Dallas City Wire

Lenders are using "vulture tactics" to prey on borrowers hard struck by the COVID-19 pandemic's economic impact, a Dallas hotel general manager said in a recent letter to his congressional representative.

The lenders hovering over the pandemic-distressed properties "are well within their legal rights," Embassy Suites Dallas Near the Galleria General Manager Brian E. Koenitzer said in his April 2 letter to Rep. Kenny Marchant (R-TX).

In a copy of the two-page letter obtained by the Dallas City Wire, Koenitzer told Marchant that the lenders' scheme is "unconscionable from a moral perspective and stand starkly against the principles that we share here in the United States."

"Frankly, to take advantage of this crisis for the sake of better returns for some New York hedge fund strikes me as unAmerican," Koenitzer continued in his letter. "The negative impact to hotel owners and their employees of these vulture tactics will be long lasting."

Koenitzer urged Marchant to join with other members of congress, the Federal Reserve and other regulatory agencies "to address this situation before hotels across this country are mercilessly foreclosed on due to no fault of their own." Among other things, Koenitzer called for an 18-month moratorium on foreclosure proceedings to allow hotel owners "time they will need to come up with reasonable solutions and strategies."

Marchant, who has been in public service for about 40 years and represented the 24th congressional district since 2005, announced in August that he will retire once his current term expires.

The $2 trillion CARES Act passed by Congress late last month provides some foreclosure relief, mostly for family-owned properties.

In addition, some states have set up foreclosure moratoriums and stays, often covering small and large properties from lender asset seizures when payments aren't made during the pandemic.

Texas is currently not one of those states.

Larger properties received some protection in an interagency statement issued March 22 by the Federal Reserve, FDIC and other regulatory agencies that encouraged the nation's banks to work proactively with borrowers hit hard by the COVID-19 pandemic.

"The agencies encourage financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19," the statement said. "The agencies view loan modification programs as positive actions that can mitigate adverse effects on borrowers due to COVID-19. The agencies will not criticize institutions for working with borrowers and will not direct supervised institutions to automatically categorize all COVID-19 related loan modifications as troubled debt restructurings (TDRs)."

Koenitzer called the interagency statement "undoubtedly a step in the right direction" but said not all borrowers have loans from FDIC-insured banks.

"However, billions of dollars of hotel loans in our country come from unregulated non-banks such as hedge funds and other investment funds," Koenitzer's letter said. "Since the Federal Reserve and the FDIC have no direct oversight of these firms, they are unlikely to follow the previously mentioned guidance. They are more likely to take a different approach: the use of vulture tactics to extract as much 'value' out of the hotel as possible without any regard for the current crisis or the hotel employees or hotel owners involved."

Those "vulture tactics" include accelerating the foreclosure process to gather in as many COVID-19-distressed properties as possible, using "small technical ways" to rush loan defaults, denying borrowers existing escrowed funds and slowing reimbursements on collateral, Koenitzer's letter said.

"Representative Marchant, I urge you, Congress, the Federal Reserve and other governmental agencies to move quickly to address this situation before hotels across this country are mercilessly foreclosed on due to no fault of their own," Koenitzer's letter said. "To the extent additional legislation related to COVID-19 is proposed, I would recommend adding language that introduces an 18-month moratorium on ALL foreclosure proceedings for ALL lenders to hotels. This should give hotels the time they will need to come up with reasonable solutions and strategies with their lenders to ensure that they have their loans paid off and avoid unnecessarily enriching hedge fund vultures."

Dallas City Wire reached out to several lenders and banks for this story, but only two responded saying they were not authorized to speak to the press.