Three and a half years ago, Urban Commons, Howard Wu’s Los Angeles-based hotel company, made its first foray into New York, acquiring the Wagner Hotel for $147 million.
But things moved south fast, according to Highgate Hotels, the hotel operator he inherited at the Downtown Manhattan establishment.
The pandemic gutted the hotel, forcing it to close in April 2020. While some New York hotel businesses have since returned, the Wagner never did. Calls to the hotel go directly to a voicemail recording indicating that it is closed.
Wu hit rock bottom in December, filing a claim personal bankruptcy. In court filings, he declared $15.9 million in assets and $29.9 million in liabilities.
Highgate, a hotel management company, filed a lawsuit in California bankruptcy court seeking payment.
Under Highgate’s contract with the companies that sold Wu the Wagner, Millennium Partners and Westbrook Partners, the owner was required to cover the hotel’s operating expenses and to defend the operator against lawsuits and liabilities arising from his work there.
Urban Compass snubbed several of the key terms of the deal, according to Highgate.
Highgate said its operating expenses at the 298-key Wagner were $42 million, but Urban Compass only shelled out $19.2 million. As a result, Highgate said it was unable to pay salaries and benefits for hourly employees, including severance packages mandated by a controversial law from the de Blasio administration. The shortfall has forced Highgate to stiffen some suppliers, he claimed.
Amid outcry over the non-payment, Wu signed an agreement in January 2021 promising to fulfill all payment obligations under the contract. Throughout the past year, Highgate says it sent weekly emails to Wu detailing the amounts he owed, as well as three written requests in 2021 for full payment. But Wu failed.
The problems escalated when the New York Hotel and Motel Trades Council, the union for hotel workers now called the NY/NJ Hotel & Gaming Workers Union, initiated arbitration against Highgate for failing to pay out union funds as required. Highgate is asking Wu to also cover the costs of union arbitration, citing the operating agreement.
Highgate says its weekly tab for mandatory severance payments alone reached $124,850 and accounted for more than $350,000 in October and November for paying employees. In total, according to the hotel operator, he spent more than $1.67 million to make up for Wu’s underpayment.
The operator finally terminated its agreement with Urban Commons in November and is asking the court to confirm that Wu must pay the debt to Highgate as he fends off a long list of creditors.
Highgate operates hotels in the United States and Latin America, with over 65,000 rooms in its portfolio. It was founded in 1988 by Mahmood and Mehdi Khimji. He recently partnered with New York-based private equity firm Cerberus Capital Management to buy CorePoint hosting a hotel REIT, for $1.5 billion.
Urban Commons has other issues, including being sued in October for allegedly absconding with a $1 million investment for a hotel acquisition that never happened.
Highgate’s attorney did not respond to requests for comment before press time. Wu could not be reached.