Embassy Suites owner: hotel risks foreclosure because of mismana - WDRB 41 Louisville News

Embassy Suites owner: hotel risks foreclosure because of mismanagement

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Embassy Suites developer Eric Bachelor Embassy Suites developer Eric Bachelor
The Embassy Suites in downtown Louisville The Embassy Suites in downtown Louisville

LOUISVILLE, Ky. (WDRB) – The majority owner of the Embassy Suites in downtown Louisville says the year-old hotel faces “an imminent and ruinous foreclosure” by its construction lender and could lose its Hilton Hotels franchise, all because of mismanagement by his business partner and co-owner.

Developer Eric Bachelor is asking a Jefferson County judge to immediately remove his partner, the Al J. Schneider Co., from its role as the hotel’s manager.

In a lawsuit filed earlier this month, Bachelor accuses the Schneider Co. and its longtime CEO Mary Moseley of running up inappropriate expenses on the Embassy Suites’ tab and steering business to its other hotels, such as the Crowne Plaza, at the expense of the Embassy Suites.

“I didn’t really have any choice” but to file the lawsuit, Bachelor, 64, said in an interview Tuesday. “I was kept in the dark.”

Bachelor also claims the Schneider Co. fired the hotel’s general manager late last month because Schneider Co. officials “apparently believed falsely” that their employee was helping Bachelor “because both men are black.”

The Schneider Co. then hired a general manager who is not “Hilton certified,” placing the Embassy Suites at risk of losing its Hilton-branded flag, Bachelor claims.

Meanwhile, U.S. Bank could foreclose on the hotel because the Schneider Co.’s poor expense management has put the project at risk of not meeting its required level of profit for debt payments, Bachelor claims.

The Schneider Co. denies Bachelor’s allegations. In a counter-suit filed against Bachelor’s company Friday, the Schneider Co. accuses Bachelor of interfering with its rightful position as the hotel’s manager, defamation and breach of fiduciary duty, among other claims.

The hotel is “operationally, financially and otherwise successful,” according to the Schneider Co. Meanwhile, Bachelor's "manufactured allegations" are a ploy to coerce the Schneider Co. into selling its stake in the Embassy Suites project to Bachelor at a 50 percent loss, according the counter-suit.

Moseley and Orson Oliver, a Schneider Co. consultant named in the lawsuit, did not respond to requests for comment, nor did an attorney representing them.

Mark Grundy, an attorney for the Schneider Co., referred a reporter to the company's counter-suit.

The dispute over the Embassy Suites comes as Moseley remains embroiled in an intra-family legal fight over control of the Schneider Co. itself after her sisters objected to plans to sell the Galt House hotel and other valuable Schneider Co. assets.

The 304-room Embassy Suites opened in April 2015 after Bachelor and the Schneider Co. spent $78 million to renovate the 108-year-old former Stewart Dry Goods building at 501 S. 4th Street.

Bachelor, a former Ford Motor Co. executive and Outback Steakhouse franchisee, owns 60 percent of the project – which includes the hotel and office, retail and restaurant space, valued collectively at $87 million. The Schneider Co. owns the other 40 percent.

The Schneider Co., in its counter-suit, said its investment in the project saved Bachelor from "financial ruin" at the hands of his former partner, Morgan Stanley, in the mid-to-late 2000s. Bachelor dismissed the counter-suit claims as "fabrications."

The Schneider Co. also manages the Embassy Suites for a fee – an arrangement that Bachelor has now turned to the courts to undo.

"The Schneiders were brought in not because I needed them financially, but it was because they had a good history in the city, and they were already operating some hotels, and that's what I needed," Bachelor said Tuesday. "...I thought it would be a good match, and it was, initially."

But the Schneider Co.'s falling out with Bachelor came to a head on May 26, according to court filings, when Bachelor visited the hotel to install Schulte Hospitality Group as the hotel's new manager.

“Schneider Co. officials Mary Moseley and Orson Oliver stormed into the Hotel with other Schneider Co. employees, took over the Hotel’s business office and commanded employees to change computer passwords to prevent (Bachelor) from having access to Hotel bank accounts,” Bachelor’s attorneys wrote in a June 17 court filing.

The Schneider Co., in a June 23 filing, said Bachelor and officials from Schulte “wrongfully invaded” the Embassy Suites that day and “engaged in intimidating, high pressure tactics…to coerce” Schneider Co. employees to signing on as Schulte employees.

Bachelor also blames the Schneider Co. for running up the Embassy Suites’ expenses, saying in an affidavit that the hotel had $10.2 million in costs during its first ten months of the year, exceeding its full-year lender-project expenses by $1.8 million.

According to an analysis by U.S. Bank, which lent the Bachelor-Schneider group $38.4 million for the renovations, the Embassy Suites was on track to generate only $2 million in net operating income for the year ended April 30, compared to U.S. Bank’s original projections of $4.5 million.

The bank’s analysis, filed in the court record, uses actual figures from the first 10 months of the hotel’s operation to project its performance for the full year.

The U.S. Bank analysis says hotel portion of the project was actually on track to generate more revenue in its first 12 months -- $14.2 million – than the originally projected $12.9 million.

In the interview, Bachelor said he has no problem with the hotel’s sales. But he claims excessive expenses put the project at risk of not yielding sufficient income to keep up with debt payments, a metric known as “debt service coverage ratio.”

"The sales were tremendous," Bachelor said, "But the profits were not there. And so we talked to them to try get an understanding of why the profits were not there. There was no cooperation." 

Bachelor also accuses the Schneider Co. of “diverting” business opportunities from the Embassy Suites to the Schneider Co.’s wholly owned hotels like the Galt House and Crowne Plaza.

Jerome Hutchinson, founder of the International Career and Business Alliance, said in an affidavit filed by Bachelor that the Embassy Suites’ director of sales, a Schneider Co. employee, told him the hotel was “already booked up” for the 2017 Kentucky Derby weekend.

Hutchinson wanted to book a 50-room block for his group, a “global business network” for black professionals. Bachelor claims the Embassy Suites should have been able to accommodate the request.

Hutchinson then received a proposal from the Schneider Co.’s Crowne Plaza Hotel for a 50-room, Derby 2017 booking at $629 per night, according to his affidavit. With a three-night minimum stay, that amounts to $94,350 in potential revenue for the Crowne Plaza, Bachelor said.

Bachelor also said he suspects the Schneider Co. may have violated a number of other contractual terms, including:

  • Charging the Embassy Suites for the salaries of employees with “other company duties” such as “work on behalf” of the Galt House and Crowne Plaza.
  • Giving free Embassy Suites rooms to Schneider Co. employees and friends with no business purpose
  • Trading Embassy Suites rooms for meals at local restaurants for Schneider Co. employees “or affiliates”
  • Charging 2015 and 2016 Kentucky Derby and Oaks tickets to the Embassy Suites “without any legitimate business purpose.”

Bachelor presents no evidence for these claims in the court filings, but he said the Schneider Co. thwarted his attempts to investigate.

Copyright 2016 WDRB News. All rights reserved.

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