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Hotelier’s Push for $126 Million in Small-Business Aid Draws Scrutiny - The New York Times

Hotelier’s Push for $126 Million in Small-Business Aid Draws Scrutiny - The New York Times


Hotelier’s Push for $126 Million in Small-Business Aid Draws Scrutiny - The New York Times

Posted: 01 May 2020 05:15 PM PDT

Monty Bennett's sprawling hospitality company is the biggest known applicant of the government's small-business relief program. The Texas conservative has remained unwilling to return his loans even as public anger builds over large companies getting the funds — a fact now drawing the scrutiny of a key lawmaker.

Hotels and subsidiaries overseen by Mr. Bennett's firm, Ashford Inc., have applied for $126 million in forgivable loans from the Paycheck Protection Program. According to company filings, about $70 million of that has been funded. By comparison, the average loan size in the program's first round was $206,000.

On Friday, Senator Chuck Schumer, the Democratic leader, sent a letter to the Small Business Administration demanding a thorough review of use of the program by Mr. Bennett's companies, saying that he is "deeply concerned that large, publicly traded companies, like Ashford, may be exploiting" it.

"It is imperative that limited taxpayer dollars go to help legitimate small businesses," he said in the letter to Jovita Carranza, the small business administrator.

The $660 billion program, the centerpiece of President Trump's economic rescue package, is intended to help small businesses and their workers stay afloat while quarantines and stay-at-home orders close shops and shutter economic activity.

The low-interest loans are forgivable if companies use most of the money, about 75 percent, to keep staff employed. Ashford has said it expects to only "minimally" meet forgiveness requirements, suggesting it does not plan to use the money to rehire a sufficient share of its staff. The firm did not comment when asked for clarification.

Mr. Bennett's hospitality empire is one of several big companies that qualified for the program thanks to an intentional loophole that came after a lobbying push from hotel and restaurant companies, Ashford among them. Ashford Inc. oversees a tightly interwoven group of subsidiaries and real estate investment trusts that own and help operate 130 hotels ranging from Ritz Carltons to Embassy Suites. Congress allowed individual restaurants and hotels that belong to bigger companies to tap the program.

After it became apparent that large firms were taking a sizable chunk of the finite funds, the Treasury Department clarified that big companies with access to capital markets should give the money back by May 7, or face a government review. Mr. Bennett has made it clear that he plans to keep the money unless the government tells him otherwise.

"No other programs exist to help larger hotel ownership companies survive the crisis and bring their employees back to work," the company said in a statement. "We plan to keep all funds received under the P.P.P."

Ashford added that "any funds for which we are determined to be not qualified will be returned according to the requirements of the program."

Other major recipients are returning loans. AutoNation, the country's largest chain of new-car dealerships, said it was giving back $77 million, which it had applied for through dozens of individual dealerships, and Penske Automotive Group received and returned $66 million.

At least 312 public companies received loans worth at least $1.18 billion.

10 of the Largest Loans

Partially Returned

AutoNation
$77.0 million
$77.0 million
Penske Automotive
Ashford Hospitality
Ruth's Hospitality
Braemar Hotels and Resorts
J. Alexander's
Fiesta Restaurant
Energy Services of America
Ashford Inc.
BBQ Holdings
Ashford Hospitality and Braemar Hotels and Resorts are controlled by Ashford Inc., and have collectively received $68.8 million in small business loans.·Note: Data as of May 1.·Source: Company reports, securities filings and Sentieo.·By David McCabe and Jeanna Smialek

Ashford's companies need the loans because they do not have sufficient access to capital markets to raise funds on its own to weather the crisis, Ashford said in its statement. But unlike many small companies that came into the lockdown in decent financial health, Ashford-tied properties were already highly indebted and its three interlinked companies — Ashford Inc. and the real estate investment trusts it advises, Braemar Hotels and Resorts and Ashford Hospitality Trust — had fast-sinking stock prices before coronavirus ever hit.

Mr. Bennett's companies, whose profits ultimately flow back to him, operate with what experts say is a poor corporate governance structure. The fact that they, and potentially Mr. Bennett, are benefiting from the program is the latest example of how the government's efforts to keep small businesses afloat have been undercut by its own guidelines.

To Mr. Bennett, a conservative who has donated heavily to Republicans, including supporting Mr. Trump's 2016 campaign and directly providing more than $150,000 so far to his re-election bid, the money is his fair share.

He has spent years complaining that his taxes are too high in speeches at quarterly internal meetings, according to a former employee who declined to be named for fear of retribution.

When coronavirus struck, tanking the hospitality sector, Mr. Bennett watched in outrage as the government failed to come to its rescue.

"What are all those taxes we paid supposed to provide us with anyway?" he wrote in a March 22 Medium article. "Washington, you're not 'bailing me out,' you're coming to our aid since you didn't do your job to begin with, which was to protect us."

Mr. Bennett has a history of making sure that government works well for him, including bankrolling campaigns for a local Texas politician, Lance Gooden, who was eventually elected to Congress.

When authorities wanted to build a water pipeline on Mr. Bennett's East Texas ranch — the "Lazy W"— in 2011, Mr. Gooden wrote a state bill designating the property as public land, allowing it to fight back against the easement on the grounds that it was a government entity.

As Mr. Gooden set his sights on Congress, Mr. Bennett heavily financed the political action committee that helped him to win, donating hundreds of thousands of dollars through companies he leads.

Since arriving in Washington, Mr. Gooden has continued to advance the hotel magnate's interests. Mr. Bennett wrote in his late March Medium post that China should be legally liable for originating the coronavirus, which he labeled the "purposeful or negligent" fault of a "semi-hostile foreign nation."

On April 3, Mr. Gooden proposed legislation that would alter the Foreign Sovereign Immunities Act — the same legislation Mr. Bennett pointed to — and grant the Justice Department the ability to sue China.

Mr. Gooden, asked for comment about his ties to Mr. Bennett and the legislation mentioned in this article, defended the paycheck protection loans to Ashford.

"Outcry by Congress or the administration at this point is manufactured and disingenuous after supporting the same policy a second time last week in the most recent funding bill," he said in an emailed statement, a reference to the additional $310 billion Congress approved for the small-business program in late April.

Mr. Bennett pushed for the hotel industry to be included in government coronavirus relief, hiring two lobbying firms in March. As The Daily Beast first reported, one explicitly said it would work on "issues related to Covid-19 relief for the hotel industry." The hotelier appeared on Fox News and wrote online posts asking for action.

Mr. Bennett's was one voice among many, but the hotel industry as a whole lobbied for a bailout. It eventually settled for a carve-out in the small-business program that would allow individual branches belonging to bigger parent companies to tap forgivable loans.

When the small-business program opened in early April, Mr. Bennett's employees pulled overnight sessions filing loan applications for the company's vast network of properties and subsidiaries, according to media reports at the time.

They succeeded at an unmatched scale.

Chains like Shake Shack and Potbelly grabbed headlines for taking the small-business relief money, but Mr. Bennett's combined firms had applied for nearly 13 times as much funding. The Ashford-tied properties and subsidiaries have already received 339 times more than the average loan from that first round, which was exhausted April 16.

The news stirred a backlash as many small companies missed out on loans entirely, and as some banks prioritized bigger clients. Congress's second round of funding, which is being parceled out now, looks likely to again run dry, leaving some tiny businesses without help.

Key Bank, which issued most of the Ashford-related loans, said about 10 percent of its applicants did not get funded in the first round. It added that about 90 percent of the loans it issued went to small businesses.

Treasury Secretary Steven Mnuchin has been trying to curb the fallout, saying this week that the administration would audit any company that received more than $2 million and that firms could be held criminally liable if they did not meet the program's revised criteria. About 150 companies received more than $2 million, based on a New York Times analysis.

Most of the Ashford-tied loans went to individual hotels, like a Ritz Carlton in Atlanta, which are owned by two real estate investment trusts advised by Ashford Inc. and run by its senior employees. So-called REITs have tax advantages, and generally pay an outside manager to oversee day-to-day hotel operations.

But Ashford Inc. also owns the management company that runs most of the trusts' hotels, a firm that sells them hypoallergenic room products, and even the room key provider that keeps the doors locked. The end result is that much of the money earned at the Sheraton in Anchorage flows back to the central firm. If the paycheck protection cash can be used to keep up with bills, it could effectively bolster Ashford.

That could, in turn, pay Mr. Bennett. He and his father directly or indirectly own 16 percent of Ashford Inc.'s common stock, which would jump to 70 percent if they converted their preferred shares, based on the company's 2019 annual filing. Besides earning compensation at both trusts, Mr. Bennett takes dividends on his Ashford Inc. preferred stock holdings and a salary from the company. He was paid $5.7 million by Ashford Inc. alone last year, including 98.6 percent of his maximum potential bonus.

His 2019 incentive salary came even as the larger of the two trusts — Ashford Hospitality Trust — operated at a $113 million loss and saw its stock swoon to just about $1 from about $5.60. It's now trading around 70 cents.

Mr. Bennett has taken a 20 percent pay cut amid the outbreak, but that reduction is reversible.

A board oversees the company's operations, but it is filled with people with close ties to Mr. Bennett, including one director whose wife's firm provides services to the company. Mr. Bennett recently married former board member Sarah Zubiate Darrouzet. A former Texas politician, Matt Rinaldi, to whom Mr. Bennett had donated, sits on one of the real estate investment trusts' board.

"The executive pay arrangements reflect a substantial disconnect between pay and performance, and raise serious corporate governance concerns," said Lucian A. Bebchuk, director of the Program on Corporate Governance at Harvard Law School.

Jim Tankersley and Alan Rappeport contributed reporting.

Ankeny Small Business Today: Moving day - Des Moines Register

Posted: 01 May 2020 08:56 PM PDT

Tom Friedman, Special to the Register Published 10:43 p.m. CT May 1, 2020

CLOSE

Son Ben will be graduating from Loras College in Dubuque in a few weeks. 

Well, he will be finished with all of his coursework and will be earning a degree, but because of the pandemic, the official graduation ceremony will be in the fall.  Also because of the pandemic, Ben had to move out of the house he and his friends were renting from the college two full months earlier than he had planned.

Ben still had a job in Dubuque, and both he and his employer wanted him to continue working.  The good news was that both my brother Terry and my dad live in Dubuque and have room for Ben.  The bad news is that moving in with either one of them wasn't a simple option.  Even though my dad is in really good health at age 93, he is still considered high risk for the virus.  My brother is not high risk, so Ben moved out of his house at Loras and into Terry's basement.  Terry and Paula were great hosts (they actually helped house Ben last summer, but that is a different story). 

Then, when Ben realized that he could do his job remotely, it made sense to move back home to central Iowa. So for the second time in two weeks, Ben packed up all his belongings and headed south. 

He breezed into our house for a couple of hours on his way to a house in Waukee where his brother Ted's fiancé had a spare room.  But it was just a room, no furniture.  We gave Ben with a skinny mattress from the hide-a-bed in the basement, and he basically lived in the Waukee room with no furniture for more than a month.  It really wasn't a bad situation because Ted, Heather and Ben were all working from home and they shared a lot of food, fun, workouts and camaraderie.

Now, with Ted and Heather getting married within the week, Ben decided it was best to move again to let the newlyweds have some privacy.  He moved home with us, and we are happy to have him here.  During all these moves, Ben figured out what was essential to have with him and what wasn't.  Moving was still a pain, but with fewer things to move, it wasn't as big a pain as it could have been.  If it wasn't for the skinny mattress, Ben could have fit everything he needed into his car.

As small business owners and managers, we probably don't physically have to move as often as Ben did in the last few months.  But that doesn't mean that we shouldn't know exactly what we need to be nimble and responsive to our customer and employee needs.  The aforementioned pandemic has made it crystal clear that we need to have some our employees be able to do their work remotely.  It has also made it clear that we still need to reach our customers, especially using what might have been considered unconventional methods just a few months ago.

Because they have been confined to their homes, a lot of people have been cleaning  and deciding exactly what is essential and what isn't.  We need to do the same thing with our businesses. 

Examine the things that are done because they have always been done that way.  If the purpose or result doesn't greatly benefit our customers or employees, get rid of it.  Find a better way or simply forget the old way.  Some of the old ways are good, and I am not advocating getting rid of your long standing core principles.  Examine the methodology and delivery.

Ben told us that he plans to move back to Dubuque for the summer where he can work at his job full time.  He will live with some friends and plan his next move after that, pending what is happening with the pandemic.

Small Business Today is a bi-weekly feature written by Tom Friedman, market president of First National Bank, Ankeny.  

Your subscription makes work like this possible. Subscribe today at DesMoinesRegister.com/Deal.

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Some Small Businesses That Got Aid Fear the Rules Too Much to Spend It - The New York Times

Posted: 02 May 2020 08:18 AM PDT

When a $192,000 loan from the federal government's small-business aid program arrived in his bank account last month, George Evageliou, the founder of a custom woodworking company, felt like one of the lucky ones.

Under the program's rules, Mr. Evageliou has eight weeks from the day he received the cash to spend it. But nearly three weeks after the clock started on April 14, he hasn't used a penny.

His quandary? If Mr. Evageliou wants his loan to be forgiven, he must spend three-quarters of it paying the 16 workers he laid off from Urban Homecraft, his Brooklyn business, in late March. But bringing his workers back now, when they can't work in their fabrication shop or install woodwork in clients' homes, won't help his business. And if New York City remains shut when his eight weeks are up in mid-June, Mr. Evageliou would have to lay his employees off again — something he wants to spare them.

The government has "made this so hard to use," he said. "It starts to feel like a lose-lose situation."

The $660 billion Paycheck Protection Program was meant to extend a lifeline to small businesses battered by the pandemic, allowing them to keep employees on the payroll. But it has been dogged by problems. Countless small businesses couldn't get money, and hundreds of millions of dollars instead flowed to publicly traded companies.

Now many of the small businesses that did get loans are sitting on the money, unsure about whether and how to spend it. That's compromising the effectiveness of a program meant to help stabilize the country's reeling economy.

Some owners don't see the point of hiring back workers when business is so slow. Others chafe at having to use the money within eight weeks, when they would like to keep the financial cushion for longer. And many of the owners are confused about whether they have any flexibility. They would rather use the cash to retool their operations for an altered world or buy protective equipment for workers, but the rules require them to spend it on specific expenses, like payroll.

Owners also say they are afraid of running afoul of the program's rules, which are complicated, ambiguous and still evolving. Accountants, lawyers and lenders are struggling to understand the nuances and offering clients tentative guidance.

"It's chaos," said Howard M. Berkower, a New York lawyer who advises corporate clients. "It's impossible for businesses to have any degree of comfort that they're following the rules when the rules are still being written."

The $2 trillion CARES Act, which created the program, specifies that small businesses — generally those with fewer than 500 employees — can use the loan money to pay employees, but also for rent, utilities or interest payments. The loans will be forgiven if they are spent on those expenses within eight weeks and the business keeps paying the same number of employees, at the same rate, as it did before the pandemic.

The Treasury Department and the Small Business Administration, which is running the program, added a restriction: For a loan to be forgivable, businesses have to spend at least 75 percent of it on payroll. Otherwise, the rules say, the borrower will pay interest of 1 percent on any portion of the loan that is not forgiven.

But what's unclear is what happens if borrowers keep all the money as a loan to be used later or if they must spend the entire sum within eight weeks, with an economic turnaround still months away.

Take Jodi Burns, the owner of Blazing Fresh Donuts in Guilford, Conn. Ms. Burns could use the loan she got — an amount under $50,000 — to hire back her eight employees, but she would be paying most of them to stay home, since the bakery is open only 12 hours a week these days. She would prefer to hold on to the cash beyond eight weeks; her hope is that it becomes a low-interest loan she can use for payroll and rent when her shop is open longer.

Ms. Burns doesn't know whether she can do that. She has called her local S.B.A. office, small-business advisory organizations, a law firm and her lender to ask for guidance, but no one has given her any assurances. Moreover, having signed documents requiring her to use the funds for purposes allowed under the paycheck program's rules, Ms. Burns is nervous about misusing them.

"I don't accidentally want to commit bank fraud," she said.

Many lawyers are telling small-business owners that they think the loans can be used broadly, although no one is certain. Some bankers are reasoning that since the aid program is based on existing S.B.A. programs that are more flexible, the pandemic loans will be, too.

"As long as they're using the funding for the operating expenses of the business, our interpretation — and we think it's clear — is yes, you can use it as effectively a working capital loan," said John Asbury, the chief executive of Atlantic Union Bankshares, a community lender in Richmond, Va.

But officials at Treasury and the S.B.A. won't confirm that interpretation. Asked repeatedly if companies can simply hold on to the money for now because paying employees doesn't make sense to them, an S.B.A. spokeswoman would say only that the funds must be used for purposes "consistent with the Paycheck Protection Program."

Ryan Hurst, a partner at RKL, an accounting and advisory firm, said the program had been put together hastily and remained murky on critical issues. "Every day I'm sitting at my computer, hitting refresh multiple times a day, hoping we'll get more guidance from Treasury and the S.B.A.," he said.

Since the S.B.A. has not provided lenders with customized application forms, many banks are using a generic document with provisions that do not apply to the paycheck program.

Dutchess Maye, the owner of eduConsulting Firm, an educational services provider in Raleigh, N.C., received a contract from her bank that made no mention of having her $20,000 loan forgiven.

Ms. Maye, who plans to use the money for payroll, balked at signing a legal document that didn't seem to describe the forgivable loan she thought she was getting. Her business has no debt, and the idea of incurring any — especially as the economy is nose-diving — spooked her.

"I felt it was predatory," she said.

She called her lender, which assured her that the loan would be eligible for forgiveness, but the representative she spoke with told her that the bank had no idea yet what the process would be. In the end, reluctant to risk missing out on badly needed aid, she signed. But Ms. Maye plans to set $20,000 from her savings aside for a few months as a reserve.

"I had to have a backup plan in order to take the money, in case I have to pay it back," she said.

Coyote Ugly, an international chain of honky-tonk bars made famous by the 2000 movie of the same name, is sitting on its loan money. The company's American bars have been closed since mid-March. Bartenders and security staff were laid off immediately, but the bars' managers were kept on.

Through a small Louisiana bank, nine of the company's bars in the United States applied for loans "because they were there," said Jeff Wiseman, Coyote Ugly's general counsel. At the time, executives figured the economy might reopen before the loans came due, in which case the money could be used for payroll and overhead like rent.

The bars' loan applications — ranging from $40,000 to $120,000 — were approved in mid-April. By then it had become clear that Coyote Ugly would not be serving customers for a long time. Some locations might never reopen.

On April 18, Liliana Lovell, the company's founder and chief executive, told managers that most of them were being furloughed. Some were furious to be let go just as the company was granted the federal loans.

Ms. Lovell and Mr. Wiseman acknowledged those grievances, but said Coyote Ugly hadn't had much choice. They didn't see the point in paying managers to sit around in empty bars, and in any case the funds would be exhausted within a couple of pay cycles. Their understanding was that if Coyote Ugly used most of the money for purposes other than payroll, like buying personal protective gear or cleaning supplies, the company would have to repay the loans with interest, further weakening its precarious finances.

And so the hundreds of thousands of dollars remain deposited in Coyote Ugly's bank accounts, unused.

"It's important for us to sit and wait," Ms. Lovell wrote in an email on Thursday to the laid-off managers.

Even borrowers who are happy with their aid see it as a temporary fix.

Erik Anderson is a co-owner of a string of high-end hair salons for men, Scissors and Scotch, which has locations in several Midwestern cities. He and his partners, along with their franchisees, all got relief money and used it to pay employees, rent and utilities at their stores while they remained shuttered.

Now, some of the states where Scissors and Scotch has locations are slowly reopening. But fewer stylists can work in the salons at once, and fewer customers will be allowed in. Everyone has to wear a mask. The salons' aid money will help supplement their stylists' earnings, since few, if any, of them will be able to work full 35-hour weeks.

Mr. Anderson's understanding is that he is not allowed to use money from the small-business program for work like reconfiguring his spaces, he said. He hopes more aid will be coming if he needs it — or his company may not survive.

When the loans run out, Mr. Anderson asked, "what are we supposed to do then?"

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