Ft Worth Times

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

The lenders that hover over the pandemic-distressed properties "are well within their legal rights," The Ashton Hotel general manager Jorge Parada said in his April 2 letter to Republican Rep. Kay Granger.

In a copy of the two-page letter obtained by the Ft Worth Times, Parada told Granger that the lenders' schemes are "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," Parada continued in his letter. "The negative impact to hotel owners and their employees of these vulture tactics will be long lasting."

Granger praised the federal government's response to the outbreak, including lauding President Donald Trump's response and pride in the bipartisan CARES Act passed by Congress in late March.

"Our nation is facing an unprecedented pandemic, and I am proud that Congress has come together again to provide desperately needed resources and relief to the American people," Granger said in a press release issued shortly after the CARES Act was passed.

The $2 trillion CARES Act provides some foreclosure relief, mostly for family-owned properties.

In addition, some states have set up foreclosure moratoriums and stays, often covering both small and large properties from lenders' actions to seize assets when payments are not 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 coronavirus 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)."

Parada 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," Parada 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."

The vulture tactics include accelerating the foreclosure process to gather as many distressed properties as possible, using "small technical ways" to rush loan defaults, denying borrowers existing escrowed funds and slowing reimbursements on collateral, Parada said.

"Representative Granger, 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," Parada 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."

Ft Worth Times sought comment from Wells Fargo, BAML, Key Bank, Prudential, JPM, Apollo, Aareal Bank, Morgan Stanley, Midland, Artemis, Ares Capital, Deutche Bank, Raith Capital, Clarion Partners, Principal Real Estate Investors, Blackrock, Starwood Capital, Southside Bank, Schroders and Brookfield Asset Management.

Of those contacted, only two responded, saying they were not authorized to speak to the press.