NYC Sues LuxUrban For Bouncing Check, Failing To Pay $1.2M Fine

Embattled hotel company LuxUrban Hotels reneged on a million-dollar settlement with New York City’s government, according to a new lawsuit filed by the Mayor's Office of Special Enforcement.

The Miami-based hotel chain agreed last year to pay $1.2M in fines after the city accused it of operating dozens of NYC apartments as illegal short-term rental units. It was supposed to pay the sum in installments, but its first check bounced and it never made another payment, the city claims.

The company operated the apartments when it was named CorpHousing Group, but it rebranded in 2022 as it pivoted to become a hotel operator. When it agreed to pay the fine, it did so on the condition that the entities named in the legal settlement were CorpHousing Group and another subsidiary, not LuxUrban Hotels.

The city is going after LuxUrban in a new suit filed Monday in New York County Supreme Court, claiming the business used the rebrand to try to avoid paying the fine, Bisnow can first report. 

“We will not allow bad actors to operate in our city, especially those who attempt to subvert the law and avoid accountability by hiding their identity and refusing to pay their settlements,” New York City Mayor Eric Adams said in a statement. “Today, we are sending a clear message that New York City must be a safe and affordable place to raise a family, and this kind of lawlessness will not be tolerated.”

CorpHousing Group was founded in 2017 by Brian Ferdinand and operated short-term rentals in cities across the country by leasing units from apartment building owners and renting them out to travelers, frequently on its SoBeNY booking platform.

New York law prevents entire residential units from being rented out for less than 30 days at a time to ensure the city's housing stock is used for housing. But CorpHousing Group illegally operated at least 67 apartments between 2019 and 2022, earning the company $3.9M, data obtained by the city’s lawyers showed. 

LuxUrban agreed to make the payment last spring after the city sued CorpHousing Group and SoBeNY for operating the rentals. The company disclosed the agreement in a Securities and Exchange Commission filing on March 4, 2024, telling investors it had “voluntarily initiated contact” with the city to alert it of its past short-term rental activity.

It sent a $225K check to the city on April 18 last year for the first of seven scheduled payments, but the check “bounced for insufficient funds on April 26,” the city wrote in its lawsuit Monday. Neither LuxUrban nor its attorneys have responded to any of the city’s follow-ups to date, according to the suit. 

The city's attorneys claim they agreed not to name LuxUrban in the settlement to protect the company's new corporate branding. But now that LuxUrban has refused to cooperate with debt collection attempts, the attorneys say the hotel company is trying to use its 2022 rebrand to dodge accountability. 

Although LuxUrban rebranded from CorpHousing Group, its leadership, address, business model and Nasdaq trading number are all the same.

“The city accepted an offer of $1.2 million to address past illegal short-term rentals and gave the company that is now LuxUrban the chance to move forward as a legal hotel room provider in NYC,” Christian Klossner, executive director of the Mayor’s Office of Special Enforcement, said in a statement. “By this action, the city serves notice that it will not allow LuxUrban to shirk its agreed upon responsibility, and that it must pay its debt to the taxpayers of New York City.”

Ferdinand and LuxUrban didn't immediately respond to Bisnow's request for comment. 

CorpHousing Group went public in September 2022, raising $13M and listing on the Nasdaq Stock Market. It rebranded to LuxUrban two months later, telling investors its focus had shifted from short-term rentals to hotels.

Ferdinand previously told Bisnow that it had wound down its short-term rental business in mid-2021 in favor of its hotel operations. But by late 2022, it was still getting sued by owners of those short-term rentals over nonpayment of rent. 

LuxUrban’s odyssey through the hotel industry hasn't been any smoother than its short-term rental business. It has been sued by several property owners from whom it master-leased hotels, accusing it of never paying millions in rent. It was also the subject of a short seller investigation and subsequent class-action complaints and has gone through multiple leadership shake-ups.

The short seller report scrutinized LuxUrban’s financial reporting. Bisnow also uncovered two instances in which LuxUrban claimed it had signed leases to take over hotels, reporting the properties as “under lease” in SEC filings, but the deals hadn't been finalized, and it never took possession of the properties.

Ferdinand stepped down from corporate leadership shortly after LuxUrban reached its settlement with the city last year. He was replaced as CEO by then-Chief Financial Officer Shanoop Kothari, who was ousted as CEO in June and replaced by business veteran Robert Arigo.

But in December, several LuxUrban board members resigned and Ferdinand was reinstalled as interim CEO, while Arigo was named chief operating officer, according to SEC filings. Arigo stepped down from his role as LuxUrban COO last week, according to an SEC filing.

The company, which once operated more than 1,000 hotel rooms across nearly 20 hotels in four cities, is now down to just half a dozen NYC properties.

Most recently, it agreed to vacate Hotel 57 on the Upper East Side in exchange for being let off the hook for $14M in unpaid rent and union benefit funds by the hotel's owner, Apple Hospitality REIT. In February, LuxUrban was also ejected from the 118-key boutique Midtown hotel The Blakely for nonpayment of rent.