CHARLESTON, W.Va. — The owners of a defaulting Morgantown hotel say they fell behind on financial obligations such as taxes owed to the State of West Virginia and to Monongalia County because the property’s lender continued to take its full monthly debt service despite pleas that the economy was becoming more challenging.
Mountain Blue Hotel Group made its claims in a filing today in United States Bankruptcy Court in the Middle District of Florida. It was one of several recent filings by the hotel owners on a variety of topics.
The investors are trying to regain access to the Hilton Garden Inn in Morgantown, which has had its management transferred to a receiver.
Mountain Blue is owned by an investment group led by developer William Abruzzino, a Shinnston native who now lives in Florida. The hotel is one of several Abruzzino properties currently the subject of lawsuits or bankruptcy proceedings.
The hotel’s lender is trying to have the case dismissed from bankruptcy court for the second time.
Among the largest creditors are the State Tax Department, which says it is owed $720,000, and Monongalia County, which says it is owed $148,000.
Mountain Blue says it was squeezed by greater competition in the Morgantown area, as well as a soft economy.
When the hotel was built in 2008, it was one of only four hotels located in Morgantown and the surrounding area, Mountain Blue wrote in its filing.
By 2013, when the hotel was refinanced, there were still only about seven hotels in the area, Mountain Blue’s lawyers wrote. At that time, the lender appraised the hotel’s value at $22.5 million.
But by 2014, the economic situation became more challenging, according to Mountain Blue. The company cited the construction of even more new hotels in the area and a slowdown in the natural gas boom.
Mountain Blue says revenues from the hotel were sent automatically to a Wells Fargo-secured lock box account as required by the lender, which did not adjust to the reality of tough times.
“In the latter part of 2016 and continuing into 2017, the decline in revenues was such that the Debtor was not receiving sufficient funds each month to pay the lender and all of the hotel’s ongoing operating expenses,” wrote lawyers for Mountain Blue.
Mountain Blue says the lender was taking its full payment and interest of $138,000 a month, leaving insufficient funds for operating expenses including monthly payroll, payroll taxes, utilities, food, maintenance and upkeep, franchise fees, sales taxes, hotel and occupancy taxes and insurance.
“As revenues declined and the corresponding amounts trickling down to the Debtor after the Lender was paid (in full) declined as well, the Debtor was unable to stay current on the franchise fees owed to Hilton (which averaged from $30,000 to $50,000 monthly), the sales taxes owed to the State of West Virginia (which averaged $15,000 to $22,000 monthly), and the hotel and occupancy taxes owed to Monongalia County (which also averaged $15,000 to $22,000 monthly).
“It was the Debtor’s default on these obligations that prompted the lender to declare a default under the loan documents. The default to these legitimate creditors was the direct result of this Lender.”
In another filing this week, Mountain Blue objected to the lender’s motion to have the case dismissed from bankruptcy court.
The lender contended Mountain Blue had failed to provide documentation showing all of its members had signed off on the bankruptcy.
“But the Debtor did in fact obtain such unanimous approval prior to the filing of the Petition,” wrote lawyers for Mountain Blue.
The company filed a document with the signatures of Abruzzino and its other current investors including Rebecca Abruzzino, Connor Abruzzino, George Freisem, Maria Reyes and Jaron Smalley.
And, in yet another filing, Mountain Blue objected to the State Tax Department’s motion to have the case’s venue transferred from Florida to West Virginia.
Mountain Blue said Abruzzino, the senior officer, is 83 years old, has some health issues and has moved to the corporate offices to Bonita Springs, Florida. “He can no longer live in a cold environment,” the lawyers wrote.
Although the hotel is in Morgantown, the lawyers wrote, most of the company’s other business functions are in Florida.