A hotel by Union Station was poised for new ownership last week, although the current owner says a planned auction won’t be held.
A mezzanine lender initiated the UCC foreclosure process for the Focus Property Group-affiliated entity that owns the Hilton Garden Inn Denver Union Station at 1999 Chestnut Place.
An auction was scheduled for 10 a.m. on April 17, according to marketing materials drawn up by Newmark and obtained last week by BusinessDen.
Brock Cannon, Newmark’s head of national loan sales, said in a phone call at noon Friday that the auction would be held at that time and date. Eight hours later, at 8 p.m. Friday, Focus CEO Bahman Shafa said in an email to BusinessDen that “this foreclosure sale will not be taking place.”
Newmark’s Cannon did not respond to an email and call over the weekend seeking confirmation of that. Shafa did not respond to subsequent requests for comment.
The 12-story, 233-room Hilton Garden Inn was developed by Focus. The hotel opened in April 2019 and wraps around a former fire station, which was turned into restaurant space.
Traditional foreclosures involve loans collateralized by real estate. When those loans aren’t repaid, lenders can force an auction of the property in a public process managed by county officials.
Uniform Commercial Code, or UCC, foreclosures are a variation on the foreclosure process. They involve loans collateralized by personal property, which can include shares in a company that in turn owns real estate. Auctions are conducted privately, without county involvement.
In the case of the Hilton, the property is owned by Chestnut 20 Hotel LLC, whose registered agent is Denver-based Focus.
Focus’s LLC owes $28.78 million on a loan made in December 2021 by a mezzanine lender named Pretium 1999 Chestnut Mezzanine Lender LLC, according to Newmark’s auction notice. That lender initiated the sale process because Focus’ LLC defaulted on the loan, although the auction notice does not explain the nature of the default.
In an auction, the mezzanine lender would sell its collateral, which is full ownership of Focus’ LLC. Because that LLC owns the hotel property, a buyer of the LLC would in turn own the hotel.
The property, however, would come with some strings attached. Focus’ LLC also has a $51 million deed of trust dating to December 2021 that is collateralized by the property itself. That mortgage would remain in place after the auction.
Steve Abelman, an attorney with Brownstein Hyatt Farber Schreck who has worked on UCC foreclosure cases, told BusinessDen that, if an auction is held, bidders for the hotel would factor the $51 million owed.
“If they think the hotel is worth $60 million, they’ll come in and bid $9 million,” he said.
Hotel valuations typically follow a set formula involving occupancy and room rate, Abelman said, although a buyer could deviate from that if it feels the hotel’s current ownership has underperformed.
The mezzanine lender noted in the auction notice that it could submit a bid itself in the form of a credit bid, which would effectively reduce the debt by the amount of the bid.
“They may be willing to bid up to the full amount of what they’re owed, but they don’t necessarily want to start there,” Abelman said.
The specific amount of a credit bid by the mezzanine’s lender could depend on whether the loan is secured by a third party, which could be made to pay if the lender weren’t made whole by an auction. The lender could also weigh the value of getting some money now against potentially getting more down the road by taking over the hotel and selling at a later date.
“That’s the calculation this 1999 Chestnut mezzanine lender has to make,” Abelman said.
The Hilton Garden Inn isn’t the only downtown property to run into loan trouble. BusinessDen reported in January that loans secured by Republic Plaza and the Wells Fargo Center, two marquee downtown office towers, entered special servicing in late 2021. Loans for Writer Square at 1512 Larimer St. and Columbine Place at 216 16th St. are also in special servicing, according to Trepp, a firm that tracks commercial real estate loans.