In re Sw Boston Hotel Venture Llc

• Citation: 449 B.R. 156,54 Bankr.Ct.Dec. 69
• Decision Date: 28 January 2011
• Docket Number: No. 10–14535–JNF.,10–14535–JNF.
• Parties: In re SW BOSTON HOTEL VENTURE LLC, et al.,1 Debtors.
• Court: United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Massachusetts

449 B.R. 156
54 Bankr.Ct.Dec. 69

In re SW BOSTON HOTEL VENTURE LLC, et al.,1 Debtors.

No. 10–14535–JNF.

United States Bankruptcy Court, D. Massachusetts.

Jan. 28, 2011.

[449 B.R. 158]

Harold B. Murphy, Natalie B. Sawyer, Hanify & King, P.C., Boston, MA, for Debtors.

MEMORANDUM JOAN N. FEENEY, Bankruptcy Judge.I. INTRODUCTION

The contested matter before the Court is the Motion for Relief from the Automatic Stay pursuant to 11 U.S.C. § 362(d) (the “Motion”) filed by Prudential Insurance Company of America (“Prudential” or the “Movant”). SW Boston Hotel Venture LLC (“SW Boston” or the “Debtor”), Auto Sales & Service, Inc. (“Auto Sales”), General Trading Company (“General Trading”), Frank Sawyer Corporation (“Sawyer Corporation”), 100 Stuart Street, LLC (“Stuart Street”), General Land Corporation (“General Land”), 131 Arlington Street Trust (“Arlington Street”) and 30–32 Oliver Street Corporation (“Oliver Street”) (collectively the “Debtors” and, excluding SW Boston, the “Related Debtors”) and the City of Boston filed objections. The Official Committee of Unsecured Creditors filed a Statement of Joinder in Opposition by Debtors and Debtors–in–Possession to Prudential's Motion. At the request of the Debtor and Prudential, the Court entered a Scheduling Order on August 30, 2010 with respect to Prudential's Motion. The Scheduling Order contained various deadlines for the exchange of documents and discovery, as well as a date for the filing of a Joint Pretrial Statement and a date of November 8, 2010 for the commencement of the trial.²

The parties agreed to certain stipulated facts, which they set forth in their Joint

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Pretrial Memorandum. The Court conducted an evidentiary hearing over the course of three days. Nine witnesses testified, and the Court admitted into evidence eight exhibits on behalf of the Movant; nine exhibits on behalf of the Debtor; and one exhibit on behalf of the City of Boston.

With respect to the valuation evidence of the parties' expert appraisers, the Court directed that the appraisal reports would constitute the direct testimony of the experts, and the parties then could conduct cross-examination, re-direct examination, and re-cross examination. Prudential objected to the Court's directive and the procedure. The Court overruled the objection for the reason that the procedure was a commonly used case management method for expediting the trial. See Fed.R.Evid. 611; Lee–Benner v. Gergely (In re Gergely), 110 F.3d 1448, 1451–52 (9th Cir.1997); Adair v. Sunwest Bank (In re Adair), 965 F.2d 777, 780 (9th Cir.1992). See also 2 Barry Russell, Bankruptcy Evidence Manual, § 611:1 (2010–2011 ed.).

The issues of law to be determined under 11 U.S.C. § 362(d)(2) are: 1) whether Prudential has sustained its burden that the Debtor does not have equity in the property securing Prudential's claim; 2) whether the Court should consider the value of all of the collateral pledged to Prudential in deciding whether relief from the automatic stay is warranted; and 3) whether the Debtor has shown that it has a reasonable possibility of obtaining confirmation of a plan within a reasonable time, thereby sustaining its burden of showing that it has a plan in prospect and that the property is necessary for an effective reorganization.

Following the conclusion of the evidence, the Court directed the parties to file post-trial briefs. The parties complied with the Court's order and filed briefs with the Court on November 18, 2010. Based upon the documentary evidence, testimony, and legal arguments, the Court now makes the following findings of fact and conclusions of law in accordance with Fed. R. Bankr.P. 7052.

II. FACTSA. Agreed Facts

SW Boston was capitalized with real estate, which the Debtors claim had an approximate value of $18 million; cash in the approximate amount of $25 million; and financing of over $190 million. SW Boston owns and operates the real estate development known as the W Hotel and Residences, a 350,650 square foot, 26–story building located at 100 Stuart Street in the heart of Boston's Theatre District. The following businesses are located at the property: the “W” Hotel (the “Hotel”), 123 condominium units (the “Condominiums”), a parking garage and valet parking service (the “Garage”), a restaurant, Market by Jean–Georges, and lobby bar (the “Restaurant”), a retail store (the “Store”), a spa (the “Spa”), and eventually a bar (the “Theme Bar”).

The W Hotel is managed by an affiliate of Starwood Hotels and Resorts Worldwide, Inc. (“Starwood”). The Spa is managed by Bliss. The Garage is managed by Ultimate Parking, LLC. The Restaurant is managed by Culinary Concepts (Boston), LLC. The Theme Bar has not yet opened for business, but when it is completed it will be managed by an affiliate of Starwood. The real estate development is the first significant hotel and condominium project undertaken by the Debtors.

In 2007, SW Boston obtained a commitment for construction financing for the W

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Hotel and Residences from HSH Nordbank AG (“HSHN”), a German bank. The HSHN loan was in the amount of $192.2 million. Shortly before the scheduled loan closing, in September of 2007, however, HSHN decided to cease making loans in the United States, withdrew its commitment to make the loan, and paid SW Boston a termination fee for doing so. As a result, SW Boston was required to find an alternate source of financing. Prudential agreed to provide SW Boston with a loan.

On January 15, 2008, Prudential, as lender, SW Boston, as borrower, and other parties entered into a Construction Loan Agreement (the “Prudential Loan Agreement”), pursuant to which Prudential agreed to lend SW Boston up to $192.2 million (the “Prudential Loan”) for the construction of the real property located at 100 Stuart Street, Boston, Massachusetts. To secure SW Boston's obligations under the Prudential Loan Agreement, SW Boston and Prudential entered into a Mortgage, Security Agreement, Fixture Filing and Assignment of Sales Contracts and Deposits (together with the Prudential Loan Agreement and all exhibits, schedules, related documents, and supplements thereto, and as may be amended from time to time), granting Prudential a security interest and mortgage on SW Boston's real and personal property, and the proceeds of all of the foregoing (the “Prudential Security Interest”). Prudential holds a perfected security interest in the Property.³

In addition to the Prudential Security Interest, the following parties guaranteed and/or pledged collateral as security for the Prudential Loan as follows (collectively, the “Additional Prudential Security”):

a) Frank Sawyer Corporation (“FSC”) issued a Payment Guaranty, a Carveout Guaranty and a Completion Guaranty (collectively, the “FSC Guarantees”) and executed pledge and control agreements with respect to a securities account. FSC also collaterally assigned its interest in the subscription agreement of the Frank Sawyer Trust;

b) 30–32 Oliver Street Corporation granted Prudential a mortgage on and an assignment of leases and rents from real property located at 25 and 27 Pinckney Street, Boston, Massachusetts and guaranteed FSC's obligations under the FSC Guarantees;

c) Auto Sales & Service, Inc. guaranteed FSC's obligations under the FSC Guarantees and executed pledge and control agreements with respect to a securities account;

d) General Trading Company guaranteed FSC's obligations under the FSC Guarantees and executed pledge and control agreements with respect to a securities account;

e) SW Boston additionally executed pledge and control agreements with respect to two accounts at Sovereign Bank;

f) 131 Arlington Street Trust guaranteed FSC's obligations under the FSC Guarantees and granted Prudential a first mortgage on real property located at 131 Arlington Street, Boston, Massachusetts;

g) General Land Corporation guaranteed FSC's obligations under the FSC Guarantees and granted Prudential a first mortgage on real property located at 109 and 121–127 Arlington Street, Boston, Massachusetts;

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h) Non-debtors, SE Berkeley Street, LLC and SE McClellan Highway, LLC, obtained a letter of credit from Sovereign Bank in favor of Prudential (the “Letter of Credit”); and

i) 100 Stuart Street LLC pledged 100% of its membership interests in SW Boston Hotel Venture LLC.

In addition to the Prudential Loan Agreement, SW Boston entered into a Subordinate Loan Agreement with the City of Boston, pursuant to which the City of Boston agreed to provide a $10.5 million loan of HUD Section 108 funds (the “City Loan”). The proceeds of the City Loan were intended to finance the completion of the Restaurant, the Spa, and the Theme Bar. As collateral for the City Loan, SW Boston granted to the City of Boston a second priority security interest and mortgage on and an assignment of leases and rents from the Property.

In addition to the stipulated facts set forth above, the parties agreed to the value of the following property in addition to the W Hotel and Condominiums as to which Prudential asserts liens:

a) 131 Arlington Street—The Debtors' appraiser valued 131 Arlington Street at $1,850,000, and Prudential's appraiser valued 131 Arlington Street at $1,200,000. Solely for the purposes of the trial on the Motion for Relief, the parties agreed that the value of 131 Arlington Street is $1,525,000;

b) 109 & 121–127 Arlington Street—The Debtors' appraiser valued 109 & 121–127 Arlington Street at $2,400,000, and Prudential's appraiser valued 109 & 121–127 Arlington Street at $2,800,000. Solely for the purposes of the trial on the Motion for Relief, the parties agreed that the value of 109 & 121–127 Arlington Street is $2,600,000;

c) 25 Pinckney St., Boston—The Debtors' appraiser valued 25 Pinckney St., Boston at $1,160,000, and Prudential's appraiser valued 25 Pinckney St., Boston at $1,200,000. Solely for the purposes of the trial on the Motion for Relief, the parties agreed that the value...