Main Photo: The Homewood Suites by Hilton at San Francisco Airport
Date: March 2020
Location: Nine hotels across California
Name: Various including Homewood Suites, San Francisco Airport and Residence Inn, San Diego.
No. of Keys: TBA
Seller: Blackstone Real Estate Advisors
Buyer: Should have been KS Development, an Arcadia-based real estate investment firm, a subsidiary of Kam Sang Co.
Kam Sang Company is a major player in real estate development. Established in 1979 by current President and CEO Ronnie Lam, the corporation claims millions of square feet in prime real estate and is currently acquiring several other valuable and strategic properties.
Theu are involved in their developments, from project conceptualisation, investment, development to construction and their properties are managed directly by Kam Sang Company.
Kam Sang’s portfolio includes hospitality, retail, residential, restaurants, and mixed-use. Hotels and residential properties include, The Embassy Suites in Glendale, The Sheraton Hotel in Anahiem, Courtyard Marriott in Baldwin Park, Residence Inn by Marriott in La Mirada, Rancho Cielo Estates in Rancho Sante Fe.
Six limited liability companies that trace back to Blackstone Real Estate Advisors, an affiliate of the mammoth New York City-headquartered company, filed a lawsuit Thursday against KS Development after they terminated a deal to buy nine hotels across California.
The lawsuit says that there was nothing in KS Development’s contract affording the buyer to abandon the deal due to an economic downturn, which has specifically ravaged the hotel industry with coronavirus-related travel bans and stay at home orders.
“Deteriorating market conditions” are of “no consequence” to the purchase agreement, according to the complaint filed in Los Angeles County Superior Court.
The Blackstone plaintiffs want to keep the $9 million escrow deposit plus interest that KS Development put down, and also get damages for the defendant’s alleged breach of contract.
KS Development agreed to buy nine hotels from entities controlled by Blackstone in January, from the Homewood Suites by San Francisco airport to a Residence Inn in San Diego and
three hotels in Thousand Oaks, with the multi-property deal slated to close by April 1.
According to the complaint, KS Development grew nervous in February that it could not get sufficient acquisition financing due to coronavirus lending jitters, prompting Blackstone offering to extend the closing date to June in exchange for another $1 million escrow deposit.
KS Development did not agree to Blackstone’s extension. According to a court exhibit, KS Development wrote a March 18 letter to Blackstone stating, “Buyer understands that the operations, occupancies, and revenues have significantly changed as a result of the COVID-19 virus since the time that the agreement was executed,” and that Blackstone should have accordingly provided KS Development revised revenue projects.
Blackstone fired back with a missive the next day, stating that while it is true “occupancy and revenue have dropped considerably since the onset of Covid-19 coronavirus,” the seller was only under obligations to maintain the hotel’s operations, which it had been doing, and did not have a duty to provide new financial statements.
KS Development responded by instructing the escrow agent, First American Title Insurance Company, to hold on to its $9 million, and indicated that the deal would be terminated.
The sale’s dramatic unravelling comes at a time of extraordinary uncertainty for the hotel industry. Early projections from the National Hotel and Lodging Association, an industry trade group, found that hoteliers are losing $200 million in revenue each day because of the coronavirus, and that there might be one million layoffs nationally at hotels.
THPT Comment: Oh dear this leaves the door open to many such cases…Bet the Barclay brothers were please that their deal for The Ritz went through last week.
First Seen: The Real Deal
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