THAD J. COLLINS, Chief Judge.
These matters came before the Court in a hearing on the Motion of creditor U.S. Bank National Association (U.S. Bank) to Designate these Proceedings as Single Asset Real Estate Cases. Eric E. Walker (admitted pro hac vice) and Abbe Stensland represented U.S. Bank. Ronald C. Martin represented Debtors Iowa Hotel Investors, LLC I & II. After hearing evidence and arguments of the parties, the Court took the matter under advisement. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A).
Debtors own and operate Country Inn and Suites hotels in Cedar Falls, Iowa and Waterloo, Iowa. In their voluntary Chapter 11 Petition, Debtors each indicated that the "Nature of Business" was "Other" and not "Single Asset Real Estate." The Bank moved for an Order designating both Debtors' bankruptcy cases as single asset real estate cases in order to make applicable the expedited time and payment requirements of § 362(d)(3). Debtors resist and argue the multi-faceted nature of their hotel operations prevent them from being classified as "single asset real estate" cases under the definition in § 101(51B). The Court agrees with Debtors and declines to designate these as single asset real estate cases.
Debtor's Cedar Falls Country Inn and Suites has 3 full-time employees and 23 part-time employees. The hotel has 64 rooms. It provides a variety of services to its customers. The services include room cleaning, complimentary breakfast, a whirlpool and swimming pool, a fitness center, laundry services, dry cleaning pickup and delivery, and internet and phone service. The hotel includes a business center. It has a separate meeting room that hotel customers or members of the public may rent for functions, meetings, and events. Debtor also performs routine business activities on site including budgeting,
Debtors' Waterloo Country Inn and Suites also employs 3 full-time employees, but has a total of thirty to forty employees. The Waterloo Property offers the same amenities as the Cedar Falls Property.
U.S. Bank argues Debtors' hotels should be designated single asset real estate. The Bankruptcy Code defines "single asset real estate" as:
11 U.S.C. § 101(51B) (emphasis added). This classification is relevant because of its effect on the operation of the automatic stay of § 362. In short, if U.S. Bank has secured claims in "single asset real estate", it can obtain relief from the automatic stay to foreclose on the real estate if Debtors fail to either file a plan within a shortened amount of time or make specified monthly payments under 11 U.S.C. § 362(d)(3). That section provides, in relevant part:
11 U.S.C. § 362(d)(3) (emphasis added). "The purpose that § 362(d)(3) serves is, where there is a single asset real estate Chapter 11 case, to impose an expedited time frame for filing a plan." In re Kkemko, Inc., 181 B.R. 47, 49 (Bankr.S.D.Ohio 1995). Thus, in this case, if Debtors' assets were designated as "single asset real estate," Debtors would have either 90 days from the order for relief or 30 days after the court made the single asset determination to file a plan or begin making the
Using the Bankruptcy Code definition, courts have adopted three requirements necessary for characterizing a debtor's case as a "single asset real estate" case:
In re Scotia Pacific Co., LLC, 508 F.3d 214, 220 (5th Cir.2007) (citing and quoting § 101(51B)). "If a debtor fails to meet any prong, it is not a [single asset real estate debtor]." Id.
Here, U.S. Bank argues Debtors' hotels should be classified as single asset real estate because they meet all three requirements. U.S. Bank cites case law in which debtors who owned and operated hotels had successfully filed voluntary single asset real estate cases. Debtors argue that they do not qualify as single asset real estate debtors. Debtors contend they do not meet the third requirement because its hotel is an active business rather than a mere passive income generator.
The Court concludes Debtors' properties do not constitute "single asset real estate." U.S. Bank fails to show— under the third requirement of § 105(51B) and case law—that there is "no substantial business . . . being conducted by a debtor other than the business of operating the real property and activities incidental thereto." Id. The facts demonstrate Debtors' hotel operations constitute something more than "operating the real property and activities incidental thereto." Id. This conclusion is consistent with other cases addressing the issue. In re CBJ Dev., Inc., 202 B.R. 467, 473-74 (9th Cir. BAP 1996) (hotel was "single asset real estate" in part because operating hotel constituted something more than "operating the property"); In re Whispering Pines Estate, Inc., 341 B.R. 134, 136 (Bankr.D.N.H.2006) (same).
In In re CBJ Development, the Ninth Circuit BAP provided extensive analysis of the questions here—whether operating a hotel constitutes "operating the property." CBJ Dev., 202 B.R. at 470-73. The BAP noted that terms "single asset case," or "single asset real estate case" were well-known and predated adoption of the § 101(51B) definition. Id. The terms colloquially referred to "real estate entities attempting to cling to ownership of real property in a depressed market . . . rather than businesses involving manufacturing, sales or services." Id. at 471 (quoting In re Philmont Development Co., 181 B.R. 220, 223 (Bankr.E.D.Pa.1995)). The BAP found that Congress had used the term "single asset real estate" in the § 101(51B) definition as a term that had accumulated a settled meaning under the common law. Id.; see also Kkemko, 181 B.R. at 51 ("The drafters and promulgators of § 101(51B) were working in a bankruptcy context, and we have no doubt that their intention in using the phrase `single asset real estate' grew out of the common usage of that
The BAP then evaluated the common law definition of "single asset real estate" from cases decided before the 1994 Bankruptcy Reform Act which codified the definition. Id. The BAP concluded that those cases "consider hotels on a case by case basis, emphasizing the number of persons employed by the hotel and the services it provides." Id. On the specific facts before it, the BAP said:
Id. at 472.
In Whispering Pines, the Bankruptcy Court for the District of New Hampshire adopted the 9th Circuit BAP's analysis. Whispering Pines, 341 B.R. at 135 (discussing and applying In re CBJ Development). Whispering Pines involved similar facts and a similar conclusion:
Id. at 135 (quoting CBJ Dev., 202 B.R. at 472).
U.S. Bank cited a line of cases in which a debtor that owned and operated a hotel had voluntarily designated the property as single asset real estate. See, e.g., In re Scarlet Hotels, LLC, 392 B.R. 698, 701 (6th Cir. BAP 2008); In re Euro-American Lodging Corp., 357 B.R. 700, 707 (Bankr. S.D.N.Y.2007); In re Equitable Dev. Corp., 196 B.R. 889, 890 (Bankr.S.D.Ala.1996); In re LDN Corp., 191 B.R. 320, 326-27 (Bankr.E.D.Va.1996). These cases stand for the proposition that hotels may "opt in" to the single asset real estate classification. They do not analyze whether a hotel would qualify as "single asset real estate."
The Court acknowledges there are some cases that could support a creditor's attempt to designate the property "single asset real estate." See Scotia, 508 F.3d at 222 (acknowledging split of case law in dicta); see also In re 5877 Poplar, L.P., 268 B.R. 140, 144 (Bankr.W.D.Tenn.2001) (assuming that debtor who owned, operated, and collected rents from a 126-unit Comfort Inn was a single asset debtor). These cases contain little analysis, however, of the relevant factors. The court in In re 5877 Poplar, for example, merely concluded that the case was a single asset case. The debtor was an owner-operator of a 126-unit Comfort Inn hotel. Id. at 144. It simply stated that "this case is a single asset real estate case as contemplated under sections 101(51B) and 362(d)(3) of the Bankruptcy Code" and included the definition for each sections in a separate footnote. Id.
U.S. Bank points out that in CBJ Development, the court noted the hotel contained a separate gift shop, restaurant, or bar on the premises. CBJ Dev., 202 B.R. at 472-73. There is no gift shop, restaurant, or bar in either of the hotels involved here. However, there is a separate conference room that—like a gift shop or restaurant—functions independent from the hotels' core business of providing rooms to sleep. The conference rooms—like the gift shop or restaurant—can be used by guests and non-guests alike. These rooms can be rented out and used for conferences, weddings, or other events that do not depend upon or even relate to guests staying at the hotels.
Moreover, the 9th Circuit BAP in CBJ Development reasoned that the core hotel activities, standing alone, constituted something more than "operating the property." Id. at 472. While the BAP agreed with the bankruptcy court's conclusion that the hotel gift shop, restaurant and bar constituted "substantial other business activity," that was simply a separate and independent reason sufficient to remove the hotel from the definition of "single asset real estate." Id. at 472; see also Whispering Pines, 341 B.R. at 136 ("The CBJ court's primary holding was that the services—excluding the bar, restaurant, gift shop, and bus tours—involved in the operation of the hotel were reason enough to remove the hotel from the definition of `single asset real estate.'"). Thus, even if there was not a separate conference room at each hotel, the services involved in the operation of the hotels could be "reason enough to remove the hotels from the definition of `single asset real estate.'" Whispering Pines, 341 B.R. at 136. The active nature of a hotel business inherently gives the hotel a better chance of reorganizing; there are more business activities and thus more opportunities to cut costs. This stands in opposition to the purpose of the "single asset real estate" classification:
Kkemko, 181 B.R. at 51.
For all these reasons, the Court denies U.S. Bank's request to designate this as single-asset real estate cases.