The owners of the Frederica Hotel in Little Rock defaulted on a $4.6 million loan they took out in December 2017 to buy the property, the lender said in a lawsuit filed late last month in Pulaski County Circuit Court.
SHG Management failed to make payments on the principal and interest beginning in June and didn't meet a Sept. 3 demand for a default payment of $4.8 million, including interest and penalties, ReadyCap Lending LLC of New Providence, N.J., said in a lawsuit filed Oct. 28.
The loan was backed by the U.S. Small Business Administration's Preferred Lending Program, which has a network of lending agencies approved by the Small Business Administration to make loans to small businesses.
Along with SHG Management, defendants are its principals: Bhavin M. Patel of Benton, Ankur N. Desai of North Little Rock, Jitendrakumar K. Patel of Sherwood, Parimal H. Patel of Little Rock, and Jamak LLC in Harrison. SHG Management LLC has a Sherwood address.
The lawsuit also names the state Department of Finance and Administration, the Little Rock Advertising and Promotion Commission and the Pulaski County tax assessor's office as defendants. Those three entities are seeking taxes owed by the hotel. A North Little Rock company, Powers Mechanical Service, is named as a defendant because it won a partial default judgment for air-conditioning repairs it performed at the hotel in 2018 but never received payment.
The state says the hotel owes almost $50,000 in state sales taxes on room revenue. The Little Rock tourism board alleges the same, for $12,100, from the city's advertising and promotion tax on hotel and motel rooms. Pulaski County seeks delinquent personal property and real estate taxes totaling nearly $62,000.
Powers-Mechanical's default judgment was for about $12,160, including interest and fees, but was able to collect only about $5,572 through a writ of garnishment of the hotel's account at Bank of America, according to a court filing Nov. 13. Bank of America said in a filing that was the only Frederica or SHG account it had.
Not mentioned in the lawsuit is a certification of assessment against SHG filed by the state Division of Workforce Services in late September for $257.99 in delinquent workers compensation contributions.
ReadyCap Lending said its loan is superior to those claims because the loan came first. It also said the loan agreement required notification of any legal proceedings and of any failure to pay taxes. Hotel officials made no such notification, which also placed the hotel in default, ReadyCap said.
ReadyCap's local attorney is Mark W. Hodge of the Barber Law Firm in Little Rock.
Court records indicate no response by the hotel's operators to any of those court filings, including ReadyCap's foreclosure lawsuit, or whether the SHG principals have an attorney.
According to ReadyCap's lawsuit, the $4.6 million loan had these terms:
• Interest-only payments for four months, with an initial interest rate of 6.25%, then subject to adjustment every quarter, based on the prime rate plus 2%.
• Monthly payments (299) of interest and principal through March 19, 2043.
• Regularly scheduled payments of $30,743.89, with a 5% penalty for payments more than 10 days late.
SHG Management announced in August 2016 that it had purchased the hotel, known for decades as the Hotel Sam Peck and, at the time of purchase, the Legacy Hotel and Suites. At 105 years, it is the city's second-oldest hotel, behind the Capital Hotel.
SHG bought the property for $2.85 million and spent, according to its principals, about $2 million in renovations over 16 months. It was being operated under Ascend Collections, the boutique brand of Choice Hotels International. The Frederica was closed Sept. 13 on Department of Finance and Administration orders. The hotel is for sale with Newmark Moses Tucker Partners, the marketing agent for SHG.
Even though the Small Business Administration guaranteed the loan, it is up to ReadyCap, as the lender, to pursue a default judgment or foreclosure.
In fiscal 2019, the Small Business Administration approved 51,907 loans totaling nearly $23.2 billion, with the average loan amount of $446,487, according to a report in October by the Congressional Research Service. The maximum Small Business Administration-backed loan is $5 million.
The loan for the Hotel Frederica is listed among nearly 300 "recent transactions & client testimonials" on ReadyCap's website.
Business on 11/28/2019
Print Headline: Lender: Owners of hotel default