CLEVELAND, Ohio — A judge on Tuesday approved a plan by the receiver overseeing the distressed Westin Cleveland Downtown hotel to market and sell the property, which is facing foreclosure after the mortgage lender said the current owners are in default.
Cuyahoga County Common Pleas Judge Cassandra Collier-Williams said receiver Tim Collins, an attorney who is overseeing the operations and finances of the 484-room hotel on St. Clair Avenue, may proceed with plans to list the property for sale and to implement procedures to take bids.
The hotel is owned by a company linked to a set of Ukrainian oligarchs under FBI investigation.
The judge also approved a contract for a “stalking horse” bid from HEI Hotels & Resorts of Connecticut. That bid acts as a price floor as other parties place their own bids. Ezio Listati, an attorney for the receiver, said HEI’s original offer was for $39.6 million plus covering Optima’s liabilities, but competition has now driven expressions of interest up to $40.7 million.
Bids are due by Friday, Listati said.
Collier-Williams made her decision despite requests from hotel owner Optima Ventures to put off the sale to a time when the hospitality industry is not mired in financial woes due to the coronavirus pandemic. She wrote in a 4-page order that the procedures “are fair in all respects … and provides an effective way to maximize the value of the Assets for the benefit of the receivership estate and the parties with an interest in such property.”
Her signoff, which comes after a hearing she held Monday, is another sign that the Miami-based Optima could lose control of the hotel, purchased for $9 million in 2011 with Denver-based Sage Hospitality Group. The owners closed the hotel, then known as the Crowne Plaza, for more than two years and carried out a $70 million renovation before reopening it in 2014.
Lender Cleveland International Fund filed for the hotel’s foreclosure in October 2020, saying Optima owes $35 million on the unpaid principal of a mortgage, nearly $500,000 in interest and $1.4 million in late fees. It also owes more than $1.5 million in county property taxes and more than $860,000 to the city of Cleveland for a loan, according to court records.
Collier-Williams in March appointed a receiver, after Optima agreed not to contest the appointment. Cleveland International Fund sought the receiver after Sage said Optima did not have enough money to pay for the Westin to stay open for much more than a week.
Since then, the hotel has remained open while Collins prepared to list it for sale to pay off Optima’s debts. His lawyers wrote in a motion in August that he lined up the CBRE real estate firm to list the Westin and that HEI submitted an offer. Should HEI not end up buying the property, it will be paid $230,000 to reimburse for expenses, the motion said.
Cleveland International Fund supports Collins’ plans. Collins told the judge during Monday’s hearing that brokers he consulted said the hotel was worth between $38 million and $48.5 million. He also noted that four other companies, in addition to HEI, have expressed interest in buying the Westin.
Optima attorney Steven Miller said that, among other concerns, Optima thought it was too soon to try to sell the hotel, against the backdrop of decreased travel because of the pandemic. Waiting may lead to selling the property for more money, Miller said.
He cited “interesting things” happening in the local market, including the announcement last week that owners of the nearby Tower at Erieview were planning to convert part of that building into a luxury hotel, as evidence that waiting could help.
“We’re talking about how to maximize a substantial, better than $40 million property and not have someone come in and buy it off at a distressed fire sale,” Miller said, also adding that he has not been allowed to attend meetings about the hotel.
Collins said his aim marketing the hotel for sale now is that “we don’t know when COVID is going to go away and what would that do to the price of a hotel.
“The contract with the stalking horse was being negotiated to create that floor and the stalking horse was willing to step in when statistics were horrific for the hotel, and put a very material offer on the table,” he said. He added that Optima executive Chaim Schochet participated in most of the weekly meetings.
Optima can appeal Collier-Williams’ order. Miller said Tuesday that “given the importance of all this, we’re evaluating all next-step options.”
To compound its problems, Optima is under investigation as agents probe whether people involved in the company used it as a vehicle to launder money for Ukrainian oligarchs.
The FBI and IRS have been scrutinizing Optima for years to see, among other things, whether Ukrainian oligarchs Igor Kolomoisky and Gennadiy Boholiubov used it to launder hundreds of millions of dollars through real estate in Cleveland and other U.S. cities. Nobody has been criminally charged.
Agents in August 2020 raided a subsidiary’s office at One Cleveland Center. The federal government is seeking forfeiture of several buildings the company owns nationwide. That included 55 Public Square, which the company sold in February, with the approval of a judge and the Justice Department, to the Willoughby-based K&D Group.
Optima Ventures was once one of downtown Cleveland’s biggest landlords, though its footprint has shrunk in recent years. Its remaining assets in the city are the Westin and the One Cleveland Center building at East 9th Street and St. Clair Avenue.
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