LuxUrban Hotels: 37-Day Free Fall from Chapter 11 to Chapter 7

LuxUrban Hotels Inc. filed for bankruptcy in 2025, a "free fall" case that saw a publicly traded hotel operator move in 37 days from Chapter 11 petition to Chapter 7 liquidation. What began as a pandemic-era startup that described itself as the "WeWork for hotels" ended with shuttered properties across four cities, guests arriving to locked doors with prepaid reservations in hand, and workers going weeks without paychecks while the Department of Justice moved for emergency intervention.

The company's September 2025 bankruptcy filing showed a business with operational disruptions. Hotels closed without notice. Bookings continued online at properties that weren't accepting guests. The U.S. Trustee characterized the situation as "untenable, and dangerous", citing gross negligence that left customers stranded and employees unpaid. The filing also involved approximately $120 million in disputed tax liabilities, five weeks of unpaid union wages, and $57,000 in misappropriated 401(k) contributions.

The final accounting revealed $123.6 million in claims from 412 creditors—exceeding the company's initial disclosure of $10 million to $50 million in liabilities. The Chapter 7 trustee stated that no property appears available to pay creditors.

Company Background and the Master Lease Model

LuxUrban Hotels emerged from the pandemic as an attempt to capitalize on distressed hotel assets. Founder Brian Ferdinand had originally launched the company as CorpHousing Group, a short-term rental platform. When COVID-19 devastated the hospitality industry, Ferdinand pivoted to signing master lease deals for distressed hotels, positioning the company as an operator without the capital requirements of outright ownership.

The business model attracted investor interest. Ferdinand led the company to a $13.5 million IPO in 2022, and at its peak, LuxUrban controlled more than 1,000 rooms across at least four cities—New York, Miami, Los Angeles, and New Orleans. Industry observers described the approach as a "WeWork for hotels." Like WeWork, LuxUrban pursued rapid growth through lease obligations rather than property ownership, relying on operating revenue to cover fixed rental payments to landlords.

Leadership and governance. Ferdinand served as CEO, largest shareholder, and chairman for most of the company's existence. The SEC had previously brought fraud charges against Ferdinand regarding Liquid Holdings, a case settled in 2020. This regulatory history predated LuxUrban's later problems.

Portfolio contraction. By the time of the bankruptcy filing, LuxUrban's portfolio had shrunk. The company controlled only four remaining hotels in New York City—The Tuscany, Hotel 27, The Herald, and one other property. At Hotel 57 on the Upper East Side, LuxUrban agreed to vacate the property in exchange for being released from $14 million in unpaid rent and union benefit funds. Apple Hospitality REIT had sued the company for allegedly squatting at the property, where it owed $1.8 million in rent and had failed to pay unionized employees.

The Short Seller Report and Securities Fraud Allegations

A key event occurred on January 17, 2024, when Bleecker Street Research published a short seller report titled "The Bed Sheets Should Be Made Out Of Red Flags." The report alleged that the company had never actually signed a highly publicized master lease agreement with the Royalton Hotel in New York—a deal LuxUrban had announced in November 2023 as a 25-year commitment.

According to the short seller report, the owner of the Royalton confirmed that LuxUrban had never signed a lease nor provided the required Letter of Credit. LuxUrban's stock fell $0.58 (12%) on January 17 and an additional $0.42 (10%) the following day, a combined 22% decline.

Class action lawsuit. The revelations triggered a securities fraud class action lawsuit covering the period from November 8, 2023 through February 2, 2024. The lawsuit alleged that LuxUrban had been sued by landlords at four properties for unpaid rent during a six-month period without disclosing these material facts to investors. A federal judge ruled the lawsuit could proceed, finding that former co-CEOs Brian Ferdinand and Shanoop Kothari had made "apparently false statements" promoting the growth of the portfolio, citing lease deals told to investors that were never actually completed.

The short seller report and subsequent litigation focused on whether announced leases had been executed and how those statements were presented to investors.

Mounting Regulatory and Financial Troubles

Even as the securities fraud litigation proceeded, LuxUrban faced regulatory problems and deteriorating financial performance.

Municipal violations. New York City fined LuxUrban $1.2 million for illegally operating dozens of apartments as short-term rentals in violation of local laws. When the company attempted to pay the fine, the check bounced, prompting the city to sue. LuxUrban stopped responding to collection attempts, adding municipal litigation to its growing list of legal troubles.

Nasdaq deficiency. In August 2024, LuxUrban received notice from Nasdaq indicating non-compliance with listing requirements. The company had failed to timely file its Form 10-Q for the period ending June 30, 2024. Separately, Nasdaq had notified the company in June 2024 that its closing market value had fallen below the $35 million minimum, granting LuxUrban 180 days—until December 26, 2024—to rectify the deficiency.

Financial deterioration. The company's financial results showed significant declines. Third quarter 2024 showed net rental revenue of $13.1 million, down from $31.2 million in the same period of 2023—a 58% year-over-year decline. LuxUrban reported a gross loss of $16.8 million in Q3 2024 compared to a gross profit of $7.8 million in Q3 2023. Operating expenses totaled $12.1 million, including a $9.7 million litigation reserve. The quarterly net loss reached $30.7 million, compared to net income of $4.9 million in the prior year period.

The second quarter of 2024 had similar results. The company reported a net loss of $26.8 million on net rental revenue of $18.2 million, down from $31.9 million in Q2 2023. The gross loss was $22.2 million compared to a gross profit of $10.2 million in the prior year. The company's trailing twelve-month gross profit margin stood at negative 48.43%.

Bankruptcy Filing and Early Case Events

When LuxUrban filed its Voluntary Petition on September 14, 2025, the filing included no first-day motions and no financing commitments.

Abrupt Hotel Closures.

In the days before the bankruptcy filing, three Manhattan hotels operated by LuxUrban—The Tuscany Hotel, Hotel 27, and The Herald—abruptly closed without notice to staff or guests. Workers stopped receiving paychecks starting the Monday before the filing. The Hotel Trades Council confirmed that the properties "disappeared overnight," leaving unionized employees suddenly jobless and without any indication of what had happened.

One Argentine family arrived in New York with a prepaid reservation worth more than $1,400 for five nights at Hotel 27, only to find the property shuttered and no staff available to assist them. The FDNY conducted inspections and issued multiple violations for operating without required staffing.

The hotels remained bookable online even after they stopped accepting guests. Rooms at The Tuscany could be reserved for roughly $800 per night on booking platforms, despite the property being closed. Travelers continued to make reservations and arrive expecting to check in, only to be turned away. The U.S. Trustee characterized these continued bookings as creating a "state of chaos for the public and LuxUrban's creditors."

The geographic scope extended beyond New York. Guests were stranded in Miami, Los Angeles, and New Orleans as properties closed without warning, forcing travelers to find alternative accommodations at higher prices with no advance notice.

Filing Without Preparation.

The company filed no first-day motions—the standard requests that typically address employee wages, vendor payments, utility services, and other operational necessities. The absence of these motions meant that workers, vendors, and other stakeholders had no immediate protections or assurances of payment.

Critically, LuxUrban sought no debtor-in-possession financing. In most chapter 11 cases, DIP financing provides liquidity to maintain operations while developing a reorganization plan.

The company continued accepting hotel bookings after the bankruptcy filing while properties were not operating.

U.S. Trustee Intervention

On October 9, 2025, the U.S. Trustee filed an emergency motion to appoint a Chapter 11 Trustee under 11 U.S.C. § 1104, alleging "gross negligence" in the management of the bankruptcy estate. The Trustee Appointment Motion described the bankruptcy as a "free fall," as stated by U.S. Trustee trial attorney Andrea Schwartz.

The motion outlined alleged misconduct:

The U.S. Trustee's motion argued that LuxUrban's actions demonstrated "fraud, dishonesty, incompetence, or gross mismanagement"—the statutory bases for appointment of a trustee under § 1104. The Department of Justice stated that "a hotel operator that leaves customers stranded" while workers remain unpaid is "untenable, and dangerous," and that an independent fiduciary was necessary to prevent more "chaos."

The motion cited approximately $120 million in unpaid sales taxes. The wage and 401(k) allegations involved unpaid wages and withheld employee contributions.

Chapter 7 Conversion

On October 21, 2025—37 days after the initial petition—management consented to converting the Chapter 11 case to a Chapter 7 liquidation. The Conversion Order reflected the company's statement that neither reorganization nor consensual cash collateral usage "have been achieved or appear achievable on reasonable terms at this time."

As one bankruptcy attorney noted to Bisnow, "It is rare for something to happen that fast." The 37-day timeline from petition to Chapter 7 conversion reflects the case timeline described in public reporting.

Kenneth Silverman was appointed as Chapter 7 trustee to oversee the liquidation. His initial assessment was grim: "No property appears to be available to pay creditors."

Claims Analysis.

The claims process showed liabilities exceeding the $10 million to $50 million disclosed in the initial bankruptcy filing.

The largest single claim came from the New York State Department of Taxation and Finance, which filed an amended claim on October 8, 2025 for $118.6 million in unpaid taxes and penalties.

LuxUrban disputed the tax claim as "implausible" and mathematically impossible. The company stated that since 2020, it had generated only $158 million in total net rental revenue across all states—a figure that would make a $118.6 million tax liability for a single state logically impossible. LuxUrban anticipated the claim could be reduced to $5 million to $10 million after the appeal process.

A meeting of creditors was scheduled for December 2, 2025.

Union and Employee Impact

The Hotel & Gaming Trades Council represented workers in the bankruptcy proceedings. The union submitted documentation alleging the company owed at least $57,000 in retirement fund contributions that had been withheld from employee paychecks but never remitted to plan administrators.

Beyond the retirement fund issues, unionized workers had gone at least five weeks without receiving paychecks before the bankruptcy filing. The wage cutoff started the Monday before the filing.

Workers faced a particular hardship in that they remained officially employed by LuxUrban, making them ineligible for unemployment benefits despite receiving no income. CBS News reported that employees were unable to collect unemployment while they tried to navigate the sudden loss of their jobs, leaving them in financial limbo with no clear path to assistance.

Creditor Actions and Relief from Stay

Multiple creditors moved immediately to exit the bankruptcy case through relief from stay motions.

In typical chapter 11 cases, creditors often work with debtors to develop consensual restructuring solutions. LuxUrban's creditors sought to recover collateral or terminate relationships through the stay relief process.

Throughout the year preceding bankruptcy, the company had lost control of multiple properties as landlords sued for unpaid rent and terminated master lease agreements. The bankruptcy filing did not prevent those creditors from pursuing stay relief.

Key Timeline

Issues Highlighted in Public Reporting

Public reporting on LuxUrban's bankruptcy emphasized several issues relevant to industry participants, investors, and restructuring professionals.

Master lease model. LuxUrban's "WeWork for hotels" approach relied on long-term lease obligations without owning the underlying real estate. As landlords terminated master leases for unpaid rent, the company lost control of multiple properties in the months preceding bankruptcy.

Lease execution disputes. The Bleecker Street short seller report centered on whether the announced Royalton Hotel lease had been signed. The securities fraud litigation that followed focused on lease disclosures and investor communications.

Chapter 11 preparation. The company filed no first-day motions and sought no DIP financing, leaving operations without the standard bankruptcy relief typically requested at filing.

U.S. Trustee intervention. The Department of Justice sought appointment of a Chapter 11 trustee, citing "gross negligence" and a "free fall" bankruptcy.

Customer impact. Guests with prepaid reservations arrived at closed properties, and bookings continued while hotels were not operating.

Frequently Asked Questions

Why did LuxUrban file for bankruptcy?

Mounting lawsuits from investors, vendors, landlords, and unions combined with over $120 million in disputed tax liabilities, unpaid rent obligations, and a master lease business model that generated operating losses. The company had lost multiple hotel properties to landlord disputes in the months preceding filing and faced dozens of lawsuits when it entered bankruptcy.

What happened to hotel guests?

Guests with prepaid reservations arrived at closed properties and were turned away without warning or assistance. Bookings continued to be accepted online even after hotels stopped operating, stranding travelers in New York, Miami, Los Angeles, and New Orleans who were forced to find alternative accommodations at higher prices.

Why did the DOJ intervene?

The U.S. Trustee described the bankruptcy as a "free fall" with "gross negligence," moving for appointment of a Chapter 11 trustee. The motion cited approximately $120 million in unpaid taxes, five weeks of unpaid wages to unionized workers, $57,000 in misappropriated 401(k) contributions, and continued acceptance of hotel bookings at properties that were not operating.

How quickly did the case convert to Chapter 7?

Only 37 days elapsed from the September 14, 2025 petition to the October 21, 2025 conversion order. One bankruptcy attorney noted it is rare for something to happen that fast.

How much does LuxUrban owe?

Claims totaled $123.6 million from 412 creditors. The largest claim—$118.6 million—came from the New York State Department of Taxation and Finance, though LuxUrban disputes this amount as mathematically impossible given its total revenues.

Did LuxUrban file any first-day motions?

No. The company filed no first-day motions and sought no debtor-in-possession financing. This left workers, vendors, and other stakeholders without customary bankruptcy protections.

What was the short seller report about?

Bleecker Street Research published a report in January 2024 alleging that LuxUrban never actually signed the Royalton Hotel lease it had announced in November 2023. The Royalton owner confirmed no lease was signed and no Letter of Credit was provided. The report triggered a 22% stock decline over two days and securities fraud lawsuits that were allowed to proceed.

Will creditors recover anything?

The Chapter 7 trustee Kenneth Silverman stated that no property appears to be available to pay creditors. Secured claims were about $1.5 million against a disputed $118.6 million state tax claim.

What happened to LuxUrban's workers?

Unionized hotel workers represented by the Hotel & Gaming Trades Council went five or more weeks without pay prior to the bankruptcy filing. The company also allegedly withheld $57,000 in 401(k) contributions that were never remitted to plan administrators. Workers were unable to collect unemployment benefits because they remained technically employed, despite receiving no income.

What was LuxUrban's business model?

LuxUrban signed master leases on distressed hotels during the pandemic, operating them under its brand without owning the underlying real estate. Industry observers described this approach as a "WeWork for hotels"—an asset-light strategy that relied on operating revenue to cover fixed lease obligations.

Who is the claims agent for LuxUrban Hotels?

Omni Agent Solutions serves as the claims and noticing agent. The firm maintains the official claims register and distributes case notifications to creditors and parties in interest.

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