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May 20, 2016

A major European bank’s law firm retained A&M to provide expert advice, including a report and testimony related to the transaction and the parties’ course of conduct.

Client Mandate
In 2006, a major European Bank (“Bank”) and a partner (“Partner”) established a hotel investment fund (“Fund”), making a first investment into two Midtown Manhattan hotels (“Hotels”).  The Hotels were renovation opportunities, by increasing the number of rooms and bringing in a flag, the Fund could significantly increase their value. The Bank provided acquisition and renovation financing and helped source equity investors, while the Partner was responsible for operational issues.

The renovation budget soon doubled, and then tripled, without the Bank’s buy-in. The Partner went to third parties to obtain refinancing / recapitalization for the out-of-control budget for the projects, but was unable to close any deal due to market conditions during mid-2007. The Bank and the Partner entered into arbitration in mid-2008 to resolve the direction of the Hotels. The Bank’s law firm retained A&M to provide expert advice, including a report and testimony related to the transaction and the parties’ course of conduct. 

A&M’s Approach
A&M documented the factual events related to the Hotels’ renovation budgets, as well as the relative merits of various loan proposals versus the existing debt provided by the Bank.  Other issues included how real estate capital markets evolved between 2006 and 2007, including the impact of the financial crisis, as well as a comparison of various interest rate hedging strategies (caps versus swaps), including the strategy employed by the Partner with the Bank. 

Through a complete review of the partnership documents, loan agreements, as well as correspondence related to the transaction, A&M developed a fact base supporting our opinions related to the Partner’s management of the Hotels and the development budgets. 

Results
The Bank won the arbitration, which included replacing the Partner in managing the Hotels.  A&M’s role changed from being an expert witness to providing Interim Property Management and Owner’s Representation.  A&M professionals assumed oversight of financing and accounting functions, including a review of the financial and operational performance of the assets during the Partner’s last two years of operations. 

Our professionals also developed a budget considering several possible development scenarios.  Once the Hotels were stabilized, A&M transitioned asset management to a new general partner.

The A&M Advantage was in our ability to provide compelling expert testimony related to a broad range of real estate finance and partnership issues, combined with our ability to transition seamlessly into a management / execution role, ensuring that the Hotels’ operations did not suffer while the general partner was being replaced.