Pittsburgh hotel owners say Breach supports Booting Ace

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Law360 (July 12, 2021, 6:37 p.m. EDT) – The owners of a historic Pittsburgh property and the lenders who supported its renovation have made another effort to oust Ace Hotel Group, declaring in a Pennsylvania state court that the trendy hotelier had long ago abandoned the property on which she sought to retain her name and had no right to compel the court to return it.

Y Hotel LP, PNC Bank and two “community development entities” that had been intermediaries for tax credit-backed loans to rehabilitate the old YMCA at East Liberty in Pittsburgh said that while the owners had considered to sell the property, such a sale would not have triggered the “subordination, non-disturbance and recognition agreement” under which Ace was suing, and Ace would have violated his hotel management agreement before the pandemic even broke. end the hotel industry.

“Ace has abandoned the business and ended his relationship with the hotel at least as early as September 2020,” the owners of the building wrote in a brief filed Friday as final argument on the injunction motion. Ace. “As a result, all of his current claims that the actions of Hotel Y or the main tenant (or the PNC or the lenders) will result in actionable or irreparable harm ring hollow. Ace harmed himself. and did it a long time ago. “

For his own closing brief, Ace argued that he had not violated the management agreement, that the lenders’ default warnings were sufficient to trigger his rights under the SNDA, and that any surrender of the property was due to the refusal of the owners of the hotel. to keep the lights on and staff paid during the pandemic shutdown.

Further, Ace argued that a section of the SNDA that the defendants kept reporting was “red herring” and that Ace’s rights to continue to manage and brand the hotel were meant to be protected. against more than the foreclosures or transfers described therein. section.

“The SNDA does not foresee that Ace will lose the right to manage the hotel if section 3 (a) has not been triggered. On the contrary, the HMA and the SNDA require the defendants to protect the right to Ace to run the hotel for the duration of the HMA – both before section 3 (a) of the SNDA is triggered and after it has been triggered, ”Ace’s brief said. Thus, the defendants’ argument that their obligations under Article 3 (a) of the SNDA have not been triggered is a red herring and provides no basis for dismissing Ace’s request. “

After opening in 2015 in hopes it would help catalyze and capitalize on the redevelopment of the East Liberty neighborhood – the surrounding area now includes luxury apartments, the Duolingo headquarters and an office skyscraper that will include a new Whole Foods – the Ace Hotel closed completely at the start of the pandemic and has remained closed ever since.

Ace sued the hotel owner and the “master tenant” company in February 2021, arguing that they were illegally trying to fire the company and sell the hotel to another operator, despite Ace’s contracts. . In court files and testimony June 22 hearingY Hotel founder Nate Cunningham said Ace still had almost failed to meet his revenue targets, making it difficult for hotel owners to pay off debts related to the historic building’s rehabilitation.

Y Hotel said on Friday that Ace’s failures in running the hotel had put him in default of the management contract, and without that contract the SNDA was moot.

“Ace’s standing in good standing under the HMA was a precondition to any right she might have to operate the property,” said the owners’ record. While Ace argued in a brief submitted the day before the hearing that the defects were somehow ‘fabricated’, testimony and documents presented at the hearing detailed the financial failures and operations that had placed Ace in default. “

Ace countered that the financial failures belonged to the owners for “overuse” of the property and said even the hotel’s good performance against its local competition could not keep up with the property’s debt payments. In the absence of a court order, Ace said the owners could sell the property to settle their debts and walk away, with the Ace brand being the one to take the damage.

The owners’ short term plan Reopening the hotel by listing rooms through AirBnB would be “embarrassing” for the hotelier, Ace argued.

“Ace’s years of investing in his intellectual property in the hotel would be wasted. Ace spent so much time and effort in making the hotel a well-known Pittsburgh destination because he understood that he would run this hotel for at least 20 years, ”Ace said. short said. “Ace certainly did not expect the defendants to attempt to terminate the HMA after only six years because the owner was unable to meet his loan obligations.”

The lenders, for their part, agreed with the owner that they had not sought to repossess or force the property to be sold. The warnings and reservations of rights that the PNC and community development entities had sent out were not enough to trigger the contract protecting Ace’s management of the property, nor would a direct sale of the property, either. they declared.

Now that various tax credits for historic preservation and construction in low-income areas have expired, the lenders have said they are now looking to shift their interest in the loans to another entity and want to opt out of the lawsuit. The management agreement and the SNDA should have been in effect for Ace to get the relief sought, but the court could dismiss Ace’s petition for an injunction based on the SNDA alone, the lenders said.

“The CDE and PNC Bank have no continuing economic interest in who runs the hotel in the future, or whether or not Ace is in default under the HMA,” the lenders file said. “The evidentiary record provides a clear basis for the court to dismiss Ace’s petition without going into these issues, and the court should do so.”

Lawyers for the parties did not immediately respond to requests for comment on Monday.

Ace Group Pittsburgh LLC is represented by Gretchen E. Moore and Christopher J. Azzara of Strassburger McKenna Gutnick & Gefsky, and Robert Alpert and Douglas M. Hance of 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 for Allegheny County, Pa.

–Edited by Amy Rowe.

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