The owners of the DoubleTree by Hilton hotel at John F. Kennedy International Airport are chucking their affiliation with the global hotel brand in favor of an alliance with Radisson, after partially settling a lawsuit alleging Hilton conspired with its parent company, the Blackstone Group, and a lender to terminate their franchise agreement and force a loan default.
The Vista Group of Companies sued Hilton in February, claiming the company was secretly working with Blackstone and an affiliated lender to end the franchise deal and foreclose on a $35 million mortgage on the property.
Specifically, Hilton and the Blackstone-controlled lender accused Vista Group of failing to provide facilities for disabled guests — constituting a “pretextual” default — to support the foreclosure and collect a $4 million termination payment, according to the suit.
The 385-room property, located at 135-30 140th Street in Queens, is one of several Hilton hotels at the airport — including the Hilton JFK, the Hampton Inn NY JFK and the Hilton Garden Inn Queens — and Vista Group claimed that the other hotels were lower priced and paid higher royalty fees.
However, Hilton argued that the default was legitimate based on the hotel’s failure to meet brand standards, including charging guests the wrong room rate and levying fees for Internet service that guests didn’t order, according to court records.
Under the settlement, Vista Group will resolve its claims against a special loan servicer, Midland Loan Services (which was never named as a defendant), as well as U.S. National Bank, a trustee. Vista Group will also pay $1 million into an escrow account in case Hilton wins the remaining portion of the case and will also pay $376,000 to cover part of the defendants’ legal fees.
“It was certainly important to rebrand the hotel, and the price to rebrand was settling with the trustee and its servicer,” said Kyle Bisceglie, an attorney representing the Vista Group. “But the litigation against the trustee and the servicer was an undercard draw to the main event.”
The hotel is scheduled to reopen under the new flag no later than Oct. 13, he said.
Vista Group, led by brothers Ally and Amin Visram, owns hotel, office and shopping mall properties in Canada and the U.S.
The firm originally entered a loan agreement with CIBX Commercial Mortgage in July 2011, and claimed that Blackstone acquired a stake in the entity, thereby giving it control over both the lender and the franchisor, Hilton.
Bisceglie claimed that Blackstone’s move to use an affiliate to make loans to “unwitting” Hilton franchisees was widespread within the private equity firm’s real estate and distressed assets divisions.
“The end result is franchisees end up getting squeezed because the lender and franchisor are both controlled by the same entity which exists to extract fees and profits one way or another,” he said.
Lawyers for Hilton and DoubleTree did not return calls. Hilton and Blackstone officials were not immediately available for comment, but a Hilton spokesperson said the company does not comment on pending litigation.
A spokesman for Carlson Rezidor, which owns the Radisson brand, said it would be announcing the deal later this afternoon.