The owners of a downtown Cary boutique hotel have filed for bankruptcy to save their business.
A lengthy road construction project in front of the Mayton Inn created a financial pothole for owners Deanna and Colin Crossman, who filed for Chapter 11 bankruptcy Sept. 20.
The $14.5 million boutique hotel, which opened in 2016, is a public-private partnership with the town of Cary. The hotel on Academy Street is part of a revitalization effort to bring more activities downtown.
Cary applied for loans worth $2.4 million on behalf of the Crossmans to build the hotel, including one for $1.4 million from the U.S. Department of Housing and Urban Development. This loan was awarded on the condition that the project creates 40 jobs for people from low- to moderate-income families.
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Deanna Crossman said they received approval Thursday to keep the hotel operating during the reorganization of Memento Mori, the parent company for their businesses. The case is in U.S. Bankruptcy Court in Raleigh.
Chapter 11 lets businesses continue operating while paying creditors over time. Crossman said they plan to pay off all of Memento Mori’s debts, including those to non-secured creditors. The finances of the Mayton Inn will be overseen by a federal bankruptcy judge until the debts are settled. They owe about $17.2 million in secured debts and $3.6 million unsecured debts. They list assets worth $24.2 million., according to court documents.
They owe taxes of $175,747 to the Internal Revenue Service, $159,656 to the N.C. Department of Revenue and $82,153 in 2018 property taxes to Wake County.
They’ve had to set up new bank accounts and present a budget to the judge. Their next court date is Nov. 5 in Raleigh. They’ll present their payback plan in December.
Court documents show Cary is a secured creditor with two deeds of trust on the property, giving it priority in the debt settlement.
Cary spokeswoman Susan Moran was unable to provide information about the status of these loans between Cary and Crossmans. Bankruptcy rules prohibit creditors from making statements that can be seen as applying pressure — directly or indirectly — to pay up.
The Crossmans, who also filed bankruptcy in conjunction with the business are represented by Jason Hendren of Hendren, Redwine & Malone, PLLC.
Crossman said the 33-room hotel is in no danger of closing. They just needed a timeout to get the hotel’s finances reordered.
“Our attorney said this was a classic case for a reorganization,” she said. “We’re not closed. My take-home message is ‘We’re not closing.’ Business is great. It is a restructuring.”
A 2014 Notre Dame Law Review article cited U.S bankruptcy expert Ed Flynn, who said only 10 percent to 12 percent of Chapter 11 reorganizations are successful.
The Mayton Inn opened with much fanfare in 2016 despite the town’s having started improvements on Academy Street in front of the hotel.
Crossman thought the construction would be completed in time for the hotel’s Valentine Weekend opening. But it wasn’t. The project was not completed until eight months later in October.
Their financial difficulties can be traced back to a slow start during the first year of operation, she said. They did not anticipate the lengthy delay in a road construction project, which kept them from booking the number of weddings and corporate events they had planned, she said.
“All the big stuff — weddings, corporate parties — books six to 18 months out,” she said. “We had brides saying they didn’t want to book because they didn’t know when the road was going to be finished. All that really slowed down our ramp up.”
She said the construction work made it difficult for people to get in and out of the hotel. During that eight months, they burned through their cash reserves more quickly than they had planned, she said.
The Crossmans also own the King’s Daughters Inn in Durham, their first foray into the hospitality business. They bought the 17-room building and turned it into a boutique inn about 10 years ago. They put it up for sale in August. They also recently purchased a 60-room full-service hotel outside Las Vegas.