In April 2017, Bridgeton Holdings launched an offering for the repositioning of a 56,000 square foot, 80-key, independent, boutique, extended-stay hotel in Baton Rouge, Louisiana. Bridgeton sourced the transaction through a direct relationship with the seller. The business plan called for an extensive renovation, leading to an increase in the average daily rate (ADR) and occupancy to bring the asset in line with a competitive set of hotel properties. Formerly known as Chase Suites, the hotel was to be rebranded under Bridgeton’s own brand, Cloverleaf Suites.
Interior Renovations Completed
Bridgeton reported that interior renovations were completed, although it took longer than expected. Additionally, some unexpected infrastructural and external condition challenges were being addressed. The renovation delay hindered the property’s ability to take advantage of a few market spikes throughout the period. Shortly after, new supply and competition entered the market and the hotel was behind its competitive set in occupancy, ADR, and Revenue per Available Room (RevPar).
Unsuccessful Capital Call
Poor market conditions and lack of capital for ongoing operations and exterior renovations continued to be significant hurdles for the hotel, prompting Bridgeton to initiate a capital call for $400,000. The capital call was left unfunded and Bridgeton was forced to fund the capital shortfall with a member loan. Given that alternatives such as the conversion of the hotel into apartments or rebranding was out of consideration – as these required significant additional capital and a paydown of debt – Bridgeton began the brokerage process to sell the asset. Initial pricing indications suggested that the estimated sale proceeds would not be enough to cover the outstanding debt.
Bridgeton signed a Purchase and Sale Agreement (PSA) in Q3 2019 for a sale price significantly below the asset’s outstanding liabilities. The transaction officially closed in Q4 2019, resulting in a total loss of capital to the sole investor. The sponsor remained liable for the remaining outstanding liabilities while the investor’s loss was limited to their initial capital investment.
Bridgeton was not able to execute the business plan or turnaround/restructure the investment. The performance of the investment quickly deteriorated due to a soft market that resulted in consistently low occupancy levels and low room rates. Bridgeton completed the sale of Chase Suites Baton Rouge at a loss in November 2019 and the investor lost 100% of their capital invested.
*Given the inherent limitation of the IRR calculation (which requires at least one positive cash flow), the IRR cannot be calculated for this investment. As a result, the 100% loss shown simply represents the absolute loss of capital incurred by the investor.
This report contains explanations of a series of events associated with Bridgeton Holdings’ Chase Suites Baton Rouge offering that resulted in a 100% loss of original equity to investors (including those from the CrowdStreet Marketplace). Certain aspects of the report such as dates of major events and the final outcome are easily verifiable while others, particularly underlying reasons behind the sponsor’s failure to execute its business plan, are not.
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