Waterscape Resorts LLC, the company which owns and (with “certain affiliates”) developed the Cassa NY Hotel & Residences, which is a condominium hotel and residential apartment building located at 66-70 West 45th Street in New York City, filed for chapter 11 protection this week. Waterscape acquired three contiguous buildings at 66, 68 and 70 West 45th Street in July 2005 for $20 million and began construction of the 45 story Cassa NY building in July 2007. Construction was completed in September of last year and the hotel and rental business has generated annualized revenues of $17-18 million according to court filings. By the end of September 2010, Waterscape had also sold five condominium units in the building for a total of slightly less than $13 million, according to court filings.
The building contains 165 hotel rooms and 57 residences, as well as a yet-to-be-opened restaurant. A November 2010 appraisal by KTR Real Estate Advisors LLC valued the hotel component of the building at $128 million and the gross sellout market value of the remaining condominiums at $86 million.
The company blames its difficulties primarily on $20 million in outstanding mechanics’ lien claims that have been asserted against it, primarily by its former construction manager, Pavarini McGovern LLC. These claims, the validity of which is challenged by Waterscape, have prevented Waterscape from closing on the sale of additional residential units because Waterscape lacks the financial resources to bond the claims. This has, in turn, caused Waterscape to default on a principal payment obligation to its secured lenders (who are owed approximately $134 million) according to court filings.
In mid-March, Waterscape reached an agreement with an unrelated entity, 70 West 45th Street Holding LLC, to sell the hotel-related portion of its assets for $126,000,000 (plus a payment of approximately $2,000,000 relating to certain mortgage tax savings that would accrue to the purchaser). That agreement nearly fell through once Waterscape determined it would need to file for chapter 11 protection, but was subsequently replaced with an April 1, 2011 agreement providing for the same purchase price but slightly different transaction mechanics. Court filings state that this new agreement requires that Waterscape receive bankruptcy court approval of the sale by May 30, 2011 without requirement of a competitive process. If a competitive process is required by the court, the stalking horse purchaser would be entitled to a 3% break-up fee plus an expense reimbursement if it is not the winning bidder. According to Waterscape, the hotel sale will allow it to substantially retire its obligations to its secured creditors while retaining the ability to sell out the remaining $86 million in residential units.
- Voluntary Petition (Chapter 11). Order for Relief Entered. Filed by Lee William Stremba of Troutman Sanders LLP on behalf of Waterscape Resort LLC
- Affidavit Local Rule 1007-2 Declaration in Support of First-Day Pleadings filed by Brett D. Goodman on behalf of Waterscape Resort LLC. (Attachments: # 1 Exhibit “A”# 2Exhibit “B”# 3 Exhibit “C”# 4 Exhibit “D”# 5 Exhibit “E”# 6 Exhibit “F”)
- Application to Employ TROUTMAN SANDERS LLP as COUNSEL TO DEBTOR filed by Lee William Stremba on behalf of Waterscape Resort LLC. Responses due by 4/22/2011, with presentment to be held on 4/29/2011 at 12:00 PM at Courtroom 723 (SMB) (Attachments: # (1) Exhibit “A” – Affirmation of Lee W. Stremba# (2) Exhibit “B” – Proposed Order# (3) Affidavit of Service)