Cerberus plans lower bid for Innkeepers hotels

Days after pulling out of a joint bid with Chatham Lodging Trust to buy a 64-strong hotel portfolio from bankrupt hotel REIT Innkeepers Trust USA the New York private equity firm is considering returning with a lower bid.

Cerberus Capital Management is considering lodging a lower bid for a portfolio of 64 hotels from bankrupt hotel REIT Innkeepers Trust USA, according to published reports.

The revised bid would come just days after the New York-based private equity firm terminated its agreement with Chatham Lodging Trust to buy the hotels in a deal worth $1.1 billion, citing they had suffered from “a material adverse effect”. The adverse effect was not elaborated upon. 

The withdrawal on Friday from the original bid has resulted in the bankrupt hotel REIT being unable to emerge from bankruptcy proceedings dependent on the sale.

However, Cerberus still harbours an interest in purchasing the hotels from Innkeepers, but for a lower price than it had agreed to in the previous deal. As Cerberus continues to expresses interest in the portfolio, Innkeepers is currently weighing its legal options. 

With Cerberus and Chatham having terminated their agreement, the firms have demanded a $20 million deposit used to secure the investment in the first place, according to a status report filed in a Manhattan court on Tuesday. In a 19 August letter cited in the court, the firms demanded that 90 percent of the deposit be returned to Cerberus and 10 percent be returned to Chatham.

Innkeepers objected, saying in a separate letter “there has not been an occurrence of any condition, change, or development that could reasonably be expected to have a material adverse effect” on its business since the deal was agreed to in May. As a result, Cerberus and Chatham will not receive the money until the court rules on the dispute.

Innkeepers chief restructuring officer Marc Beilinson said in a statement there is “no doubt that Cerberus/Chatham terminated the Commitment Letter inappropriately. Accordingly, we are evaluating all legal and equitable remedies against Cerberus/Chatham.”

In another fallout from the terminated deal, Innkeepers creditor Midland Loan Services questioned a request for fees from the hotel REITs’ bankruptcy counsel Kirkland & Ellis, claiming Innkeepers’ exit from bankruptcy was now uncertain. Midland, which is servicing an $825 million mortgage loan, said Kirkland & Ellis’s request for $1.6 million should be partially held back.

Cerberus teamed up with Chatham earlier this year to bid on the Innkeepers portfolio, pledging $400 million in equity and assuming $700 million in debt. Chatham's separate purchase of five Innkeepers hotels, which closed on 14 July, has not been affected by the terminated agreement.   

The ending of the agreement disrupts Innkeepers’ exit from Chapter 11 after a judge previously signed off on a plan that has creditors’ approval. Innkeepers and 91 of its subsidiaries opted to file for Chapter 11 bankruptcy protection in July 2010 due to its substantial debt load, reported to be $1.4 billion at the time, which hindered its ability to maintain and upgrade properties. 

Innkeepers previously was acquired in 2007 for $1.5 billion by Apollo Investment, the publicly traded business development company and an affiliate of private equity firm Apollo Global Management. The company is a REIT that owns interests in 73 hotels with approximately 10,000 rooms in 19 US states.