626 B.R. 860
Bankr. M.D. Fla.2021Background:
- Debtor ENKOGS1, LLC owns and operates a 79‑room Econo Lodge in Fulton, Texas and filed a Chapter 11 Subchapter V petition on January 22, 2021.
- Creditor State Bank of Texas moved for a determination that the Debtor is a “single asset real estate” (SARE) debtor, which would render it ineligible for Subchapter V relief.
- Subchapter V excludes debtors that own a SARE as defined in 11 U.S.C. §§ 101(51B), (51D); courts apply a three‑prong SARE test (single property/project; generates substantially all debtor income; no substantial business other than operating the real estate).
- The Hotel employs ~15 people and provides room cleaning, laundry, internet/phone, parking, business services, complimentary breakfast, pool and fitness facilities, and performs administrative functions (budgeting, maintenance, training, quality control).
- The Court found the Hotel’s daily operations and amenities constitute substantial business activity beyond mere real‑estate operation and management.
- Ruling: Creditor’s motion denied; Debtor’s case is not a SARE case and Debtor is eligible for Subchapter V relief.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Debtor’s hotel is a “single asset real estate” debtor under §101(51B) making it ineligible for Subchapter V | Hotel is a single property generating substantially all income and Debtor conducts no substantial business beyond operating the property | Hotel operations (staffing, cleaning, amenities, breakfast, business services, admin) are substantial and not merely incidental to renting rooms | Denied — Court held hotels rarely are SARE; this hotel conducts substantial business beyond real‑estate operation and is eligible for Subchapter V |
Key Cases Cited
- In re CBJ Dev., Inc., 202 B.R. 467 (9th Cir. B.A.P. 1996) (hotels provide services distinguishing them from single asset real estate)
- In re Scotia Pac. Co., 508 F.3d 214 (5th Cir. 2007) (framework for assessing SARE and business activity)
- In re Iowa Hotel Invs., LLC, 464 B.R. 848 (Bankr. N.D. Iowa 2011) (articulating three‑prong SARE test)
- In re Whispering Pines Est., Inc., 341 B.R. 134 (Bankr. D.N.H. 2006) (hotel operations held not to be SARE)