How The Collapse Of Ashford Trust Made The Industry Nervous

The financial backbone of firms like Guardian Asset Management, Northsight Management, and Mortgage Contracting Solutions are hedge funds and Real Estate Investment Trusts (REIT). Today, one of them went belly up. The backstory of Ashford Hospitality Trust is as interwoven into the rehab and restoration business as the fraud by the National Association of Mortgage Field Services (NAMFS) is to the Mortgage Field Services Industry today. The story of AHT, recently, has heated up as related by the Wall Street Journal,

Ashford Hospitality Trust, a publicly traded hotel owner, committed a “fraudulent scheme” by moving money from hotels to the parent company in the second week of March, attorneys for Brookfield Asset Management Inc. wrote in a letter sent to Mr. Bennett and reviewed by The Wall Street Journal.

Dallas based AHT recently snapped up $59 Million — TEN TIMES the amount distributed to the top 100 publicly traded companies — including its subsidiaries like Braemar Hotels & Resorts Inc., which received nearly $16 million in PPP funds. These funds were destined for US small businesses under the Payroll Protection Program (PPP). And as if that was not egregious enough, AHT also elected to parse out $10 Million in shareholder dividends and bonuses while simultaneously furloughing NINETY SEVEN percent of their workforce. AHT and some of its subsidiaries received approximately $30 million — more than 10 times the typical amount and the largest amount received among the more than 100 public companies the WSJ reviewed. At the same time, Bennett and his father, Archie, received $2 million in dividends. Adding salt to the wounds, AHT has stopped payments on all of its debt.

The issue that presents is not so much the interconnected incest in our Industry. What presents is the ability of our Industry to stay afloat. For example, the vast majority of Prime Vendors in our Industry are unable to access either PPP or the Small Business Administration’s (SBA) Economic Injury Disaster Loans (EIDL). PPP requires that you meet both a 500 employee or under level and be a legally defined small business. Let’s first address the employee count,

Ownership, or the power to control, 50% or more of a business’s voting stock constitutes a showing of ownership and accordingly, triggers affiliation between the business and its majority owner. The SBA’s internal compliance manual provides the following example:

Company A is the majority owner of Companies B, C and D (54.5%, 81%, and 60% respectively). Company A has the power to control Companies B, C and D. The companies (A, B, C, and D) are all affiliated.

In the foregoing example, each company will be ineligible for PPP on the basis of number of employees if the aggregate number of employees among the four entities is greater than 500. Note that affiliation will extend to businesses deemed to be controlled by the same owner, even if the control is due to position/negative controls (which we explain in further detail below). Accordingly, in the foregoing example, if Company A held less than 50% of the voting stock of Company B, but nonetheless has significant positive/negative controls over governance activity, then Company B’s employees would still be aggregated for purposes of the calculation.

Chronos Solutions, Altisource, and Guardian Asset Management are all off the table for PPP as their parent company is New Residential Investment Corporation — As for MCS, American Securities for MCS and today they have a debt load of over $425 Million. How about smaller firms such as Northsight Management? Well, Hudson Advisors, vis-a-vis John Graken’s LoneStar acquisition funds, takes them out of the running. The SBA size standards would render moot most of the aforementioned firms as well.

We know, for a fact that many, if not all of the aforementioned firms have laid off people. And we know that the remote settings have been a slow burn catastrophe. Adding fuel to the fire is the simple and salient fact that reopening the offices will be a nightmare with social distancing and other protocols like ongoing temperature testing.

Even if this miracle of administrative ballet could be accomplished by NAMFS members whose IT systems collapse like the rising and falling of the tides — see generally the collapse of the MCS systems for over a week — the reality is many of the firms in their financial networks have closed the doors on debt payments. In the best of times, this would be catastrophic. I digress.

Here is how it will be pitched. We are going to see forbearance crest out close to 10 million. Probably 3 million or so of those will roll into foreclosure — and that is just on the residential side! The commercial side will be far more of a black hole. And remember, this volume is going to be a straight line up on a graph whereas the 2008 financial crisis was a bell shaped curve. Moreover, though, the army of foreclosure workers whom were recruited because everyone needed a job then will be absent in this roll out of Wall Street’s gangbang of the American taxpayer. For the first time in history, independent contractors are eligible for unemployment. In addition, the US Government is adding an additional $600 to each check. Ditto for W2 employees whom were furloughed. During the 2008 financial crisis, people needed work because there was no other option. And predatory NAMFS members jumped on them like a pool of sexual predators just released from prison and dropped off at the amusement park.

Here is the data as of 03 April 2020 on all of the Wall Street Gangbanging