Lender suit claims overstated net worth of Hammons Hotels, estate

New York-based lender SFI Belmont LLC filed a suit in August to recover $140 million on a $275 million loan backed by the estate of John Q. Hammons. The suit, filed on Aug. 12, in Cook County, Ill., names John Q. Hammons Hotels Development LLC, The Revocable Trust of John Q. Hammons and Hammons Inc. as defendants.

The loan was made in 2005 through Jonathan Eilian-led Atrium Lendco LLC and its subsidiary iStar Financial Inc. In 2005, Eilian, a private investor who helped start Starwood Hotel and Resorts Worldwide, led a minority shareholder buyout of national hotel management firm John Q. Hammons Hotels Management Co. LLC, effectively privatizing the Springfield-based company.

According to the suit, while the loan was secured by pledges of equity interest in certain entities, the net worth of Hammons – who died on May 27 – was a key consideration. The outstanding principal was never to exceed $100 million or 40 percent of a minimum acceptable net worth standard, or $250 million.

To comply with the terms of the loan, Hammons Hotels was required to submit regular certificates of Hammons’ net worth. Under Hammons Hotels CEO Jacquie Dowdy, who is the successor trustee of the Hammons Trust, the suit claims the borrower attempted to disguise a decline in net worth through false certifications and delaying financial information tied to assets used in the evaluation of Hammons’ investments.

A recalculation of Hammons’ net worth in September 2011 had it falling below the $250 million threshold, prompting SFI and iStar to call for a mandatory partial prepayment of the loan. The failure of the hotel company to do so entitled SFI to ask for the entire loan to be repaid, according to the lawsuit.

Sheri Smith, president of Dallas-based public relations firm Publicis PR, released a statement on behalf of John Q. Hammons Hotels Management Co. LLC: “The company has received a copy of the complaint filed in Cook County, Ill., and has engaged counsel to aggressively defend against the baseless allegations brought by SFI Belmont LLC.  The lawsuit will have no impact on the operations of the company.”

Chicago attorneys Timothy Patenode and Jennifer Ryan, who represent SFI, did not respond to requests for comment by deadline.

This is not the first time Eilian has taken issue with Hammons Hotels CEO Dowdy’s business practices or alleged she altered financial numbers to inflate Hammons’ net worth.

In July 2011, Atrium TRS LLC, led by Eilian, and its affiliates claimed Dowdy violated a management contract by appointing herself CEO in 2010 and assuming Hammons’ $200,000 salary.

In April 2012, Rogers Funding LLC, also led by Eilian, claimed Dowdy inflated the net worth of Hammons trust by $1 billion when refinancing a loan for a hotel and convention center in Rogers, Ark.

Hammons Hotels has defended the claims in each of the suits.