June 29, 2020

Milbank Obtains Preliminary Injunction in Real Estate Lending Dispute Over The Mark Hotel


Milbank has obtained, on behalf of Plaintiff D2 Mark LLC, a preliminary injunction stopping the imminent foreclosure involving interests in The Mark Hotel, a luxury hotel on the Upper East Side of Manhattan. In D2 Mark LLC v. OREI VI Investments LLC, No. 652259/2020, filed in the Commercial Division for New York County Supreme Court, Plaintiff D2 Mark sought injunctive and other relief via an Order to Show Cause brought on June 6, 2020, to halt OREI VI Investments’ improper and predatory attempt to capitalize on the COVID-19 pandemic by conducting a commercially unreasonable foreclosure under New York’s Uniform Commercial Code (“UCC”) aimed at taking The Mark Hotel. 

D2 Mark holds a 100% membership interest in D2 Mark Sub LLC, which in turn wholly owns a series of affiliated entities that own and operate The Mark Hotel. Originally built in 1927, The Mark Hotel is in a landmark building and has been highly profitable for a very long time. The Defendant holds a junior mezzanine loan worth $35 million. The loan is secured by D2 Mark’s membership interest. There is senior mortgage loan on The Mark Hotel worth $230 million, secured by The Mark Hotel itself. Prior to the COVID-19 pandemic, D2 Mark and its affiliates were in perfect financial health and had never missed a debt service payment to the Defendant or the senior lender. The COVID-19 pandemic and related government restrictions resulted in a city-wide shutdown and a dramatic—but temporary—loss in revenue. The restaurant, bar, salon, and retail owned by the Hotel were forced to close by Executive Order. The Mark Hotel itself, and most of the luxury hotels in New York City, shut its doors in late March 2020. As a result, D2 Mark missed its interest payments in May 2020 on the mezzanine and mortgage loans. Plaintiff had expected to miss this payment and had informed the Defendant and the senior lender that it was taking other steps to protect The Mark Hotel during the pandemic. Plaintiff and its affiliates put aside six months’ worth of funds to pay the grounds leases for the Hotel, essential employee wages and benefits, insurance, utilities, and real estate taxes. Plaintiff and its affiliates were negotiating a forbearance agreement with the Defendant and senior lender to provide some temporary relief from the interest payments for the mezzanine and mortgage loans.

During negotiations, D2 Mark was led to believe that the Defendant would agree to a 90-day forbearance. Without warning, and in the midst of the finalization of the negotiations, on May 18, 2020, the Defendant purported to notice a UCC sale of the Collateral for June 24 (i.e., only 36 days from when notice was given). As a result, D2 Mark initiated this action seeking injunctive relief to enjoin the sale, among other claims. D2 Mark claimed that the UCC foreclosure was commercially unreasonable and therefore in violation of New York law, which requires “all aspects” of a UCC be commercially reasonable.   

On June 23, 2020, the Court granted a preliminary injunction against the Defendant, supporting Milbank’s arguments that the Defendant’s 36-day notice for the proposed foreclosure sale during a global pandemic may be commercially unreasonable. In particular, the Court focused on the fact that the Defendant, which had purportedly marketed the sale to 700 potential bidders, had received real interest from only 2 entities that intended to bid at the auction. This demonstrated Milbank’s argument that more time was needed to generate robust bidding and obtain a fair price for the asset. The Court also found that irreparable injury would occur to D2 Mark if the relief was denied, and that the balance of equities clearly tipped in D2 Mark’s favor. The Court found the Defendant’s arguments about COVID-19, and further social and political strife, speculative, and the Court agreed with Milbank’s point that there was no real risk that the Defendant would be wiped out in a foreclosure in the next 60 days. It was undisputed that Governor Andrew Cuomo’s Executive Order prevents the senior lender from initiating foreclosure proceedings until at least August 20. The Court ordered the Defendant to re-notice the sale for 30 days following its decision.

The case is significant as it is the first New York court decision involving a lender seeking a non-judicial UCC foreclosure of a commercial property that was indisputably healthy and performing pre-COVID.

The Milbank team representing D2 Mark in this action is led by Litigation partner Dan Perry and included partner Kevin O’Shea (Real Estate) and associates Jonathan Lamberti, Jordan Anderson (Litigation) and Kieran Murphy (Real Estate).