Appeals Court Overrules Bankruptcy Plan for Luxury Boston Hotel
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Appeals Court Overrules Bankruptcy Plan for Luxury Boston Hotel

October 24, 2012

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A luxury Boston hotel may have to pay more money to its creditors after a federal appeals court overruled a bankruptcy judge and canceled the W Hotel's bankruptcy plan, according to a report from the Boston Herald.

Sources say that the W Hotel and Residences, which is owned by a group called the SW Boston Hotel Venture, agreed to a bankruptcy plan last November that determined how much it owed its primary creditor, Prudential Insurance.

Under the terms of the initial plan, the hotel agreed to pay Prudential $52 million over a period of several years. Prudential Insurance, however, appealed the decision, and won a rare victory in an appellate court by a disgruntled creditor.

According to the opinion written by the appellate judges, the reversal of the reorganization decision "alters the landscape dramatically" and will result in a "significant increase in the amount of Prudential’s claim."

Sources indicate that Prudential Insurance is looking to capture at least $82 million from the hotel, although it’s not yet clear whether the new bankruptcy plan will lead to that large of a haul for the insurance company.

After reversing the original decision, the appellate court sent the case back to bankruptcy court, where a new judge will help create a different reorganization plan that meets the higher court’s demands.

Prudential was the largest investor in the W Hotel, a 123-unit luxury condo and 235-room hotel that opened its doors in Boston’s Theatre District three years ago.

The real estate venture has had a difficult time selling its condos, as only 83 units have been sold, which represents less than 75 percent of the total condo space.

But several more condos are in the preliminary stages of a sale, so the company hopes to use the proceeds of those sales to begin repaying its debt to the insurance company.

The appellate court’s decision is newsworthy because higher courts are usually reluctant to overturn the decisions of bankruptcy judges, who have immediate access to the important facts of every case.

But in this particular case, the higher court was troubled by judge’s original decision, and acted accordingly. Sources say the hotel does not plan to appeal the decision.


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