Hotel Hot Springs Faces Foreclosure Sale

Hotel Hot Springs Faces Foreclosure Sale
Hotel Hot Springs & Spa will be sold to help pay off a $129 million judgment in Garland County. The hotel has been in receivership since October 2018. (Karen E. Segrave)

The 200-room Hotel Hot Springs & Spa will be sold at a foreclosure sale to help pay a $128.9 million judgment its owner received in June.

The sale will be the latest blow to the developer behind the hotel and the Delta Resort & Spa in Desha County. As of Thursday, a date for the foreclosure sale at the Garland County Courthouse had not been set.

Developer Gary R. Gibbs of Niceville, Florida, agreed to the judgment and the foreclosure for his LLC that owned the downtown hotel. The judgment, one of the largest in Arkansas, was not against Gibbs personally since he is in Chapter 7 bankruptcy. Instead, it is against the the hotel owner, GRGCBHS LLC, in which Gibbs has an ownership interest.

Gibbs wanted to make the hotel, which has been in receivership since October 2018, “the leading hotel in Hot Springs and he felt like he was on his way,” said one of his attorneys, Q. Byrum Hurst of Hot Springs.

That was before Gibbs fell into deep financial distress after the New Orleans bank that made the majority of his loans failed two years ago.

In December, creditors took an unusual move and forced Gibbs, who also developed low-income housing projects in Lake Village, McGehee and Warren, into bankruptcy for defaulting on loans totaling $119.4 million.

In his bankruptcy filing, Gibbs listed $171.1 million in debts, making his case one of the largest bankruptcies filed in U.S. Bankruptcy Court in Arkansas. Gibbs reported $1.6 million in assets. The $32 million, 132-room Delta Resort & Spa in Desha County was placed in receivership last year and has been put on the market. The asking price is $15.9 million.

As Gibbs’ bankruptcy moves forward, he also faces scrutiny over his connection to the failure of First NBC Bank in New Orleans, with about $4.74 billion in assets. For years, according to court documents, Gibbs and his business entities were able to get loans and refinancing from the bank. It wasn’t until the Federal Deposit Insurance Corp. was appointed receiver in April 2017, at a cost to the Deposit Insurance Fund of almost $1 billion, that Gibbs’ problems surfaced.

During a proceeding last month, Gibbs was asked about a 2015 financial statement that he signed and that was provided to First NBC Bank. Providing a false financial statement to an FDIC bank in connection with a loan could be a crime.

During Gibbs’ bankruptcy proceeding held on Sept. 13, he said in response to a question from a creditor’s attorney that he didn’t prepare the financial statement, according to a transcript obtained by Arkansas Business. Gibbs said his “in-house accounting people … did all of this.

“I mean I didn’t sit down with them and check everything,” he said. “I depended strictly on their expertise to produce these financial statements.”

Gibbs’ bankruptcy attorney, Kevin Keech of Little Rock, said during the proceeding that Gibbs wouldn’t answer questions relating to any financial statements “that were ever provided to or allegedly provided to First NBC Bank without having an opportunity to review and see them.”

The news website reported last month that federal investigators subpoenaed Gibbs and one of his top company officers for documents related to First NBC Bank’s failure.

The Sept. 7 news story said Gibbs had not been charged with any crimes tied to the loans he received, nor had he been accused of wrongdoing by regulators.

A spokesperson for the FDIC didn’t return a call or an email.

Gibbs couldn’t be reached for comment last week, and Keech was unavailable for comment.

But the transcripts of the bankruptcy proceedings, held on July 12 and Sept. 13, provide more insight into a businessman who recovered from bankruptcies in 1988 and 2005 only to fall into deep financial distress after First NBC Bank failed.

Emerging From Bankruptcy

In 2006, Gibbs and his wife, Shareen, who taught special education for 16 years, completed their Chapter 7 bankruptcy liquidation, which was their second bankruptcy, and Gary Gibbs said he had to start over.

The bankruptcy filing didn’t say what triggered the financial problems. The couple listed $10.3 million in debts and $643,000 in assets, with most of the debts being unsecured. At the time of the bankruptcy filing, Gary Gibbs reported he was unemployed and the couple had $250 in cash.

He said in the recent bankruptcy proceeding that after the 2005 bankruptcy he “had nothing really. Just a little bit of furniture and that’s about it.”

But Gibbs was able to build his development business through the use of tax credits.

“These new market transactions were profitable for us in the form of development fees,” Gibbs said.

He and his wife bought a house in a suburb of Nashville, Tennessee, in 2010 for $1.35 million, and within a few years had it paid off.

Working With the State

In 2011, Gibbs applied to the Arkansas Development Finance Authority for tax credits to build subsidized housing projects in Lake Village, McGehee and Warren.

Gibbs and his adult sons, Joshua Gibbs and Jeremy Gibbs, were going to build 36 family houses in each city and requested tax credits totaling $1.6 million. Each project cost about $5.8 million to develop. Most developers sell their tax credits to a syndicator, and then use the money, along with other funds, to build the project.

But at the end of 2013, Gibbs missed the deadline to have all three projects completed, which meant the tax credits had to be returned.

In the bankruptcy proceeding, Gibbs blamed the contractor for the missed deadline.

“We had to go back and correct that problem and work with ADFA,” Gibbs said.

Eventually, however, new credits were approved in 2014, but the total amount of the tax credits had fallen from $1.6 million to $1.4 million.

Meanwhile, Gibbs’ Delta Resort & Spa was behind on its construction schedule by two years. “It cost me out of pocket a little under $5 million,” Gibbs said of the delay. He said he was able to fund the $5 million by borrowing the money through First NBC.

He said the construction delays also cost him opportunities. “If you got a new market deal, there’s so many people in the business and everybody knows everybody,” he said. “And so when you have a problem word gets out.”

Hotel Hot Springs

Gibbs became interested in the Hot Springs hotel project because he had “a real affinity” for Hot Springs, said Hurst, one of his attorneys.

In October 2015, GRGCBHS LLC, led by Gibbs, bought the Austin Hotel at 305 Malvern from Spa Lodging Inc. for $10.15 million. It was renovated and renamed the Hotel Hot Springs & Spa. Gibbs said he owns 45% of the LLC. The rest of the LLC is owned by trusts in the names of his wife, two adult sons and his grandchildren.

Gibbs “felt like Hot Springs was going to be a huge growth area and that this hotel had great potential,” Hurst said.

But problems for Gibbs soon developed.

Gibbs said that in January 2017, he started to worry about whether First NBC bank was “going to make it. And so we were having to … get funds wherever we could get them to try and maintain our business.”

He said he and his wife sold the Tennessee house that they bought in 2010 for $1.72 million. The proceeds paid for living expenses and covered some debts, according to his bankruptcy filing.

Gibbs said he had paid off the house through profits made through his companies. “We’d close a deal and make a few million dollars, and I’d pay a little bit on [the house] and then another deal, paid a little bit on it,” he said.

Gibbs said that he was nearing agreement on a $56 million deal with another bank when the issues with First NBC Bank began to surface.

He thought that $56 million deal would help him. “We were back in business,” Gibbs said. “We had outlasted the problem. And so then, of course, the next problem showed up.”

The Bank Failure

In April 2017, the Louisiana Office of Financial Institutions shut down First NBC Bank and appointed the Federal Deposit Insurance Corp. as receiver, at a cost to the Deposit Insurance Fund of almost $1 billion

For years, according to court documents, Gibbs and his business entities were able to get loans and refinance loans, which he personally guaranteed, using First NBC Bank, a bank with about $4.74 billion in assets.

Gibbs said in the bankruptcy proceeding that when First NBC bank failed, he became “somewhat toxic.”

At the time of the bank failure, he was the general partner in a 50-unit apartment complex in Memphis and the low-income housing tax credits that funded the project were owned by a division of First NBC Bank.

The FDIC sold those tax credits to a group in California, and the California entities took over the subsidized housing projects in Arkansas and Memphis in 2018.

In October 2017, SBN V FNBC LLC, an affiliate of Summit Investment Management LLC of Denver, an investment company that buys distressed loans, paid the FDIC about $114 million for a pool of about $500 million of First NBC’s loans, according to Gibbs’ bankruptcy documents. Gibbs and his companies’ loans were in that pool of loans.

SBN alleged in Gibbs’ bankruptcy filing that Gibbs mismanaged the Hot Springs and Desha County properties and defaulted on the loans for the properties.

In April 2018, after a number of loans to Gibbs and his companies became delinquent, Gibbs and SBN entered into an agreement that combined 18 existing promissory notes that were owed to First NBC into one unsecured loan for $84.2 million. SBN said in its court filing that Gibbs and his company failed to pay on that loan, which is now in default. An additional $34.9 million in loans went to companies that Gibbs controlled and that he had personally guaranteed. (The judgment covers all the debt that Gibbs’ GRGCBHS guaranteed.)

Hotel, Resort Enter Receivership

In October 2018, the Hotel Hot Springs and the Delta Resort were being operated by a receiver after foreclosure suits were filed against the properties.

Jaimie Moss, an attorney at Wright Lindsey & Jennings who represents SBN V FNBC, quizzed Gibbs during the Sept. 13 bankruptcy proceeding about financial transfers the hotel made to Gibbs’ other entities just before the receiver was appointed. Charles Coleman, also of the Wright Lindsey law firm, also represented SBN.

Gibbs said he didn’t know the specific details on all the transactions, which happened more than a year ago. “I ran a very large company,” Gibbs said. “I’m not trying to avoid this. I’m trying to be truthful and accurate with all these details that you’re asking me about.”

He said he would have to sit down with someone who was more involved in the company. “I was the person that went out and created the business. I wasn’t in the backroom stacking the nickels basically.”

Hurst, Gibbs’ attorney, said that the entities that Gibbs was involved with “didn’t do anything that was improper or illegal or unlawful” in connection with transferring money.

Hurst praised Gibbs’ work. “I really think that Mr. Gibbs is a really creative entrepreneur that knows how to look at investments and turn them into attractions for communities,” Hurst said. “And I’m glad he did what he did for the Hot Springs hotel.”

Hotel Hot Springs & Spa, 305 Malvern Ave.

  Occupancy Rate*
Nov. 2018 29.83%
Dec. 17.32%
Jan. 2019 19.26%
Feb. 45.20%
March 57.92%
April 63.47%
May 58.31%
June 62.17%
July 72.00%
2019 to date 54.09%
*Based on 200 rooms
  Room Revenue Food & Beverage Revenue
Nov. 2018 $195,032 $54,192
Dec. $104,729 $33,731
Jan. 2019 $133,485 $48,184
Feb. $323,671 $83,512
March $486,545 $89,901
April $511,820 $85,995
May $421,575 $123,578
June $437,449 $106,396
July $532,022 $100,404
2019 to date $2,846,567 $637,969

  Total Revenue Net Income
Nov. 2018 $252,956 -$41,013
Dec. $141,191 -$37,770
Jan. 2019 $184,937 -$24,724
Feb. $413,002 $144,468
March $584,072 $244,762
April $606,316 $245,873
May $552,665 $177,462
June $551,403 $187,188
July $640,742 $265,320
2019 to date $3,533,137 $1,251,032
Source: Reports by K Partners Hospitality USA LLC filed in Garland County Circuit Court. K Partners was appointed receiver on Oct. 18, 2018.