – both before SNDA Section 3 (a) has been triggered and after it has been triggered, ”says Aces Briefing. “Therefore, Defendants’ argument that their obligations under Section 3 (a) of the SNDA have not been triggered is a red herring and does not provide a basis for rejecting Ace’s motion.”
After opening in 2015 in hopes it would help catalyze and monetize the newly developing East Liberty neighborhood – the area now includes luxury apartments, Duolingo headquarters and a high-rise office building with a new Whole Foods – The Ace Hotel was completely closed at the beginning of the pandemic and has remained closed since then.
Ace had sued the owner and “main tenant” business of the hotel in February 2021, arguing that despite Ace’s contracts, they had illegally tried to sack the company and sell the hotel to another operator. In court files and witness statements at a Hearing June 22nd, Y Hotel founder Nate Cunningham said Ace almost always missed its sales targets, making it difficult for hotel owners to pay off the debts that came with renovating the historic building.
Y Hotel said Friday that Ace’s failure to manage the hotel had delayed the management contract, and without that contract, the SNDA would be at issue.
“Ace’s good position under the HMA was a prerequisite for any right it might have to operate the property,” the owners’ abbreviated version reads. “While Ace claimed in a brief presented the night before the hearing that the failures were somehow ‘made’, the testimony and documents presented at the hearing detailed the financial and operational errors that had delayed Ace.”
Ace countered that the financial failures were attributable to the owners because they “overindebted” the property, saying that not even the hotel’s strong performance compared to local competition could keep up with the property’s debt payments. In the absence of a court order, Ace said the owners could sell the property to pay off their debts and walk away, with Ace’s brand taking the damage.
The owner’ Short route plan Reopening the hotel by listing rooms on AirBnB would be “embarrassing” for the hotelier, argued Ace.
“Ace’s years of intellectual property investment in the hotel would be wasted. Ace put so much time and effort into making the hotel a popular Pittsburgh destination because they knew they would run this hotel for at least 20 years ”in short. “Ace certainly did not expect Defendants to try to terminate HMA after just six years because the owner was unable to meet its loan obligations.”
For their part, the lenders agreed with the owner that they had not attempted to repossess the property or force it to sell. The warnings and reservations sent by PNC and the community development agencies were insufficient to trigger Ace’s contract to protect the management of the property, and a direct sale of the property would also not be possible, they said.
After various tax credits for monument preservation and building in low-income areas had expired, the lenders now wanted to transfer their shares in the loan to another company and get out of the process. Both the management agreement and the SNDA should have been in place for Ace to receive the discharge it requested, but the court could deny Ace’s application for restraining order based on the SNDA alone, the lenders said.
“The CDEs and PNC Bank have no continuing economic interest in who will manage the hotel in the future or whether Ace is in default under the HMA or not,” the lender said in the letter. “The record of evidence provides a clear basis for the court to reject Ace’s motion without addressing these issues, and the court should do so.”
The parties’ lawyer did not immediately respond to requests for comment on Monday.
Ace Group Pittsburgh LLC is represented by Gretchen E. Moore and Christopher J. Azzara from Strassburger McKenna Gutnick & Gefsky and Robert Alpert and Douglas M. Hance from Morris Manning & Martin LLP.
Y Hotel LP and Y Master Tenant LLC are represented by J. Alexander Hershey, Danny P. Cerrone Jr. and Samuel A. Hornak of Clark Hill PLC.
The lenders are represented by Andrew J. Muha of Reed Smith LLP.
The case is Ace Group Pittsburgh v Y Hotel LP et al., Case number GD-21-001310, in the Court of Common Pleas of Allegheny County, Pennsylvania.
– Editing by Amy Rowe.
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