Hotel bankruptcy filings rise amid coronavirus spike

Hotels operators are filing for bankruptcy at a faster pace in the U.S. amid a resurgence of COVID-19 infections that clouds the outlook for sustained recovery.

And more may be on the horizon as lenders lose patience with defaulting property owners.

A unit of Eagle Hospitality Real Estate Investment Trust, which owns a portfolio of corporate, leisure and airport hotels across the U.S., filed for bankruptcy protection Monday in Delaware amid a collapse in travel due to the pandemic. It followed Marriott Wardman Park in Washington, which filed for court protection from creditors last week, joining the bankruptcies of two hotels in Brooklyn in December and Manhattan’s Martinique New York in September.

Just two hotel companies with liabilities greater than $50 million filed for bankruptcy in all of 2020, data compiled by Bloomberg shows. That’s still the most since 2012, which saw four filings, but well below the 10 cases seen in 2009.

Lenders have been reluctant to foreclose on struggling hotels since the pandemic crushed revenues, said Stephen Selbst, cochair of the restructuring and finance litigation group at Herrick Feinstein.

“If you take back a hotel, you’re the mortgagee, and now all of a sudden it’s your responsibility to keep the lights on,” Selbst said. “That’s like foreclosing on a horse. You have to feed the horse.”

Still, it’s “a little surprising” there weren’t more hotel bankruptcies last year, Selbst said.

“Clearly the pace of workouts in hospitality is going to increase in 2021; whether that’ll translate to bankruptcies is less obvious.”

There have been eight bankruptcies by companies with liabilities over $50 million already this year, on par with 2020, which was the biggest year for filings since 2009, data compiled by Bloomberg shows.

They included the National Rifle Association of America, the gun-rights group feared for its lobbying clout but now threatened with dissolution by the state of New York. Women’s clothing chain Christopher & Banks Corp. also fell into bankruptcy with plans to liquidate all 449 of its stores. The chain had to close all of its stores for more than month last year, compounding a tenuous financial position.

“Unfortunately, there is no vaccine equivalent to cure the downward retail spiral,” Michael Sirota of Cole Schotz said in the retailer’s first-day hearing on Friday.

Christopher & Banks will try to sell all of its assets, but it is proceeding with the assumption that there is “limited, if any interest” in its physical locations.