As they presided over the rise and fall of a hotel empire, Charles Morais and Sunil Mir had a series of run-ins with government authorities, creditors and others.
The two Asian immigrants have lost 11 properties after falling behind on payments. One year ago, the Pennsylvania attorney general’s office filed criminal charges against them on 26 counts each tied to their alleged failure to pay $310,849 in state sales tax and $37,020 in withholding tax. The two have pleaded not guilty and a trial is expected this year.
When their financial problems were escalating in the fall of 2008, their hotel in Lancaster, Pa., was cited by that state’s Agriculture Department for using a room air-conditioner to keep meat loaf, apple pies, macaroni salad and other food cool when a walk-in unit wasn’t operating.
Now they may be close to losing the crown jewel of their empire, the 183-room JFK Plaza hotel, at New York City’s busiest airport. Following a bankruptcy-court auction of the property, a trustee in the case recommended last week that the property be conveyed to Neshgold LP, a secured creditor with a $16 million claim against the property.
In an email Sunday, Mr. Morais said that the JFK hotel “was never a day late or dollar short” on its loan and partly blamed “people trying to squeeze minorities and rob them” for their financial problems.
Messrs. Morais and Mir declined to comment on other questions through the attorney representing them in the bankruptcy case, Walter Drobenko. Mr. Drobenko said that they are continuing to fight the bankruptcy sale. “We haven’t given up,” he said. “The debtor should be provided an opportunity to reorganize.”
Messrs. Morais and Mir’s company, Kronos Hotels LLC, at one point owned 36 hotels in 10 states, according to one of its 2008 news releases. It isn’t clear how many hotels they currently own. But according to a reports by Trepp LLC, a firm that tracks commercial real-estate debt, 11 of their hotels have been foreclosed on by the special servicer managing $48.5 million of debt backed by the properties. As of this month, nine of those have been resold, Trepp said.
Like many investors during the boom years, Messrs. Morais and Mir financed their buying spree with money from private-equity firms, hedge funds and banks that securitized commercial real-estate mortgages and sold them to investors.
Mr. Morais, 48 years old, the chief executive of Kronos, is a native of Malaysia and India and was trained in the information technology industry, according to a biography prepared in 2008 by a public relations firm.
Mr. Mir, 37, the chief operating officer and a native of India, worked in the fashion retail industry before getting involved with hotels, his biography states.
Messrs. Morais and Mir purchased the JFK hotel in 2006 paying close to $11 million, according to Mr. Drobenko. Most of the deal was financed with $9.75 million in loans from Fortress Credit Corp. The hotel at the time was operating under the Crowne Plaza flag.
Their biggest deal was their purchase of 16 hotels in June 2007 from Lodgian Inc. for $64.9 million. A large portion of that deal was financed with about $15 million in preferred equity from New York-based private-equity firm Stillwater Capital Partners and about $50 million in debt, mostly converted into commercial mortgage backed securities by the Royal Bank of Scotland, according to Teague Hunter, the Atlanta-based broker in the deal. Stillwater declined to comment.
Signs of financial problems surfaced in April 2008 when mortgage-backed securities issued to finance the Lodgian deal were transferred to a special servicer, according to Trepp. Mr. Morais said in an email that Kronos never defaulted on the loan. Rather, Kronos’ equity partner took over the hotel portfolio, because Kronos was behind on two months of equity payments, and later turned it over to the special servicer, he said. Kronos fell behind because lenders were controlling its access to revenue, he said.
But that same April, Kronos was announcing other deals including a hotel development in Atlanta’s Buckhead section that never moved forward. Kronos also announced it was eight new hotels valued at about $45 million, two from Cooper Hotels of Memphis in St. Louis and Atlanta, according to the news release. But Pace Cooper, president of that company, says both of those deals fell through.
Later that year, inspectors for the Pennsylvania state Agriculture Department issued a health code citation to a hotel owned by Kronos that was using a room air conditioner to keep food cool, a department spokeswoman said. She said the department didn’t proceed with the action because the hotel was sold.
Meantime, at JFK, Messrs. Morais and Mir ran into problems with Holiday Hospitality Franchising Inc., an affiliate of Intercontinental Hotels Group, which handles franchising of the Crowne Plaza and other brands. Towards the end of 2008 it terminated the Crowne Plaza license agreement with the JFK hotel because it defaulted on its financial obligations, according to a lawsuit filed against the hotel by Holiday Hospitality in federal court.
In that lawsuit, Holiday Hospitality alleged that the hotel continued to use the Crowne Plaza name even after the franchise agreement was terminated. The hotel eventually agreed to change its name to the JFK Plaza. A suit is pending against Messrs. Morais and Mir personally by Holiday Hospitality demanding more than $3 million in damages related to its alleged unauthorized use of the Crowne Plaza name. Messrs. Morais and Mir are contesting the suit.
Fortress launched foreclosure action against the JFK hotel in November 2008 and later sold the $9.75 million in debt on the JFK hotel to investment firm Neshgold for about $5 million, according to Mr. Drobenko. Last October, the hotel filed for Chapter 11 bankruptcy protection.
Late last year, Neshgold succeeded in convincing bankruptcy court Judge Carla Craig to appoint a trustee to run the JFK hotel, alleging a range of financial abuses including using hotel revenue to pay personal expenses. Messrs. Morais and Mir denied the allegations in court papers. In her decision approving a trustee, Ms. Craig said: “There has been, I think, gross mismanagement of the affairs…by current management.”
In his email, Mr. Morais pointed out that all the revenue from the JFK hotel was put in a lockbox controlled by Fortress, which had money available to pay the Crowne Plaza franchise fees from that. But the trustee in the case said it was the hotel’s responsibility to pay the franchise fees and that Fortress passed on sufficient money from the lockbox for it to do so.
Mr. Morais criticized the trustee, saying: “He denied our day in court.”
Source: Wall Street Journal.