10000004047

K&E 17977557
James H.M. Sprayregen, P.C.

Paul M. Basta
KIRKLAND & ELLIS LLP
601 Lexington Avenue
New York, New York 10022-4611
Telephone: (212) 446-4800
Facsimile: (212) 446-4900

and

Anup Sathy, P.C.
Marc J. Carmel (admitted pro hac vice)
300 North LaSalle
Chicago, Illinois 60654-3406
Telephone: (312) 862-2000
Facsimile: (312) 862-2200

Counsel to the Debtors and Debtors in Possession
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK

)
In re: ) Chapter 11
)
INNKEEPERS USA TRUST, et al.,
1
) Case No. 10-13800 (SCC)
)
Debtors. ) Jointly Administered
)

DEBTORS OMNIBUS REPLY IN SUPPORT OF THE
DEBTORS MOTION FOR ENTRY OF AN ORDER EXTENDING THE
EXCLUSIVE PERIODS DURING WHICH ONLY THE DEBTORS MAY
FILE A CHAPTER 11 PLAN AND SOLICIT ACCEPTANCES THEREOF
AND OMNIBUS RESPONSE TO OBJECTIONS THERETO
1

Innkeepers USA Trust and certain of its affiliates, as debtors and debtors in possession
(collectively, the Debtors), hereby submit this omnibus reply (the Reply) in support of the

1
The list of Debtors in these Chapter 11 Cases along with the last four digits of each Debtors federal tax
identification number can be found by visiting the Debtors restructuring website at
www.omnimgt.com/innkeepers or by contacting Omni Management Group, LLC at Innkeepers USA Trust c/o
Omni Management Group, LLC, 16161 Ventura Boulevard, Suite C, PMB 606, Encino, California 91436. The
location of the Debtors corporate headquarters and the service address for their affiliates is: c/o Innkeepers
USA, 340 Royal Poinciana Way, Suite 306, Palm Beach, Florida 33480.

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Debtors Motion for Entry of an Order Extending the Exclusive Periods During Which Only the
Debtors May File a Chapter 11 Plan and Solicit Acceptances Thereof and Omnibus Objection to
Motions to Terminate the Debtors Exclusive Periods [Docket No. 610] (the Motion) and in
response to the Objections thereto.
2
The Creditors Committee filed a statement in support of the
Motion.
3
In support of this Reply, and in further support of the Motion, the Debtors respectfully
state as follows:
4

2
The following objections and related documents have been filed in response to the Motion: Limited Objection
of Lehman ALI Inc. to Debtors Motion for Entry of an Order Extending the Exclusive Periods [Docket No.
663] (the Lehman Objection); Midland Loan Services, Inc.s Objection to Debtors Motion for Entry of an
Order Extending the Exclusive Periods During Which Only the Debtors May File a Chapter 11 Plan and Solicit
Acceptances Thereof and Omnibus Objection to Motion to Terminate Exclusivity [Docket No. 665]
(the Midland Objection); Limited Objection of TriMont Real Estate Advisors, Inc. as Special Servicer to
Debtors Motion for Entry of an Order Extending the Exclusive Periods During Which Only the Debtors May
File a Chapter 11 Plan and Solicit Acceptances Thereof and Omnibus Objection to Motion to Terminate
Exclusivity [Docket No. 666] (the TriMont Limited Objection); Objection of Appaloosa Investment L.P. I,
Palomino Fund Ltd., Thoroughbred Fund L.P., and Thoroughbred Master Ltd. to Debtors Motion for Entry of
an Order Extending Exclusivity Period [Docket No. 667] (the Appaloosa Objection); Statement of Ad Hoc
Committee of Preferred Shareholders in (I) Support of Motions to Terminate Exclusivity Filed by Midland Loan
Services Inc. and Wells Fargo Bank, N.A. and (II) Opposition to Debtors Motion to Extend the Exclusive
Period [Docket No. 673] (the Preferred Shareholders Statement); Objection of Wells Fargo Bank, N.A., as
Trustee for the Registered Holders of Credit Suisse First Boston Mortgage Securities Corp. Commercial
Mortgage Pass-Through Certificates, Series 2007-C1 and U.S. Bank National Association, as Successor to
LaSalle Bank N.A., Formerly Known as LaSalle National Bank, as Trustee for the Registered Holders of
ML-CFC Commercial Mortgage Trust 2006-4, Commercial Mortgage Pass-Through Certificates, Series 2006-4
to Debtors Motion for Entry of an Order Extending the Exclusive Periods During Which Only the Debtors May
File a Chapter 11 Plan and Solicit Acceptances Thereof and Omnibus Objection to Motion to Terminate
Exclusivity [Docket No. 675] (the Wells Fargo Objection); Declaration of Ronen Bojmel [Docket No. 676]
(the Bojmel Declaration and, together with the Wells Fargo Objection, the Lehman Objection, the Midland
Objection, the TriMont Limited Objection, the Appaloosa Objection, and the Preferred Shareholders Statement,
the Objections).
3
Statement of the Official Committee of Unsecured Creditors in Support of Debtors Motion for Entry of an
Order Extending the Exclusive Periods During Which Only the Debtors May File a Chapter 11 Plan and Solicit
Acceptances Thereof and Omnibus Objection to Motion to Terminate Exclusivity [Docket No. 662]
(the Creditors Committee Statement).
4
Information regarding certain of the Debtors restructuring activities and further facts and circumstances
supporting this Reply are set forth in the Supplemental Declaration of William Q. Derrough in Support of the
Debtors Motion for Entry of an Order Extending the Exclusive Periods During Which Only the Debtors May
File a Chapter 11 Plan and Solicit Acceptances Thereof and Omnibus Objection to Motions to Terminate the
Debtors Exclusive Periods (the Supplemental Derrough Declaration), filed contemporaneously herewith.
Capitalized terms used herein but not otherwise defined shall have the meanings ascribed to such terms in the
Motion.

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Preliminary Statement
The Court should extend exclusivity for 120 days. The Debtors are doing everything that
this Court directed and would otherwise expect of a debtor in possession. Moelis presented the
Board of Trustees of Innkeepers USA Trust (the Board) with an analysis of numerous
restructuring alternatives. After due consideration, the Board directed the Debtors management
and advisors to pursue the plan process that the Board believes is the most value-maximizing,
taking into account the diverse views of the Debtors constituencies. The Debtors are
implementing that directive, which includes encouraging and facilitating discussions and
negotiations with and among their major stakeholders. The Debtors have had numerous in-
person meetings and telephone conferences with each of their constituencies and have
simultaneously started the process of soliciting interest for plan sponsorship from third parties.
The Debtors creditors are, in fact, negotiating with one another, and the Debtors have received
interest from, and are beginning to engage with, potential plan sponsors. Even those parties that
initially moved to terminate exclusivity believe that exclusivity is working and should continue.
5

Because the Debtors financed themselves with loans secured by different pools of
collateral, the Debtors capital structure is polarizing, to say the least. Naturally, each of the
Debtors secured creditors is focused on the value of its own collateral. Thus, those secured
creditors that do not appear to be close to reaching consensus on the value of their collateral have
vastly different motivations than those creditors that appear close to reaching consensus. These

5
See Notice of Adjournment of Hearing on the Motion of Wells Fargo Bank, N.A., as Trustee for the Registered
Holders of Credit Suisse First Boston Mortgage Securities Corp. Commercial Mortgage Pass-Through
Certificates, Series 2007-C1 and U.S. Bank National Association, as Successor to Lasalle Bank N.A., Formerly
Known As Lasalle National Bank, as Trustee for the Registered Holders of ML-CFC Commercial Mortgage
Trust 2006-4, Commercial Mortgage Pass-Through Certificates, Series 2006-4 to Terminate Exclusivity and
Joinder to Midland Loan Services, Inc.s Motion to Terminate Exclusivity (Docket # 437) [Docket No. 677] and
Notice of Adjournment of Hearing on the Motion to Terminate Exclusivity (Docket #348) Filed by Midland
Loan Services, Inc. [Docket No. 660].

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divergent interests and positions among the Debtors constituencies have led to multiple
inconsistent and contradictory suggestions and proposals for the Debtors possible path forward.
As described below, the Debtors have received no fewer than ten plan concepts. For instance,
those creditors who are willing to negotiate a consensual arrangement on allocation of value tend
to focus on an enterprise-level restructuring as this likely will maximize value because, among
other reasons discussed below, it allows potential investors to invest in a larger platform of
assets. Other creditors, however, have suggested a more piecemeal, or liquidation-based,
approach to a plan process, which the Debtors believe will result in significantly less value for
their enterprise and will result in an incomplete resolution of these Chapter 11 Cases and the
incurrence of unnecessary administrative costs.
The Debtors recognized this dynamic and developed a multi-step restructuring process
that takes into account the different, and in some cases conflicting, views. First, the Debtors are
pursuing an internal restructuring process and encouraging their constituencies to negotiate with
each other regarding allocations of value. At the appropriate time, the Debtors will coordinate
and assist in these discussions. But to do so effectively, the Debtors must maintain exclusivity.
Consensus among creditors could lead to the most expeditious exit from chapter 11, preserve
upside for the existing constituencies, and provide a defined capital structure in which the
Debtors may solicit outside investment. Second, and concomitantly, the Debtors are soliciting
interest for plan sponsorship. This will help ensure the fairness of any plan of reorganization that
is presented and will also serve as the basis to ensure that any investment in the Debtors is made
on the best terms available. Third, while the Debtors are somewhat skeptical that pursuing
investment in individual properties will maximize value, the Debtors, of course, are willing to
consider any alternative that maximizes value.

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And this multi-step plan process is working. As indicated by the Objections, multiple
creditor groups are working to build consensus on value allocation. The Debtors solicitation of
plan sponsorship for an enterprise-level restructuring has garnered interest. Moreover, the
Debtors proposed path forward does not prejudice those seeking a piecemeal approach for a
number of reasons. Most importantly, the Debtors are open to any alternative that will maximize
value. Additionally, the Debtors business operations are performing better than expected,
consistent with the improved performance in the hospitality industry. Finally, the Debtors have
made significant progress and taken certain actions in these Chapter 11 Cases that inure to the
benefit of their constituencies, including:
closing on and receiving funding under their two debtor-in-possession financing
facilities in the amount of approximately $70 million;
spending, or committing to spend, approximately $14 million for furniture,
fixtures, and equipment and labor related to the first phase of the property
improvement plan process under the Marriott Adequate Assurance Agreement
and preparing to place additional orders for approximately $7.5 million under the
second phase of the Marriott Adequate Assurance Agreement;
satisfying substantially all of their property improvement plan obligations at one
hotel covered by the Marriott Adequate Assurance Agreement and remaining on
track to satisfy all of their other obligations under the first phase of the Marriott
Adequate Assurance Agreement, which will permit the Debtors to retain essential
franchises at their hotels;
planning and overseeing other capital expenditures at the Debtors hotels;
obtaining the authority to use cash collateral and complying with their reporting
requirements thereunder;
generating sufficient cash flows to pay ordinary course expenses;
distributing approximately $20 million of excess cash to their secured creditors in
accordance with the cash collateral authority;
obtaining interest from new franchisors on branding certain hotels that may
potentially be de-flagged, determining appropriate replacement franchises, and
analyzing the costs and benefits of the potential rebranding opportunities;

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discussing the reforecast with constituencies and completing a reforecast of the
2010 budget;
updating projections for 2011-2015;
starting a detailed development of the 2011 hotel-by-hotel budget process; and
facilitating due diligence for numerous constituencies and third parties, including
coordinating over 50 site visits and establishing a data room with over 3,000
documents.
In short, though the Debtors are motivated to move through their plan process
expeditiously, a 120-day extension of exclusivity will not harm any of their constituencies. In
contrast, an extension of exclusivity that is shorter than requested by the Debtors will undermine
both the Debtors internal restructuring (by incentivizing the Debtors constituencies to maintain
their positional postures) and external restructuring (by injecting additional uncertainty into these
Chapter 11 Cases and chilling the bidding process). Partieswhether the Debtors
constituencies or third partiesare unlikely to commit themselves and their resources to the
Debtors restructuring process if the threat of exclusivity terminating hangs over the Debtors.
Moreover, the restructuring process requires the attention of the parties and continually having to
address exclusivity issues in preparation for and at hearings will be an unfortunate distraction
that will harm the Debtors ability to make progress.
Lacking any consensus on a plan process, the Objections themselves support the need for
exclusivity. And the plan process cannot be dictated by creditors who only are focused on their
own parochial interests, as each secured creditor has a different idea on how to move forward.
Additionally, it has just recently been brought to light that LNR (the special servicer for
five of the Debtors single-property loans) initiated a civil action in New York state court against
CRES Investment II, LP (the controlling class in the C7 Trust of the Fixed Rate Loan (as defined
herein) and, therefore, the holder with the right to determine the special servicer for that CMBS

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loan). LNR seeks a preliminary injunction requiring CRES to replace Midland and appoint LNR
as special servicer to the Fixed Rate Loan in accordance with an agreement between LNR and
CRES. According to LNR, its appointment as special servicer is critical to preventing any
irreparable harm resulting from Midland being allowed to continue prosecuting the Chapter 11
Cases on behalf of the lenders under the Fixed Rate Loan and advancing the Five Mile Proposal
(as defined herein). The Debtors do not yet fully understand the background of this dispute other
than that the dispute has been ongoing since April 2010 and the result of this action could have a
significant impact on the landscape of these Chapter 11 Cases. LNR (in the Wells Fargo
Objection and the Bojmel Declaration) and Midland (through the Five Mile Proposal) have each
proposed a plan process related to, among other things, the treatment of the Fixed Rate Loan.
Two things are clear: these processes are fundamentally inconsistent, and either LNR or
Midland lacks the authority to represent the interests of the Fixed Rate Loan.
Simply put, the complexity of these Chapter 11 Cases should not be coupled with a
termination (or even a short extension) of exclusivity. For so long as the Debtors creditors
believe termination of exclusivity is looming, each secured creditor will continue to pursue their
individual agendas at the expense of a comprehensive process that appropriately resolves these
Chapter 11 Cases. For these reasons and those set forth below, the Debtors believe that there is
more than sufficient bases to grant the Debtors first request to extend the Exclusivity Periods for
120 days.
Reply
I. The Debtors Are Making Real Progress in Their Multi-Step Plan Process and
Remain Willing to Consider Competing Alternatives, Yet Require a 120-Day
Extension of Exclusivity to Ensure Success.
After multiple discussions with their stakeholders and much consideration by
management, the Board, and the Debtors advisors, the Debtors implemented a multi-step

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process that they expect will lead to a successful plan of reorganization. Supplemental Derrough
Declaration at 5. The Debtors business operations are performing better than expected. Id. at
30. This success supports giving the Debtors an adequate opportunity to (a) pursue their
chosen process (and the requested extension of exclusivity necessary for the process to succeed)
and (b) focus on achieving an enterprise-level restructuring that they believe will maximize
value, while they remain open to considering other alternatives and modifying the process based
on changed circumstances and input from their constituencies.
A. The Debtors Have Established a Plan Process and an Aggressive (but
Achievable) Timeline for Achieving a Value-Maximizing Transaction.
At a Board meeting on October 19, 2010, where a number of possible restructuring
alternatives were discussed, reviewed, and considered, the Board requested that the Debtors
advisors consider and propose a process to explore an enterprise-level restructuring (while not
foreclosing other potential alternatives, including certain of the sale options set forth in the
Objections). Supplemental Derrough Declaration at 5. At a subsequent Board meeting on
October 26, 2010, Moelis proposed an aggressive timeline with the goal of selectingwithin
four weeksa stalking horse for plan sponsorship for an enterprise-level restructuring
transaction. Id. After discussion and input, the Board approved the timeline and tasked Moelis,
K&E, and the Debtors management with executing on the process and seeking to achieve the
various milestones set forth therein. Id. The presentation materials, including a general timeline,
considered by the Board at the meetings leading up to their decision regarding the plan process
are attached hereto as Exhibit A. The plan process protocol approved by the Board, which
clearly delineates both tasks and responsibilities among the Debtors advisors, in conjunction
with management, is attached hereto as Exhibit B.

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As set forth in the general timeline described in the presentations, the Debtors and their
advisors are in the process of taking key steps to achieve the goal of selecting a stalking horse
and ultimately a winning bid for a plan sponsorship. Supplemental Derrough Declaration at
13. First, the Debtors will continue interacting and negotiating with Five Mile on the terms of
a potential proposal, as appropriate. Id. at 14. Second, Moelis will continue working to
develop other stalking horse candidates. Id. The Debtors and their advisors have completed the
development and refinement of a list of suitable plan sponsor, stalking horse candidates and have
narrowed that list to five parties (including Five Mile). Id. Currently, the Debtors and their
advisors are engaged in discussions with stalking horse candidates, and all five candidates have
signed confidentiality agreements. Id. Apollo Investment Corporation, the ultimate non-Debtor
parent of the Debtors, has not sought to be, and is not being considered as, a stalking horse to
serve as the plan sponsor. Id. Following the hearing on the Motion, Moelis will facilitate
additional due diligence by the stalking horse candidates and solicit proposals. Id. Third, the
Debtors and their advisors will hold discussions with key constituencies over the next several
weeks regarding valuation and work towards finalizing value allocations (on October 28, 2010,
Moelis provided to key stakeholders managements 2010 reforecast budget, and on November 8,
2010, Moelis provided managements update 2011-2015 projections). Id. at 15. Fourth, the
Board has directed Moelis to prepare materials for a broader marketing process. Id. at 16. This
will include the preparation of a set of teaser documents, refinement of the information in the
data room, the development of additional marketing materials, and the finalization of a
comprehensive potential buyers list. Id.
Contrary to suggestions in the Objections, the Debtors have been, and remain committed
to, communicating with their constituencies as to the expected timing of their plan process. In

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fact, the Debtors communicate with their key constituencies multiple times per week, facilitating
due diligence, answering questions, and providing updates as to the Debtors operations. The
fact that certain secured creditors and the Debtors have yet to reach agreement on a plan of
reorganization should not be confused with a lack of communication. The Debtors and their
advisors will continue to reevaluate the timing in light of the ultimate desire for the process to
succeed.
B. The Debtors Plan Process Is Working.
As discussed in the Motion and the Derrough Declaration, the Debtors have taken a
number of actions to promote their plan process. Among other things, the Debtors expended
significant efforts to continue to reach out to their constituencies to better understand their views
and concerns, holding in-person meetings as well as various follow-up telephone conferences on
a formal and informal basis. Motion at 8-9; Derrough Declaration at 6-7. The Debtors also
established a data room containing over 3,000 documents that permits multiple parties to conduct
necessary due diligence and already facilitated over 50 visits to the Debtors properties by
interested parties like Five Mile as well as discussions among certain of their constituencies and
hotel general managers. Motion at 11; Derrough Declaration at 8.
Moreover, the Debtors have taken a number of additional, concrete steps since the filing
of the Motion, particularly with respect to the Debtors efforts to attract the participation of a
potential plan sponsor. Moelis has established and made contact with an initial and realistic list
of five potential plan sponsors (including Five Mile). Supplemental Derrough Declaration at
24. Moelis believed it was appropriate to approach this select pool initially to expedite the
process and to encourage parties to commit resources by providing assurances that they will have
reasonable access to information and the Debtors personnel and advisors as well as a higher
likelihood of being chosen as the stalking horse. Id. Moelis, in consultation with the Board and

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management, selected the potential parties based on a number of relevant criteria, including
whether they had sufficient financial resources to consummate a transaction, familiarity with the
hospitality industry and the bankruptcy process, and sophistication necessary to act decisively on
the approved timeline. Id. Following that initial contact, the Debtors have negotiated and
executed confidentiality agreements with potential plan sponsors to allow such parties to conduct
the due diligence necessary to formulate a restructuring proposal. Id. Moelis expects the pace of
this external process to increase considerably now that it has established initial contact and
parties have had an opportunity to proceed with their diligence. Id.
Since the filing of the Motion, the Debtors also have added additional information to the
data room and held follow-up telephone conferences to facilitate the development of
restructuring proposals (both from the Debtors constituencies and from third parties), including
the reforecast of their financial performance through the end of 2010, their September 2010
profit and loss information, an updated 13-week cash budget, their 2011-2015 projections and
earnings model, and their most recent flash reports and cash variance reports prepared in
accordance with the requirements of the Final Order Authorizing the Debtors to (i) Use the
Adequate Protection Parties Cash Collateral and (ii) Provide Adequate Protection to the
Adequate Protection Parties Pursuant to 11 U.S.C. 361, 362, and 363 [Docket No. 402]
(the Final Cash Collateral Order). Id. at 15, 25, 26, and 30. In addition, the Debtors,
with the assistance of their advisors, are developing their detailed 2011 hotel-by-hotel budgets,
which will be completed in the normal course in mid-January. Id. at 15. The Debtors, with
assistance from Moelis, have also facilitated a number of additional site visits to the Debtors
properties by interested parties and arranged telephone calls between Five Mile and certain sales
personnel and managers of the Debtors properties to allow Five Mile to conduct additional

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diligence. Id. at 27. Finally, Moelis has documented numerous communications between the
Debtors professionals and certain representatives of the Debtors constituencies since the filing
of the Motion. Id. at 26.
C. The Debtors Are Poised to Take Substantial Steps Forward and Are
Confident that Their Plan Process Will Succeed Given an Adequate
Opportunity.
The next steps involve, among other things: (i) identifying and negotiating with potential
stalking horses (including Five Mile); (ii) finalizing and distributing their request for proposals
that articulate the process, type of transactions sought, rules of engagement and timing, and
deadlines; and (iii) executing definitive agreements, as appropriate. The fact that the initial
exclusivity deadline in the Chapter 11 Cases happens to fall at an early stage of the plan process
(toward the end of the stalking horse diligence stage and just before initial indications of interest
from stalking horse candidates are expected) is no justification for truncating the Debtors plan
process before it has the opportunity to truly take off. In fact, the Debtors efforts to date have
already prompted considerable external interest, as Moelis has spoken with more than 30 third
parties interested in facilitating a restructuring. Supplemental Derrough Declaration at 28.
By granting the requested 120-day extension, the Court would be supporting the Debtors
ability to proceed with their plan process, which will issue a valuable signal to the marketplace
that there will be a sufficient opportunity for the Debtors to run an appropriate process for a
restructuring transaction. Id. at 21. A typical process requires adequate time for due diligence,
development of proposals, evaluation of proposals, negotiations with plan sponsors and the
Debtors constituencies, and execution of appropriate agreements. Id. It is imperative that these
steps occur without the fear of the process being truncated by competing plans or concerns that
exclusivity could be terminated at any time, otherwise potential parties may simply sit on the
sidelines. Id.

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Granting an extension of less than 120 days (or no extension) will serve only to
undermine the Debtors plan process. A shorter extension will chill the Debtors marketing
process and discourage participation from parties that are not current holders of the Debtors debt
or equity (who are at an informational disadvantage relative to the Debtors constituencies
because of the access to information the Debtors have provided to the constituencies) to the
detriment of the Debtors estates. Id. at 22. A shorter extension will also have a negative
impact on the Debtors internal restructuring process. If the Court grants only a short extension,
the Debtors believe that their secured creditors will focus on their positions without sufficient
motivation to come to the negotiating table. Id. The Debtors restructuring process, just like that
of any enterprise similar to the Debtors, requires a significant commitment from those involved.
If these parties believe that process could be short-circuited, they are unlikely to commit the
resources to engage with the Debtors. The Debtors recognize that continuing to communicate
with the stakeholders is important to maximize their progress during an extended exclusive
period to reach an consensual restructuring. The Debtors will, of course, continue to
communicate with their stakeholders throughout the plan process and seek their input with the
goal of obtaining broad support for a value-maximizing enterprise-level restructuring transaction.
Id. at 21.
D. The Debtors Continue to Be Willing to Consider Value-Maximizing Plan
Structures.
The Debtors based their decision to focus their plan process on achieving an
enterprise-based reorganization on a conclusion by the Board, after considerable deliberation and
input from the Debtors advisors, that such a reorganization would maximize value. Id. at 7.
In considering an enterprise-level reorganization, the Board considered, among other things: the
relatively lower cost of capital given the Debtors size and the diversity of their assets; the ability

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to take advantage of tax and cost of capital benefits of the public REIT status of a reorganized
enterprise; economies of scale for corporate and management functions; and operational and
management benefits of brand and geographic diversity. Id. at 7. An enterprise-level
restructuring provides significant benefits because the Debtors business is integrated across
important business functions. For example, senior management sits at parent-level entities,
where, among other things, it manages consolidated aspects of the Debtor-entities, plans short-
and long-term financing, maintains franchiser affiliations that reflect longstanding relationships
and the significant number and strong locations of many of the Debtors hotels, and arranges
property management contracts.
6
The Debtors management team provides significant value to
the overall enterprise, as evidenced by the critical operational milestones and achievements since
the Petition Date discussed above. Supplemental Derrough Declaration at 8.
For the time being, the Board decided not to focus the plan process on sales of less than
the whole enterprise given, among other reasons (a) considerations regarding the transaction
costs and distraction associated with having multiple, concurrent sale processes running for
overlapping assets, (b) concerns regarding the impact numerous smaller sales may have on
franchisor relationships, and (c) the difficulties of attempting to close multiple sales
simultaneously. Id. at 9. A piecemeal sale approach would have a chilling effect on attracting
parties interested in being a plan sponsor, signal uncertainty to the marketplace, and lead to
numerous issues related to franchisor relationships and how to group assets according to brand,
geographic proximity, or other common characteristics. Id. at 8. This approach may also leave
the Debtors enterprise with a set of remaining assets that would languish potentially for an
extended period and may result in value destruction, rather than value maximization. Id. The

6
See generally Amended Declaration of Dennis Craven, Chief Financial Officer of Innkeepers USA Trust, in
Support of First Day Pleadings [Docket No. 33, as supplemented by Docket No. 516].

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bifurcation of transferred assets from those that remain may jeopardize the Debtors franchisor
relationships by requiring additional licensing transactions, potentially causing additional loss of
value. Id. A piecemeal sale approach likely would discourage or limit favorable financing
because restructuring the existing debt structure on an enterprise-based level would provide for
more flexibility and, in effect, offer attractive stapled financing to a potential plan sponsor. Id.
The Debtors do not believe that a cluster approach would attract a broader universe of
potential investors; indeed, to date the overwhelming interest from potential buyers has been in
an enterprise-level transaction. Id. Moreover, the Bojmel Declaration has failed to identify a
logical cluster approach that will address the sale of the Debtors hotels in a holistic manner.
Id. Finally, contrary to assertions in the Wells Fargo Objection and Bojmel Declaration, the
Debtors relationships with their franchisors are strong and provide significant value to the
overall enterprise. Id.
As described above, the Debtors are focused on an enterprise-level restructuring, but they
are willing to consider value-maximizing alternatives. The Debtors will continue to re-evaluate
their strategy, as appropriate, based on new information, the receipt of attractive proposals, or
other changes in circumstances. Id. at 10. For instance, the Debtors are expecting to receive an
enterprise-based proposal from Five Mile in the near future (after all, the Debtors have expended
considerable resources and granted significant access to facilitate the formulation of Five Miles
proposal) and will consider its implications on the restructuring. Id. To be clear, nothing in the
Debtors plan process has foreclosed the Debtors ability to consider other alternatives. Id. The
Debtors, with their advisors, have simply determined that, until circumstances dictate otherwise,
pursuing an enterprise-level restructuring at this time will obtain the highest and best value and
are expediently proceeding toward accomplishing such a transaction. Id.

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E. The Strong Performance of the Debtors Business Supports Providing the
Debtors with a 120 Day Exclusivity Extension.
The interests of the Debtors constituencies are not at risk if the Court grants the
requested 120-day extension. The Debtors business is operating well and exceeding certain
expectations. Id. at 30. The Debtors recently provided their key constituencies with a 2010
financial reforecast showing improvement in key performance metrics over calendar 2009,
consistent with the hospitality industrys generally improved performance. Id. The Debtors
have delivered Application Reports to their prepetition lenders or agents, as well as other
reports required under the Final Cash Collateral Order. Id. The Application Reports continue to
show that the Debtors cash flows from operations have been sufficient to pay ordinary course
expenses. Since the Petition Date, the Debtors have returned approximately $20 million of
excess cash to their secured lenders in accordance with the Final Cash Collateral Order. Id.
There has been no intercompany tranche borrowing since the Petition Date, and the Court has not
been asked to resolve any issues relating to the Debtors use of cash collateral or the allocation of
receipts and disbursements contained in the Application Reports. Id.
As previously reported to the Court and the Debtors constituencies, the Debtors are in
the process of undertaking a thorough review of the cash balance in a bank account in the name
of Debtor Innkeepers USA Limited Partnership, which totaled approximately $7.4 million as of
the Petition Date. On September 23, 2010, the Debtors communicated to all of their major
constituencies that they would separate this cash from the current operating account into a new
Bank of America account in the name of Innkeepers USA Limited Partnership, they would not
use funds from this new account without a prior Court order, and all parties retain their right to
claim entitlement to such funds. On September 28, 2010, the Debtors confirmed to these same
constituencies that the amounts have been deposited into the new account.

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The Debtors have also closed on their two debtor-in-possession financing facilities and
begun putting the funds obtained to work on property improvement plans. Id. at 31. For
instance, the Debtors have spent or committed to spend approximately $14 million for furniture,
fixtures, and equipment orders and labor related to the property improvement plan process. Id.
The Debtors have substantially completed their property improvement plan obligations for one of
the hotels covered under the Marriott Adequate Assurance Agreement and are in the process of
satisfying all other requirements for the first phase of their obligations under the Marriott
Adequate Assurance Agreement. Further, the Debtors are preparing to place orders for
approximately $7.5 million of furniture, fixtures, and equipment for hotels covered under the
second phase of the Marriott Adequate Assurance Agreement. Id. Since the Petition Date, the
Debtors have continued to plan and oversee other capital expenditures at their hotels. In sum,
the Debtors are doing what they can to minimize the effect of these Chapter 11 Cases on their
constituencies and a 120-day extension of exclusivity will not prejudice any of those
constituencies rights.
II. Extending Exclusivity for the Debtors Plan Process Is the Best Alternative in Light
of the Inconsistent Approaches Supported by Their Constituencies.
The frustrations expressed in the Objections and the lack of consensus evidenced therein
are not atypical of a chapter 11 restructuring process involving divergent interests. The Debtors
Chapter 11 Cases are complex, involving numerous creditors with interests in different collateral,
and the restructuring process is naturally complicated, requiring time to build consensus around a
certain plan structure. As described above, the Debtors are engaged in a multi-step plan process,
which includes frequent communications with their major constituencies to develop maximum
consensus. Id. 23. Since the initiation of this process, the Debtors have received significant
input from their constituencies. Yet, not surprisingly, no clear consensus has emerged. Id. at 22.

18
K&E 17977557
The recent state court litigation initiated by LNR, as discussed below, further complicates these
Chapter 11 Cases, casting doubt on the Debtors negotiations regarding the Fixed Rate Loan.
A. The Debtors Have Been Presented With a Varied Collection of Potential Plan
Processes, Many of Which Are Inconsistent.
The Debtors have received numerous suggestions and proposals regarding how they
should manage the plan process. These suggestions and proposals are inconsistent. In fact,
instead of coming together, with the looming initial exclusivity period coming to a close, the
Debtors secured creditors have hardened their contrary positions and proffered competing plan
structures that they request this Court endorse, some of which appear to be tactics to support
their Objections. To name just a few concepts, it has been suggested that the Debtors:
reinstate the Fixed Rate Loan;
sell the collateral securing the Fixed Rate Loan;
cramdown the floating rate loan, depending on the value of the collateral;
sell the collateral securing the floating rate loan;
conduct a piecemeal liquidation of the Debtors hotels individually or by so-called
logical clusters (e.g., geographic, type, franchisor);
reorganize the Debtors at the enterprise level;
conduct a sale and marketing process for the enterprise;
perform little, if any, marketing;
market each of the seven hotels that are collateral for separate loans; and
market the seven individual hotels as a group.
LNR, though it currently serves as special servicer for only five of the Debtors properties
with approximately $160 million of total indebtedness (out of the Debtors approximately
$1.4 billion of funded debt), has proposed a plan process that contemplates the marketing of the
Debtors as a whole and by so-called logical clusters. Id. at 8. LNR has attempted to build

19
K&E 17977557
consensus around a protocol based on this process, hosting a series of conferences calls, which
notably excluded the Debtors and Midland. LNRs efforts to date, however, have been rejected
by the Debtors other constituencies. Bojmel Declaration at 35. With the initial exclusivity
period ending, the Debtors constituencies are acting in their own interests and are determined to
act without regard to the benefit of a comprehensive restructuring. Claims that the Debtors and
their advisors are paralyzed or without direction as suggested in the Objections ring hollow
as it is the creditors that cannot speak with one voice. Any claim of paralysis could only be
motivated by the Debtors refusal to prematurely embrace the direction of any one particular
complaining creditor, to the exclusion of others.
It is not surprising that the Debtors constituencies have divergent views and are focused
on addressing their individual concerns given that the Debtors enterprise was financed with
loans secured by different pools of collateral. This, too, is typical of complex chapter 11 cases.
See, e.g., In re Ames Dept Stores Inc., 1991 WL 259036, at *3 (S.D.N.Y. Nov. 25, 1991)
(Given the complexity of these cases and the large number of creditors and other interested
parties involved, it is not surprising that negotiations have been protracted and that the
circumstances have warranted extensions of the exclusivity periods.). Exclusivity is designed to
encourage creditors and debtors to negotiate with each other despite their differences and allow
for consensus to building. See id. (The purpose of the Bankruptcy Codes exclusivity period is
to allow the debtor flexibility to negotiate with its creditors.). Terminating exclusivity, with the
misguided thought that it will allow these divergent views to materialize in competing plans,
would have a deleterious effect on the Chapter 11 Cases, both in terms of distraction and
unnecessary expense. See, e.g., Hrg Tr. 92:16-93:6, In re Chemtura Corp., 09-11233 (Bankr.
S.D.N.Y. July 22, 2010) ([W]hat I am concerned about is putting this case into a freefall with

20
K&E 17977557
one or more competing plans. I dont think, by way of example, that if I were to open up
exclusivity I would have only one competing plan, I think I would have several. . . . I cannot for
the life of me see how that kind of a scenario could be found to be reasonable by me or any other
reviewing judge.).
The Debtors believe that their plan processembodying an enterprise-based
restructuring with the flexibility to assess proposals for less than the whole enterpriseattempts
to bridge the gap between the varying interests. Supplemental Derrough Declaration at 22.
The Debtors plan process may not be accepted by every constituency. This is often the case.
And the Debtors do not intend to adopt a constituencys proposed process if it does not address
the concerns of the other constituencies. Instead, the Debtors have been considering all of their
options, including those proposed by their constituencies and those generated internally, to
devise a comprehensive restructuring proposal. As one court noted, bankruptcy generally
involves choosing the least bad among a number of unfortunate choices.
7
Further, the Debtors
reject the idea of a creditor in possession that would allow these Chapter 11 Cases to be run at
the whim of the loudest and most active creditor. Although creditors are free to engage in
conversations with each other, while exclusivity is in place, they must ultimately come to the
Debtors as the central repository for plan proposals. This allows the plan process to focus on
maximizing the value for the collective good and not just one constituency. Thus, for example,
while LNR can exclude Midland from its plan development process, Midlands interests must be
considered by the Debtors as they are charged with maximizing value for the benefit of all their
constituencies. The same is true for LNR when the Debtors consider Midlands proposal. The
Debtors believe it is their charge to maximize value for the benefit of their estates, which

7
Hearing Testimony, May 10, 2005, In re UAL Corp., Case No. 02-48191 (Bankr. N.D. Ill. 2005). Copies of
transcripts and unpublished opinions cited herein are available by request of the Debtors counsel.

21
K&E 17977557
includes all of their constituencies, and that if their multi-step plan process is permitted time to
reach its natural conclusion, they will achieve this result.
The Court should extend exclusivity because the Debtors plan process takes into
account, to the maximum amount reasonable, the views of their secured creditors. Though the
Debtors have not chosen any particular partys favored plan structure (and, thus, it is
understandable why various parties have expressed certain frustrations), the Debtors have instead
focused their attention on moving forward with a plan structure that the Board, management, and
their advisors believe is value-maximizing for the Debtors and their constituencies and has the
potential for obtaining broad support. Supplemental Derrough Declaration at 7, 21. As set
forth above, the Debtors plan process is evolving based on input from constituencies, feedback
from potential plan sponsors, and new information (e.g., 2010 financial forecasts, updated
2011-2015 projections, Moelis views on debt capacity and valuation, and changes in the capital
markets). Id. at 10. The Debtors continue to communicate with their constituencies to determine
and assess their views and provide additional information about the process with hopes of
building consensus amidst the multiple, contrasting, and divergent views and opinions expressed
by the constituencies to date.
Finally, the Debtors recognize that their current responsibility is to engage with their
constituencies and foster support, notwithstanding what may have occurred before and directly
after the commencing of the Chapter 11 Cases. To that end, the Debtors are confident that their
plan process is a viable attempt at developing a consensual plan of reorganization. The Debtors
simply need sufficient time for their plan process to permit parties to develop their proposals
rather than discourage those parties from getting involved.

22
K&E 17977557
B. The LNR Action Creates Serious Uncertainty in These Chapter 11 Cases.
As discussed above, divergent interests and positions requiring the extension of
exclusivity is not unusual in a chapter 11 case of this size and magnitude, but recent events have
made the extension of exclusivity even more important. On October 27, 2010, LNR Securities
Holdings, LLC (LNRSH) and its special servicing affiliate, LNR Partners, LLC (collectively,
LNR) initiated a state court action against CRES Investment No. II, LP (CRES) seeking a
temporary restraining order and preliminary injunction to compel CRES to appoint LNR to
replace Midland Loan Services, Inc. (Midland) as special servicer for the $825 million
mortgage loan secured by 45 of the Debtors hotels (the Fixed Rate Loan) (the LNR
Action). LNR Partners, LLC and LNR Securities Holdings, LLC v. CRES Investment No. II,
LP, Index No. 651850/2010 (N.Y. Sup. Ct. Oct. 27, 2010) (see Exhibit C attached hereto for the
relevant pleadings). With plan proposals coming from both LNR and Midland that affect the
treatment of the Fixed Rate Loan, the outcome of the LNR Action, and a determination of the
identity of the special servicer for that loan could have a substantial impact on these Chapter 11
Cases.
It is important to understand the details about the parties and the LNR Action to
appreciate how significant that impact may be. A special servicer for a CMBS trust serves a key
role in chapter 11 cases as the face of the trust that holds the loans and is essentially the
decision-maker for the trust. As this Court is well aware, Midland currently is the face of the
Fixed Rate Loan and has been active in these Chapter 11 Cases representing the interests of the
CMBS trusts that own the Fixed Rate Loan. The Fixed Rate Loan was originally split into two
equal, pari passu notes that were each put into a separate CMBS trust (C-6 REMIC and C-7
REMIC). Though Midland was appointed as the initial special servicer of the Fixed Rate Loan,
the controlling class of certificateholders of the C-7 REMIC (i.e., the most junior holder who is

23
K&E 17977557
expected to receive a distribution from the CMBS trust) appears to have the right to replace the
special servicer at any time. According to LNRs pleadings in the LNR Action, CRES holds a
51% interest in the controlling class, and, therefore, CRES has the authority to replace and
appoint the special servicer for the entire Fixed Rate Loan. LNRSH holds the remaining 49%
interest in the C7 REMIC.
According to papers filed by LNR in the LNR Action, pursuant to a letter agreement
between CRES and LNR, CRES agreed that for so long as CRES is the controlling
certificateholder, it would appoint LNR as special servicer to the Fixed Rate Loan. LNR alleges
that CRES has breached the letter agreement because CRES has not appointed LNR as the
special servicer, and Midland remains the special servicer for the Fixed Rate Loan.
Coincidentally, LNR currently serves as special servicer for five of the Debtors loans each
secured by a single hotel, representing approximately $160 million of the Debtors indebtedness
in the aggregate.
According to LNR, the identity of the appropriate special servicer for the Fixed Rate
Loan has been in dispute since April 2010, well before the commencement of the Chapter 11
Cases. According to those same papers, the proposal filed by Midland in connection with its
motion to terminate exclusivity (the Five Mile Proposal) could have a substantial effect on the
ultimate recoveries received with respect to the Fixed Rate Loan, if approved. The LNR
Objection and accompanying declaration specifically reference LNRs concerns with the Five
Mile Proposal. While those concerns do not mention this specifically, presumably, LNR
believes that the Five Mile Proposal shifts value away from the C-7 REMIC (in which LNRSH
holds a 49% interest in the controlling class of certificates) to Five Mile. In addition, LNR has
the same concerns with the Five Mile Proposal as it had with the PSA: it contemplates a single

24
K&E 17977557
company transaction and was not subject to a competitive marketing process. Thus, LNR
believes that it is critical that CRES be required to immediately terminate Midland and appoint
LNR as [s]pecial [s]ervicer of the [Fixed Rate Loan] to avoid the irreparable harm that LNR
alleges will result if the New York state court does not act quickly. LNR Mem. at 6. LNR
originally requested a temporary restraining order from the state court to prevent Midland from
participating in these Chapter 11 Cases without LNRs consent. The court denied this request.
A hearing on the preliminary injunction is scheduled for November 12, 2010. Clearly, LNR and
Midland do not agree over the proper course these Chapter 11 Cases should take.
All parties considerations of proposals from LNR, including the Court, the Debtors, and
the Debtors other constituencies, necessarily take into account whether LNR is the special
servicer for the Fixed Rate Loan with debt of approximately $825 million secured by 45 hotels in
addition to being the special servicer on five of the Debtors loans aggregating $160 million.
Likewise, parties considerations of proposals made by Midland take into account the interests
Midland represents, or whether it represents any interests at all or even has standing to
participate in the restructuring.
Based on Midlands representation that it had authority to act as special servicer to the
Fixed Rate Loan, the Debtors have expended considerable time and energy catering to Midland
and Five Mile, providing Five Mile with a significant amount of time and attention as Five Mile
considers an internal restructuring process. If not for the manner in which the Debtors engaged
with Five Mile, arranging in-person meetings, site visits, and conversations with the Debtors
personnel as well as providing certain documents to the data room ahead of other parties,
Midland would not be in the position it is to propose a deal as Midland suggests in the Midland
Objection. Supplemental Derrough Declaration at 11. On the day that the Debtors filed their

25
K&E 17977557
motion to extend exclusivity (and approximately six months after the dispute was identified), the
Debtors were made aware of this long-standing dispute.
The LNR Action raises a number of questions. To name just a few: First, if the dispute
has been ongoing since April 2010, why have Midland, LNR, and CRES all failed to inform
either the Debtors or this Court?
8
Second, if LNR ultimately prevails in the LNR Action, will it
(or any constituency, for that matter) support the Five Mile Proposal (it seems likely that LNR
would not given how LNR believes that it is critical to replace Midland at this point)? Third,
if Midland knew about this dispute, why has it rebuffed LNRs requests to discuss the Five
Mile Proposal as LNR claims?
These questions, among many others, inject a significant amount of uncertainty into the
Chapter 11 Cases and the plan processes proposed by Midland (who may not even have the
authority or standing to participate in the Chapter 11 Cases, much like Appaloosa) and LNR
(who, without the Fixed Rate Loan, is special servicer to only five of the Debtors single hotel
loan representing approximately $160 million of the Debtors $1.4 billion of indebtedness).
Even if the other reasons to extend exclusivity were not as compelling as they are, for this reason
alone, the Court should extend.
III. Potential Objections Regarding a Hypothetical Plan Structure Are Premature and
Not Valid Grounds for Denying the Debtors Requested Extension of Exclusivity.
The Midland Objection and the Wells Fargo Objection argue that the Court should not
extend the Debtors exclusive periods because the Debtors are or will be unable to propose a
viable plan of reorganization. Midland Objection at 25-33; Wells Fargo Objection at 29.
The Bankruptcy Code, however, does not require the Court to predict the outcome of the

8
The Bojmel Declaration attached to the Wells Fargo Objection mentions the LNR Action in passing in a
footnote.

26
K&E 17977557
Debtors plan process, consider the appropriateness of its hypothetical terms, and determine that
it will be a certain success. Instead, the appropriate issue for the Court is whether a debtor is
making progress. See, e.g., In re R&G Props., Inc., 2009 WL 269696 (Bankr. D. Vt. 2009)
([A]nalysis of [the viable plan exclusivity extension factor] does not requirenor could the
Court makea firm prediction of the outcome of this case. Rather, the question is whether
under the facts and circumstances presented to date the Debtor has a reasonable prospect of
reorganization.); In re Pine Run Trust, Inc., 67 B.R. 432, 435 (Bankr. E.D. Pa. 1986) (holding
that substantial progress coupled with good faith negotiations satisfied cause to extend
exclusivity, even where other traditional factors were absent).
As a result, Courts in this district and others reject arguments seeking to limit a debtors
exclusivity based on premature notions regarding the alleged inadequacy of a plan. For example,
in In re Adelphia Commcns Corp., 352 B.R. 578 (Bankr. S.D.N.Y. 2006), noteholders argued
that the debtors plan was not confirmable, and that exclusivity should be terminated on that
basis. The bankruptcy court rejected that argument, explaining that the merits of the plan are to
be examined at confirmation and dont play a meaningful role in the courts decision as to
whether or not to terminate exclusivity. See Adelphia, 352 B.R. at 588 n.18; In re Gen. Growth.
Props., 409 B.R. 43, 65 (Bankr. S.D.N.Y. 2009) (deciding that moving creditors view that it
was only impaired class that could consent to any debtor plan did not warrant dismissal of case
before plan had been proposed as parties often find it in their best interests to agree on the terms
of a plan, despite their litigating posture, as well as the fact that debt can always be left
unimpaired); see also Hrg Tr. 78:9-14, 93:12-22, In re Chemtura Corp., 09-11233 (Bankr.
S.D.N.Y. July 22, 2010) (overruling arguments regarding plan-related objections to an
exclusivity extension, noting that nor of course, do I now know, or especially express of you, as

27
K&E 17977557
to whether the proposed plan, even if it gets the votes, will or will not be confirmable and that
the equity committee's positions as to . . . the confirmability of the plan, if it otherwise gets the
votes, are likely to be at issue with plan confirmation or otherwise down the road, I need not and
dont determine the merits of those positions today.); Hr'g Tr. 19:20-24, In re Visteon Corp.,
09-11786 (Bankr. D. Del. July 15, 2010) (The plan may or may not be confirmable. Im not
going to deny exclusivity based on a factual and legal argument that the plan thats on the table
that is being solicited is facially unconfirmable.); In re Express One Intl, Inc., 194 B.R. 98, 101
(Bankr. E.D. Tex. 1996) (holding that the merits of a plan do not inform a courts determination
of whether to extend exclusivity, but rather the issue is whether debtor has been diligent in its
attempts to reorganize).
The Objectors arguments regarding the possible terms of a future plan are premature and
not relevant to the relief requested. Because the Debtors have not yet had sufficient time to
complete their plan process, the Objectors arguments rely upon a collection of assumptions
about the possible terms of a hypothetical future plan. The Debtors, however, are still executing
early portions of their multi-stage plan process at this time. Efforts to date have focused on
facilitating information flow, developing ideas, and seeking a consensus among key stakeholders
to the extent possible, as well as making sure that the Debtors are progressing towards the
solicitation of a plan sponsor to maximize the value of the Debtors enterprise. It is, therefore,
unrealistic for creditors to expect the Debtors to have developed plan terms at this date, let alone
to have filed a plan. The Debtors plan process, of course, incorporates consideration of all
viable plan structures and welcomes input from key stakeholders. The Objectors cannot
reasonably ask the Court to make a prediction regarding the outcome of the Debtors plan
process in a case as complex as this one and to deny the relief requested on that basis. See, e.g.,

28
K&E 17977557
R&G Props., Inc., 2009 WL 269696 (Bankr. D. Vt. 2009). Consequently, arguments based
regarding the perceived shortcomings of a hypothetical plan are properly left to confirmation and
are irrelevant to the Courts determination.

29
K&E 17977557
Conclusion
For the foregoing reasons, the Debtors respectfully request that this Court overrule any
pending objections and grant the relief requested in the Motion on a final basis.

New York, New York /s/ Paul M. Basta
Dated: November 9, 2010 James H.M. Sprayregen, P.C.
Paul M. Basta
601 Lexington Avenue
New York, New York 10022-4611
Telephone: (212) 446-4800
Facsimile: (212) 446-4900

and

Anup Sathy, P.C.
Marc J. Carmel (admitted pro hac vice)
300 North LaSalle Street
Chicago, Illinois 60654-3406
Telephone: (312) 862-2000
Facsimile: (312) 862-2200

Counsel to the Debtors
and Debtors in Possession

Exhibit A
Board Presentations
DRAFT ATTORNEY WORK PRODUCT
SUBJECT TO SUBSTANTIAL REVISION
PRIVILEGED AND CONFIDENTIAL
SUBJECT TO FRE 408
Innkeepers USA Trust
October 2010
Update to Board of Directors
[ 2 ]
SUBJECT TO FRE 408
Introduction
As discussed at the meeting of the Board of Directors on October 19, we have
further developed our thoughts regarding a "marketing process" for an equity
investment in a reorganized enterprise or the sale of the entire Company in the
context of a Plan of Reorganization process
We have created a proposed detailed timeline for the next four weeks with the
goal of selecting a stalking horse at the end of that time
The timeline also contemplates discussions with our constituents regarding value
allocation
We have created a preliminary detailed timeline for the next 14 weeks outlining a
marketing process
We have outlined our thoughts on a short list of parties in addition to Five Mile
Capital that we would propose to contact regarding a potential stalking horse
proposal
[ 3 ]
SUBJECT TO FRE 408
Preliminary Detailed Timeline Next Four Weeks
Timing of Key Steps of Selected Processes - Week of:
October 25 November 01 November 08 November 15
Finalize Five Mile Proposal
Finalize Diligence
Obtain Revised Proposal
Negotiate Revised Proposal
Finalize Proposal
Develop Other Stalking Horse Alternatives
Develop and Refine List of Suitable Stalking Horse Bidders
Narrow List with Management and Board Input
Initiate Discussions with Suitable Candidates to Gauge Interest
Send and Negotiate CA
Provide Access to Dataroom
Initial Indication of Interest
Additional Due Diligence
Receive Final Proposals
Select Stalking Horse Candidate
Value Allocation / Negotiate with Stakeholders
Finalize 2010 Re-forecast Budget and Distribute to Stakeholders
Finalize Interim 2011 - 2015 Projections / Extrapolations
Discuss Allocation with Stakeholders
Provide Initial Thoughts on Valuation to Board
Provide Initial Thoughts on Valuation to Stakeholders
Validate Allocation with Stakeholders
Negotiate Allocation with Stakeholders
Prepare Materials for Broader Marketing Process
Finalize Teaser
Refine Dataroom for Marketing Process
Develop Additional Marketing Materials
Finalize Comprehensive Buyers List
[ 4 ]
SUBJECT TO FRE 408
Preliminary Detailed Timeline
The timeline above does not take into consideration possible slippage as a result of holidays
Timing of Key Steps of Selected Processes - Week:
1 2 3 4 5 6 7 8 9 10 11 12 13 14
Finalize Five Mile Proposal
Develop Other Stalking Horse Alternative
Value Allocation / Negotiate with Stakeholders
Prepare Materials for Broader Marketing Process
Consideration Exchange Process
Contact Potential Interested Parties and Send Teasers
Execute Confidentiality Agreements
Distribute Procedures Letter
Initial Due Diligence
Prepare Management Presentation
Solicit and Evaluate Initial Indications of Interest
Select Group of Potential Buyers for Further Due Diligence
Management Presentations and Site Visits
Full Data Room Access/Due Diligence
Distribute Draft Term Sheets
Solicit Final Bids
Evaluate Final Bids
Negotiate with Selected Buyers and Sign Definitive Agreement
Selection of Winning Bidder
[ 5 ]
SUBJECT TO FRE 408
Stalking Horse Criteria & Development of Selected Parties
Availability of funds
Familiarity with lodging sector
Familiarity with bankruptcy process
Ability to execute due diligence quickly
Inbound inquiry
Reviewed broad list and focused on 15 20 possibilities
Developed initial list of 5 parties
STALKING
HORSE
CRITERIA
DEVELOPMENT
OF SELECTED
PARTIES
[ 6 ]
SUBJECT TO FRE 408
(REDACTED LIST OF STALKING HORSE CANDIDATES)
[ 7 ]
SUBJECT TO FRE 408
(REDACTED LIST OF POTENTIAL BUYERS/INVESTORS)
SUBJECT TO FRE 408
Innkeepers USA Trust
October 19, 2010
Discussion Materials
[ 2 ]
SUBJECT TO FRE 408
This presentation may include forecasts, projections, or other forward looking information. You are
cautioned that any forward-looking information is based on assumptions, judgments, and estimates about
future conditions and events which are difficult to predict and in many instances are beyond the control of
the Debtors. As a result, actual events and results may differ significantly from the forward-looking
information. This presentation speaks only as of its date, and neither the Debtors nor their advisors assume
any duty to update this presentation or advise any person that their views have changed.
You are advised to consult with your own legal and financial advisors in connection with this presentation
and the cases.
Moelis & Company (Moelis) prepared this presentation based on information received from the Debtors
and other third parties. Moelis have not and do not intend to verify independently any of such information,
all of which they assume is accurate and complete in all material respects. Moelis assume that any forward-
looking information in this presentation was prepared based on the best available estimates of the future
events underlying such statements.
This presentation is solely for your information purposes. Consider it along with all other facts, advice, and
your own insights before making your own independent decisions. No person should rely on it for any
purpose, except as intended. Moelis does not offer tax, accounting, or legal advice.
Moelis provides mergers and acquisitions, restructuring and other advisory services to clients, and its
affiliates manage private investment partnerships. Its personnel may make statements or provide advice that
is contrary to information contained in this material. The proprietary interests of Moelis may conflict with
your interests. Moelis may from time to time have positions in or effect transactions in securities described in
this presentation. Moelis may have advised, may seek to advise, and may in the future advise or invest in
companies mentioned in this presentation.
Legal Disclaimer
[ 3 ]
SUBJECT TO FRE 408
Agenda
I. Situation Update
II. Preliminary Valuation Considerations
III. Restructuring Alternatives Discussion
Appendix
A. Prepetition Capital Structure Overview
B. Additional Valuation Information
[ 4 ]
SUBJECT TO FRE 408
I. Situation Update
[ 5 ]
SUBJECT TO FRE 408
Situation Update
Currently engaging with key stakeholders
Initial round of meetings
Subsequent telephonic feedback targeted on restructuring process
Continue to facilitate diligence by Five Mile and certain other parties principally existing
stakeholders
Evaluating merits and format for a comprehensive restructuring process
The Company, along with Moelis and K&E:
Focused on a process that will facilitate a consensual restructuring plan and maximize
value for stakeholders
Considering the numerous ways a process can be executed
Discussed, reviewed, and considered possible alternatives
Has begun laying the foundations for marketing materials, if necessary offering memo,
data room, etc.
Forecast revisions
Company has completed the 2010 re-forecast for the boards approval
Plan to review additional adjustments to 2011 - 2015 forecasts with Moelis on
October 21
st
22
nd
[ 6 ]
SUBJECT TO FRE 408
II. Preliminary Valuation Considerations
[ 7 ]
SUBJECT TO FRE 408
Valuation Considerations and Methodologies
COMPANY
FORECASTS
Revised 2010 forecast and budget
Reforecast 2011-2015 on an interim basis in advance of 2011 budget
process
PRIMARY
VALUATION
METHODOLOGIES
PORTFOLIO AND
POOLS
Portfolio composition and changes
Intrinsic value - Discounted cash flow
Comparable public companies
Benchmarking analysis
Comp selection
Comparable transactions
Individual assets
Portfolio transactions
INDIVIDUAL
ASSET
VALUATION
Intrinsic value
Comparable transactions product type, MSA, similar MSAs and
region
DEBT CAPACITY
Comparable company analysis
Current and historical debt levels
Debt service coverage and credit statistics
[ 8 ]
SUBJECT TO FRE 408
47.1%
21.2%
5.5%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
Lodging REITS MSCI US REITs S&P 500
16.2%
14.0%
9.8%
0.0%
4.0%
8.0%
12.0%
16.0%
20.0%
10.0%
4.5%
2.2%
0.0%
4.0%
8.0%
12.0%
Lodging REITS S&P 500 MSCI US REITs
--
20
40
60
80
100
120
1/1/2007 1/1/2008 1/1/2009 1/1/2010
`
Lodging Sector Performance
Source: Capital IQ, as of October 15, 2010
Note: Lodging REITs index includes Ashford, Diamondrock, FelCor, Hersha, Host, HPT, LaSalle, MHI, Strategic, Sunstone and Supertel
(17.0%)
(31.5%)
(53.5%)
INDEXED PRICE PERFORMANCE SINCE 1/1/07 PRICE PERFORMANCE - YTD
10/15/10
PRICE PERFORMANCE LAST 90 DAYS
PRICE PERFORMANCE LAST 30 DAYS
[ 9 ]
SUBJECT TO FRE 408
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x
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x
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x
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Ashford Hersha HPT Supertel Diamondrock FelCor Host LaSalle MHI Strategic Sunstone
10/15/2009 10/15/2010
Lodging Sector Valuation Perspective
TEV / 2010E EBITDA TEV / 2011E EBITDA
Midscale Limited Service Other Lodging REITs
Source: Company filings, SNL and Capital IQ
CHANGE IN TEV / NTM EBITDA MULTIPLE
[ 10 ]
SUBJECT TO FRE 408
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LTM TRANSACTION MULTIPLES
HOTEL TRANSACTION VOLUME (TTM) PRICE PER KEY
Source: Company filings, Bloomberg, Capital IQ and Real Capital Analytics; includes those transactions that had sufficient publicly available information to derive per key metrics
$0
$10
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[ 11 ]
SUBJECT TO FRE 408
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Ashford Hersha HPT Supertel Diamondrock FelCor Host LaSalle MHI Strategic Sunstone
Debt Capacity Perspectives
(DEBT & PREFERRED EQUITY) / LTM EBITDA DEBT / CAPITALIZATION
LODGING REIT SECTOR DEBT / CAPITALIZATION LAST 5 YEARS (HIGH / MEDIAN / LOW)
Source: Company filings, SNL and Capital IQ; LTM based on 6/30/2010
81.4%
64.2%
46.7%
73.0%
37.8%
73.8%
41.9%
41.3%
72.9%
65.6%
63.8%
[ 12 ]
SUBJECT TO FRE 408
20%
40%
60%
80%
100%
10/15/2005 10/15/2006 10/15/2007 10/15/2008 10/15/2009 10/15/2010
Low Average High
5 Year Average: 60.5%
Historical Debt to Total Capitalization (Industry Low / Average / High)
(1)(2)
Source: Company filings, SNL Financial and Capital IQ
(1) REIT Index includes Ashford, Diamondrock, FelCor, Hersha, Host, HPT, LaSalle, MHI, Strategic, Sunstone and Supertel
(2) Debt to Total Capitalization calculated as (Debt + Preferred Equity) / (Debt + Preferred Equity + Market Value of Equity)
[ 13 ]
SUBJECT TO FRE 408
($MM, except ADR and RevPAR) 2010E Growth from 2009 Industry
2009 Original Re-Forecast Original Re-Forecast Growth
Actuals Budget
(1)
Budget
(2)
Budget Budget Projections
(3)
Consolidated
Revenue $281.3 $273.8 $290.7 (2.7%) 3.4%
Hotel EBITDA 94.9 90.4 98.5 (4.7%) 3.7%
ADR $111.94 $111.38 $110.71 (0.5%) (1.1%) (0.6%) - 1.0%
OCC 67.5% 65.8% 70.6% (2.5%) 4.5% 3.6% - 5.2%
RevPAR $75.57 $73.31 $78.12 (3.0%) 3.4% 3.0% - 6.0%
Fixed Pool
Revenue $160.9 $157.5 $166.8 (2.1%) 3.6%
Hotel EBITDA 59.8 57.8 62.4 (3.5%) 4.3%
ADR $109.31 $108.51 $108.07 (0.7%) (1.1%)
OCC 69.2% 68.2% 72.7% (1.5%) 5.0%
RevPAR $75.65 $73.99 $78.55 (2.2%) 3.8%
Floating Pool
Revenue $80.0 $76.6 $82.3 (4.2%) 2.8%
Hotel EBITDA 20.1 18.0 20.7 (10.2%) 3.0%
ADR $108.32 $108.24 $106.24 (0.1%) (1.9%)
OCC 61.2% 57.9% 63.8% (5.4%) 4.2%
RevPAR $66.25 $62.62 $67.73 (5.5%) 2.2%
Other Hotels
Revenue $40.4 $39.7 $41.7 (1.8%) 3.2%
Hotel EBITDA 15.0 14.6 15.4 (2.5%) 2.5%
ADR $133.86 $133.19 $135.15 (0.5%) 1.0%
OCC 75.6% 74.2% 77.5% (1.8%) 2.5%
RevPAR $101.18 $98.84 $104.72 (2.3%) 3.5%
2010E Forecast Update Comparison
Note: All figures exclude the Ontario Hilton; Corporate overhead of $11.7mm excluded in calculation of Hotel EBITDA
(1) Budget developed in March 2010; includes actuals for January February 2010
(2) Re-forecast developed in October 2010; includes actuals for January August 2010
(3) Industry growth projections from STR, PwC, Green Street and PKF
Preliminary Projections for Discussion Only
Not Final Subject to Management Review and Substantial Revision
[ 14 ]
SUBJECT TO FRE 408
($MM) 2010E EBITDA Multiple
HOTEL EBITDA 9.0x 10.0x 11.0x 12.0x 13.0x 14.0x
Consolidated Entity
Implied Value (Pre-Corporate) $98.5 $886.3 $984.8 $1,083.3 $1,181.8 $1,280.2 $1,378.7
Implied Value (After Corporate) $86.8 $781.3 $868.1 $955.0 $1,041.8 $1,128.6 $1,215.4
Implied Value / Key (After Corporate) $83k $92k $101k $110k $119k $129k
Implied NOI at 10.0% Cap Rate (After Corporate) $78.1 $86.8 $95.5 $104.2 $112.9 $121.5
Fixed Pool
Implied Value $62.4 $561.5 $623.8 $686.2 $748.6 $811.0 $873.4
Implied Value / Key $99k $110k $121k $132k $143k $154k
Implied NOI at 10.0% Cap Rate $56.1 $62.4 $68.6 $74.9 $81.1 $87.3
Floating Pool
Implied Value $20.7 $186.2 $206.9 $227.6 $248.3 $269.0 $289.7
Other Hotels
Implied Value $15.4 $138.7 $154.1 $169.5 $184.9 $200.3 $215.7
Implied Valuation Based on 2010 EBITDA Multiples
Note: Other Hotels excludes the Ontario Hilton
(1) Corporate overhead of $11.7mm assumed in calculation of 2010E EBITDA After Corporate
(1)
[ 15 ]
SUBJECT TO FRE 408
III. Restructuring Alternatives Discussion
[ 16 ]
SUBJECT TO FRE 408
Considerations for Restructuring Alternatives
In consultation with its advisors, the Company has given consideration to a range of
restructuring alternatives
On behalf of the Company, Moelis sought input from various stakeholder advisors regarding
their views on restructuring alternatives
- Support for different approaches varies among the stakeholders
- Many support a marketing process of one form or another
- Opt out option expressed; implications unclear as specifics seem to vary
In respect of a Plan which is based on a marketing process, Moelis has considered the
following:
Equity investment in recapitalized enterprise
Sale of the enterprise
Sale of each pool of collateral independently
Sale of groups of assets by brand, geography, age, or market segment
Property by property sale
Each path has its strengths and weaknesses; however, developing an approach that maximizes
process integrity under the circumstances is likely to maximize value
[ 17 ]
SUBJECT TO FRE 408
Concept Issues / Considerations
DESCRIPTION CONSIDERATIONS
EQUITY
INVESTMENT
AMONG
CONSTITUENTS
(CONCEPT A)
Post money
equity either
marketed or
retained
Requires substantial buy-in from constituents on new capital structure
Relative value allocation
Not all parties are willing or able to accept equity
SALE OF
COMPANY
(CONCEPT B)
Sale of the
entire
enterprise
subject to
satisfaction of
liabilities
Need to obtain new financing creates complexity
Requires approval of transaction outcome and distribution of proceeds
Constituents do not have options to stay in deal
Relative value allocation
SALE BY SILO
(CONCEPT C)
Assets are
marketed by
pool
Impact on enterprise and overhead absorption
Not guaranteed that all silos are sold
Franchisor impact
SALE BY
ATTRIBUTE
(CONCEPT D)
Assets are sold
by flag,
geography or
other attribute
Value allocation post sale
Execution effort increased time, effort intensive and costly process
Redistribution of assets / bucketing likely to meet creditor resistance
Not guaranteed that all assets are sold
Franchisor impact
HOTEL BY
HOTEL SALE
(CONCEPT E)
Hotels are sold
on an
individual or
packaged basis
May be a burdensome, timely and costly process
Not guaranteed that all hotels are sold / cherry picking of assets
May eliminate some bidders that are willing to employ larger amounts of capital
Franchisor impact
[ 18 ]
SUBJECT TO FRE 408
Concept A Illustrative Assumptions
The plan concept assumes the following , however, these numbers remain subject to change
and are for illustrative purposes only:
Total Enterprise Value (Pre-Money): $1.0 billion
Fixed Pool Collateral: $600 million
Floating Pool Collateral: $200 million
Other Hotels Collateral: $200 million
New Money: $100 million
[ 19 ]
SUBJECT TO FRE 408
Step 1 Step 1A
Initial Corporate Finance 101 Approach Optional / Consensual Exchange of Consideration
Illustrative Pre-Money Valuation:
Creditor A Creditor B Creditor C
(Value to existing creditors; includes deficiency claims)
Fixed Pool Floating Pool Others
$600mm $200mm $200mm
Assumed Rate 6.7% 6.7% 6.7% Creditor Realignment of Form of Consideration:
Coverage 2.2x 2.2x 1.6x Debt Debt
$180mm $60mm $60mm
Cash Cash
$100mm New Money
Equity Equity
New Money Summary:
Five Mile DIP Repayment Illustrative Pro-Forma Holdings:
Lehman DIP Repayment Creditor A Creditor B Creditor C
Administrative Claims Equity
Cash and PIPs Cash
Total New Money:
Debt
Equity
Debt
Cash
Debt
Equity
Debt
Equity
Equity
Debt
Equity
Debt
15mm
$100mm
$53mm
17mm
15mm
$140mm
Total
Equity
Total
Debt
$420mm $140mm
70% Debt to Capitalization
(Pre-Money)
Optional / Consensual
Realignment
Concept A Equity Investment Among Constituents
Note: For illustrative purposes only
[ 20 ]
SUBJECT TO FRE 408
Step 2 Step 3
Equity Monetization Option Marketing Process
Hypothetical Election Equity Seek higher and better offers for constituents
Fixed Pool Marketed Equity that elect to market equity
Floating Pool Retain Equity
Others Marketed Equity
New Money Marketed Equity
Hypothetical Outcome
Shares Ownership
Fixed Pool
Shares Ownership Floating Pool
Fixed Pool Others
Floating Pool New Money
Others
New Money
Pro-forma Capitalization
Total Debt Pro-forma Capitalization
Total Equity Total Debt
Total Debt / Capitalization Total Equity
Total Debt / Capitalization
Step 2A
Initial Marketing Options:
1. Rights offering
- With backstop
- Without backstop
2. Sale to Stalking Horse purchaser of equity
3. Process with no Stalking Horse in place
$180mm
$400mm
Equity
9mm
3mm
3mm
20mm
5mm
15%
25%
100%
60mm
60mm
100mm
64%
$180mm
60mm
60mm
100mm
$400mm
45%
$700mm
400mm
15%
Equity
$315mm
105mm
105mm
$625mm
Equity value increases $225mm, increasing the post-money
valuation of $1.1bn to $1.3bn
16% 3mm
18mm 100%
9mm
3mm
3mm
100mm
$700mm
625mm
53%
50%
17%
17%
Offers for $35 per share
Shares issued at $20 per share
Concept A Equity Investment Among Constituents (contd)
[ 21 ]
SUBJECT TO FRE 408
Concept A Equity Investment Among Constituents (contd)
Theoretical Recovery Analysis
Recovery Based on Valuation at Issuance Recovery Based on Valuation after Marketing Process
2010E 2010E
Estimated Recovery EBITDA Estimated Recovery EBITDA
Claim $ % Multiple Claim $ % Multiple
Fixed Pool
$825mm $600mm 73% 9.6x
Fixed Pool
$825mm $735mm 89% 11.8x
Floating Pool
341mm 200mm 59% 9.7x
Floating Pool
341mm 245mm 72% 11.8x
Others
195mm 195mm 100% 12.7x
Others
195mm 195mm 100% 12.7x
Value Over Secured Claim 5mm NA Value Over Secured Claim 50mm NA
$1,361mm $1,000mm 73% 10.2x $1,361mm $1,225mm 90% 12.4x
$825mm
$220mm
$174mm
$200mm
$600mm
$195mm
$21mm
$121mm
$0mm
$200mm
$400mm
$600mm
$800mm
$1,000mm
Estimated
Claim
Recovery Estimated
Claim
Recovery Estimated
Claim
Recovery
Mortgage Debt Mezzanine Debt
$825mm
$220mm
$174mm
$245mm
$195mm
$735mm
$121mm
$21mm
$0mm
$200mm
$400mm
$600mm
$800mm
$1,000mm
Estimated
Claim
Recovery Estimated
Claim
Recovery Estimated
Claim
Recovery
Mortgage Debt Mezzanine Debt
[ 22 ]
SUBJECT TO FRE 408
Step 1 Step 2 Step 3
Possible Bid Structure Assets Marketed Possible Outcome
Bidder A
Bidder D
Other
Hotels
Mission Valley
Bidder B
Fixed Pool
Floating Pool
Mission Valley
Fixed Pool
Floating Pool
Anaheim Hilton
Anaheim RI
Bidder A
Bidder B
Bidder C
Bidder D
San Antonio
Tyson's Corner
Washington DC
No Bids
Bidder C
Tyson's Corner
Anaheim Hilton
Tyson's Corner
Anaheim RI
San Antonio
Concept C Sale by Silo
[ 23 ]
SUBJECT TO FRE 408
Possible Bid Structure Assets Marketed Reallocation of Value
Bidder A
Bidder B
Bidder C
Bidder D
Residence Inns
(Gen 1)
Full Service
Hotels
Other Brands
Fixed Pool
Floating Pool
Other Hotels
Residence Inns
Concept D Sale by Brand or Other Attribute
[ 24 ]
SUBJECT TO FRE 408
Bids Assets Marketed Outcome
Fixed Pool
Floating Pool
Other Hotels
Allocation
Unsold
Sold
Bidder A
Bidder B
Bidder C
Bidder D
Concept E Hotel by Hotel Sale
[ 25 ]
SUBJECT TO FRE 408
Observations / Preliminary Recommendation
Sale of Company likely to limit investor universe and participation on go-forward basis by
existing stakeholders
Break up sales add complexity and time and seem less desired by constituents
Certain stakeholders remain focused on ability to take back assets or silo marketing
- Likely to impact sale / investor process and break up enterprise
Equity investment with possibility for differing forms of consideration likely to preserve
enterprise and allow for robust marketing when and if necessary
- Will require some level of agreement on relative value
- Consider treatment of preferred shareholders
[ 26 ]
SUBJECT TO FRE 408
Appendix
[ 27 ]
SUBJECT TO FRE 408
A. Prepetition Capital Structure Overview
[ 28 ]
SUBJECT TO FRE 408
Overview of Capital Structure by Financing Pool
Parent
Holdings Management
$700k Common
and Preferred
Trust
$173mm Holdings Common
$75mm Holdings Preferred
$145mm Public Preferred
$825mm Fixed Rate
CMBS Pool
LB-UBS 2007-C6
Securitization Amount: $2.6 billion
Innkeepers Portion: $412.5 million
Servicer: Wachovia
Sp. Servicer: Midland
LB-UBS 2007-C7
Securitization Amount: $3.0 billion
Innkeepers Portion: $412.5 million
Servicer: Wachovia
Sp. Servicer: LNR
Pools 2007-C6 and 2007-C7 Cross-Collateralized
45 Hotels / 5,686 Keys
2009 Hotel EBITDA: $59.8mm
2009 Leverage: 13.8x
Debt / Key: $145,093
Maturity: 2017
Coupon: 6.71%
$341mm Floating Rate
CMBS Pool
($220 Snr / $121 Mezz)
Collateral
20 Hotels / 2,778 Keys
2009 Hotel EBITDA:
$20.1mm
Debt / Key: $129,230
Maturity: 2012
Snr. Coupon: L+205
Mezz: 5% Cash / 15% PIK
Snr Lender: Lehman
Servicer: TriMont
Sp. Servicer: TriMont
$35mm Anaheim
CMBS/Mortgage
(Senior/Mezz)
Collateral
1 Hotel / 230 Keys
2009 Hotel EBITDA:
$1.8mm
Debt / Key: $152,174
Securitization Amount:
$2.9 billion
Maturity: 2010/2010
Snr. Coupon: 5.41%
Mezz: 10%
Servicer: Capmark
Sp. Servicer: CW Cap: Snr
TriMont: Mezz
$120mm Capmark
CMBS Financing
Collateral
3 Hotels / 701 Keys
2009 Hotel EBITDA:
$7.4mm
Debt / Key: $171,184
$2.7 / $3.4 billion
Maturity: 2016
Coupon: 5.98%
Servicer: Capmark
Sp. Servicer: CIII (Ontario)
/ LNR (Anaheim &
Mission Valley)
$75mm Merrill
CMBS Financing
Collateral
3 Hotels / 372 Keys
2009 Hotel EBITDA:
$6.8mm
Debt / Key: $201,612
$4.5 billion
Maturity: 2016
Coupon: 6.03%
Servicer: Wells Fargo
Sp. Servicer: LNR
Source: January management reporting package
(1) Borrowers under $33mm CSE mortgage loan
(2) Each hotel has a separate uncrossed loan
OBSERVATIONS
Approximately $1.4 billion of secured debt, secured by nine pools of
collateral
$825 Million Fixed Rate CMBS Loan
- Collateralized by 45 hotels
$341 Million Floating Rate Portfolio Loans (Lehman as original lender)
- $220 Million Senior Mortgage Loan (collateralized by 20 hotels )
- $121 Million Mezzanine Loan (collateralized by equity of each
mortgage loan borrower)
Seven additional CMBS Mortgage Loans
- Each collateralized by one hotel
- Anaheim Residence Inn includes a mezzanine loan (collateralized by
equity of entity owning hotel)
JV (49%)
Genwood
Raleigh
(1)
Hotels
(2)
(Debt in $mm):
San Antonio ($24)
Tysons Corner ($25)
Washington DC ($26)
Hotels
(2)
(Debt in $mm):
Anaheim RI ($38)
Mission Valley ($47)
Ontario Hilton ($35)
Innkeepers USA LP
Innkeepers Financial
Corporation
[ 29 ]
SUBJECT TO FRE 408
Detailed Corporate Chart of Debtors
12% Series A Preferred Stock (owned by Grand Prix Holdings)
8% Series C Preferred Stock (owned by third parties)
$220
[ 30 ]
SUBJECT TO FRE 408
B. Additional Valuation Information
[ 31 ]
SUBJECT TO FRE 408
Enterprise Value / '09A - '11E 09A - '11E
Stock Price % 52 Wk Equity Enterprise Revenue EBITDA Revenue EBITDA
($ in millions, except per share) 10/15/10 High Value Value CY 2010 CY 2011 CY 2010 CY 2011 CAGR CAGR
Midscale Limited Service Lodging REITs
Hospitality Properties Trust $22.75 80.3% $2,807 $5,206 4.8x 4.7x 9.5x 9.5x 3.6% 1.2%
Ashford Hospitality Trust Inc. $10.10 98.2% 516 3,189 3.4x 3.3x 14.1x 12.3x 3.4% 10.1%
Hersha Hospitality Trust $6.00 95.7% 835 1,473 5.5x 5.0x 13.4x 11.7x 15.5% 28.8%
Supertel Hospitality, Inc. $1.47 66.2% 34 196 2.3x 2.4x 16.1x 11.7x (3.9%) (7.6%)
Mean 85.1% $1,048 $2,516 4.0x 3.8x 13.3x 11.3x 4.6% 8.1%
Median 88.0% $676 $2,331 4.1x 4.0x 13.7x 11.7x 3.5% 5.7%
Other Lodging REITs
Host Hotels & Resorts Inc. $16.11 94.3% $10,620 $14,710 3.4x 3.1x 17.7x 14.8x 6.2% 8.6%
LaSalle Hotel Properties 24.86 88.1% 1,737 2,322 3.6x 3.2x 14.1x 11.7x 8.9% 10.2%
Strategic Hotels & Resorts, Inc. 4.73 67.9% 716 2,230 2.9x 2.8x 17.6x 15.5x 5.6% 12.1%
FelCor Lodging Trust Inc. 5.45 60.6% 529 2,202 2.3x 2.2x 11.9x 10.2x 6.2% 17.7%
Sunstone Hotel Investors Inc. 10.29 76.4% 1,014 2,152 3.1x 3.1x 14.3x 12.6x 5.9% 5.4%
Diamondrock Hospitality Co. 10.72 91.1% 1,657 2,184 3.5x 3.0x 16.4x 13.2x 11.5% 24.3%
MHI Hospitality Corp. 2.27 58.5% 22 170 2.2x 2.0x 10.3x 8.6x 8.4% 26.5%
Mean 76.7% $2,328 $3,710 3.0x 2.8x 14.6x 12.4x 7.5% 15.0%
Median 76.4% $1,014 $2,202 3.1x 3.0x 14.3x 12.6x 6.2% 12.1%
Lodging REITs Multiple Analysis
Source: Company filings and Capital IQ
[ 32 ]
SUBJECT TO FRE 408
Price /
Stock Price % 52 Wk Equity Enterprise 2010E 2011E '09A - '10E Dividend Implied TEV ('000s)
($ in millions, except per share) 10/15/10 High Value Value FFO FFO FFO CAGR Yield Cap Rate / Key
Midscale Limited Service Lodging REITs
Hospitality Properties Trust $22.75 80.3% $2,807 $5,206 7.1x 6.9x (1.3%) 7.9% NM $121
Ashford Hospitality Trust Inc. 10.10 98.2% 516 3,189 6.9x 5.5x 30.2% -- NM 142
Hersha Hospitality Trust 6.00 95.7% 835 1,473 16.2x 13.0x (9.4%) 3.3% 4.9% 157
Supertel Hospitality, Inc. 1.47 66.2% 34 196 6.4x 5.3x (17.4%) -- 11.0% 20
Mean 85.1% $1,048 $2,516 9.1x 7.7x 0.5% 2.8% 8.0% $110
Median 88.0% $676 $2,331 7.0x 6.2x (5.4%) 1.7% 8.0% 132
Other Lodging REITs
Host Hotels & Resorts Inc. $16.11 94.3% $10,620 $14,710 22.7x 17.9x 31.6% 0.3% 6.0% $229
LaSalle Hotel Properties 24.86 88.1% 1,737 2,322 18.4x 14.4x 2.7% 1.8% 7.2% 267
Strategic Hotels & Resorts, Inc. 4.73 67.9% 716 2,230 NM 47.3x NA -- 6.1% 308
FelCor Lodging Trust Inc. 5.45 60.6% 529 2,202 NM 23.7x (17.8%) -- 8.1% 92
Sunstone Hotel Investors Inc. 10.29 76.4% 1,014 2,152 18.1x 13.4x 5.6% -- 7.5% 190
Diamondrock Hospitality Co. 10.72 91.1% 1,657 2,184 17.9x 14.5x (5.0%) 0.3% 5.6% 210
MHI Hospitality Corp. 2.27 58.5% 22 170 4.3x 3.5x 15.2% -- 9.1% 70
Mean 76.7% $2,328 $3,710 NM 19.2x 5.4% 0.3% 7.1% $195
Median 76.4% $1,014 $2,202 17.9x 14.5x 4.2% 0.0% 7.2% 210
Lodging REITs Multiple Analysis (contd)
[ 33 ]
SUBJECT TO FRE 408
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ENTERPRISE VALUE ($MM) EQUITY VALUE ($MM)
LTM REVENUE ($MM) LTM EBITDA ($MM)
Source: Company filings, SNL and Capital IQ; LTM as of 6/30/2010
Note: All Tavern financials exclude the Ontario Hilton
(1) Corporate overhead of $11.7mm assumed in calculation of LTM EBITDA
Midscale Limited Service Other Lodging REITs Midscale Limited Service Other Lodging REITs
(
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[ 34 ]
SUBJECT TO FRE 408
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IMPLIED CAPITALIZATION RATE TEV / KEY
2010E REVENUE / KEY 2010E EBITDA / KEY
(
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(1) Corporate overhead of $11.7mm assumed in calculation of 2010E EBITDA
[ 35 ]
SUBJECT TO FRE 408
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US Lodging REITs (contd)
LTM REVENUE / KEY LTM EBITDA / KEY
DEBT / KEY LTM CAPITAL EXPENDITURES / KEY
(
1
)
Source: Company filings, SNL and Capital IQ; LTM as of 6/30/2010
(1) Corporate overhead of $11.7mm assumed in calculation of LTM EBITDA
[ 36 ]
SUBJECT TO FRE 408
$
1
0
3
$
1
3
0
$
9
4
$
9
9
$
1
4
5
$
7
7
$
1
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$
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$
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$
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$
1
1
2
$
9
2
$
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$
1
2
7
$
9
7
$
1
0
0 $
1
4
0
$
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6
$
1
4
6
$
7
7
$
2
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4
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9
$
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$
1
1
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9
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5
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1
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5
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8
2
$
8
5 $
1
1
3
$
6
1
$
1
2
1
$
6
5
$
1
5
8
$
9
8
$
2
9
$
9
1
$
7
6
$
8
9
$
1
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8
7
$
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0 $
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$
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1
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$
1
5
6
$
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$
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9
$
9
4
$
7
8
$0
$50
$100
$150
$200
$250
$300
$350
Ashford Diamondrock FelCor Hersha Host HPT LaSalle MHI Strategic Sunstone Supertel Industry
Average
Tavern
2007 2008 2009 YTD
7
4
%
7
4
%
7
0
%
7
3
%
7
3
%
7
2
%
7
4
%
7
0
%
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6
%
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% 7
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%
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7
1
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%
7
4
%
6
1
% 7
0
%
7
3
%
6
6
%
6
8
%
6
6
%
6
7
%
6
6
%
6
4
%
7
0
%
6
0
%
6
6
%
6
9
%
5
8
% 6
5
%
6
8
%
7
0
%
6
9
%
7
1
%
6
9
%
7
0
%
6
9
%
7
1
%
6
8
%
6
6
%
7
0
%
6
2
%
6
9
%
7
1
%
0%
20%
40%
60%
80%
100%
Average
Tavern
2007 2008 2009 YTD
$
1
4
0
$
1
7
6
$
1
3
4
$
1
3
5
$
1
9
5
$
1
0
7
$
2
0
1
$
1
1
9
$
2
6
4
$
1
6
1
$
3
2
$
1
5
3
$
1
2
4
$
1
4
3
$
1
7
7
$
1
3
6
$
1
3
9
$
1
9
7
$
1
0
9
$
1
9
9
$
1
2
4
$
2
8
2
$
1
6
1
$
3
0
$
1
5
6
$
1
2
7
$
1
2
9
$
1
5
4
$
1
2
3
$
1
2
8 $
1
7
1
$
9
5
$
1
7
3
$
1
0
7
$
2
3
9
$
1
4
2
$
2
9
$
1
3
7
$
1
1
2
$
1
2
7
$
1
5
4
$
1
2
2
$
1
3
0 $
1
7
2
$
9
1
$
1
7
2
$
1
0
5
$
2
3
6
$
1
4
7
$
2
9
$
1
3
6
$
1
1
1
$0
$50
$100
$150
$200
$250
$300
$350
Average
Tavern
2007 2008 2009 YTD
REIT Operating Statistics Comparison
ADR ($)
OCCUPANCY (%)
Source: Company filings; Year-to-date (YTD) based on 6/30/2010
REVPAR ($)
[ 37 ]
SUBJECT TO FRE 408
Transaction Property
Target / Acquiror Value ($MM) Keys Value / Key
Extended Stay / PE Consortium $3,925 77,200 $50,842
Lodgian / Lone Star Funds 270 5,230 51,625
Hilton Minneapolis Hotel / DiamondRock 156 821 190,012
Four Courtyard Marriott Hotels / Inland American Lodging 80 598 133,779
Boston Newton Marriott Hotel / Chesapeake Lodging 77 430 179,651
Six Hilton Homewood Suites / Chatham Lodging 74 813 90,406
Hampton Inn Washington DC / Hersha Hospitality 73 228 320,175
3 Marriotts (RI, SS, CY) and 1 Hampton Inn / Chatham Lodging 61 444 137,387
Hilton Garden Inn Lake Forest / Apple REIT 31 170 179,412
Courtyard Anaheim at Disneyland / Chesapeake Lodging 25 153 164,052
Residence Inn Lake Forest / Apple REIT 24 130 180,769
Hampton Inn St. Louis / Apple REIT 23 190 121,053
Hampton Inn& Suites Boise / Apple REIT 22 186 120,269
Hilton Garden Inn Warrenville / Apple REIT 22 135 162,963
Embassy Suites Tampa / Apple REIT 22 147 148,299
Residence Inn Holtsville / Chatham Lodging 21 124 171,774
Hilton Garden Inn Schaumberg / Apple REIT 21 166 123,494
Courtyard Austin / Apple REIT 20 145 137,931
Fairfield Inn & Suites Austin / Apple REIT 18 150 118,333
SpringHill Suites Salt Lake / Apple REIT 18 143 122,378
Hilton Garden Inn Spring Hill / Apple REIT 17 107 162,617
Courtyard Chandler / Apple REIT 17 150 113,333
Hilton Garden Inn Novi / Apple REIT 16 148 109,459
Courtyard Phoenix Chandler / Apple REIT 16 164 97,561
Hilton Garden Inn Austin / Apple REIT 16 117 136,752
Hampton Inn& Suites St. Louis / Apple REIT 16 126 126,984
Springhill Suites Baton Rouge 15 119 126,891
Residence Inn Phoenix / Apple REIT 14 129 108,527
Residence Inn South Bend / Apple REIT 14 106 129,245
SpringHill Suites Indianapolis / Apple REIT 13 130 98,462
Fairfield Inn & Suites Chandler / Apple REIT 12 110 109,091
Homewood Suites Rogers / Apple REIT 12 126 95,238
Four Points by Sheraton Hotel Ann Arbor / RockBridge Partners 12 197 60,914
Holiday Inn San Jose-Silicon Valley 11 208 50,481
Homewood Suites Arkansas / Apple REIT 10 126 82,540
Hampton Inn Kansas City / Apple REIT 10 122 83,033
Holiday Inn Brentwood / Eagle Hospitality 10 244 41,393
High $320,175
Low $41,393
Mean $125,328
Median $122,378
Transaction Multiples
Source: Company filings, Bloomberg, Capital IQ and Real Capital Analytics; includes those transactions that had sufficient publicly available information to derive per key metrics

Exhibit B
Plan Process Documents
Plan Process Protocol
Innkeepers USA Trust ("Innkeepers" and, together with its affiliated debtors, the "Debtors") has
established this plan protocol for its restructuring process. This protocol is subject to
modification by the Board of Trustees of Innkeepers (the "Board"), based upon further
developments and taking into consideration the input of Innkeepers' stakeholders, where
appropriate. This protocol, as amended or modified from time to time, must be adhered to by
Innkeepers' management and advisors.
I. Communication Protocol
Innkeepers intends to communicate with each of its key stakeholders and consider indications of
interests and proposals from stakeholders and third parties. Innkeepers has engaged with all
major stakeholders to solicit input regarding restructuring alternatives with the goal of proposing
and filing a consensual plan. Meetings have already taken place and additional meetings will be
scheduled, as appropriate.
To enable parties in interest access to information relevant to evaluating a potential transaction,
Innkeeper's financial advisor, Moelis & Company ("Moelis"), working with Innkeepers, is
maintaining an electronic data room, and Moelis will ensure that it is populated. Innkeepers will
work with its financial and legal advisors to ensure that the data room has appropriate
information and is properly organized. Current stakeholders have been granted access to the data
room. With respect to third parties who express interest, Moelis, in consultation with the Board
and a special committee of the Board that is comprised of its independent members (the
"Independent Committee"), will evaluate whether, if, and when to grant such parties access to
the data room, subject to the parties signing an appropriate confidentiality agreement. All parties
will be required to establish that they have adequate financial resources to complete a viable
transaction before they are granted access to the data room. Consistent with the "Plan Process
Responsibilities," any interested parties should contact Moelis directly.
Moelis will provide regular status updates regarding the data room, discussions with
stakeholders, discussions with third parties, and other relevant information to the Board, the
Independent Committee, and stakeholders, as appropriate.
II. Consideration of Proposals
The Debtors are working on a reforecast of their results and projections to ensure that they
represent the current expectations of the market over the next several years. This will assist with
plan discussions, support various related valuation analyses, and be useful in the evaluation of
plan proposals. In addition, at the Debtors' request, Moelis will: (a) develop plan concepts;
(b) facilitate due diligence by interested parties; and (c) advise the Board, the Independent
Committee, and management on views of valuation and debt capacity.
1
K&E 17748469
Additionally, the Debtors and their advisors are analyzing proposals that have been received and
are working with certain parties who have expressed an interest in the Debtors to encourage them
to complete their due diligence.
As discussed above, the Independent Committee, will (a) review and evaluate information about
the Debtors' restructuring alternatives and, as appropriate, meet separately from the Board and
(b) address any conflicts of interest appropriately. With the help of management and the
Debtors' advisors, the Independent Committee will be responsible for conducting a preliminary
analysis of all indications of interest or proposals received (including the Five Mile proposal to
Midland) relating to, among other things, sponsorship of a chapter 11 plan, a potential
recapitalization, or other financial/strategic alternative related to a chapter 11 plan and making a
recommendation with respect thereto to the Board. The Independent Committee will then make
a recommendation to the Board on how to proceed after it has reviewed and evaluated all timely
received credible indications of interest and proposals in whatever form or structure.
It should be noted, however, that the Debtors currently do not think that the value of their estates
will be maximized by conducting a piecemeal sales process. The Debtors currently believe that
an enterprise-level restructuring maximizes value and, thus, will review and evaluate timely
received indications of interest and proposal with this perspective.
2
K&E 17748469
Plan Related Tasks
Task
Responsible Advisor(s)
(working with Innkeepers)
Board of Trustees
K&E - responsible for ensuring
calls established with the Board
and the Independent Committee
1. Calls of Board ofTrustees
and for coordinating with Fried
Frank with respect to the
Independent Committee
Fried Frank- responsible for
working with the Independent
2. Counsel for the Independent Committee
Committee and coordinating with
K&E with respect to Independent
Committee recommendations
Discussions with Constituents and Parties in Interest
Preliminary meetings with each major
Moelis and K&E - schedule and
3.
stakeholder
-
attend
4.
Create and manage contact log for major
Moelis to maintain
stakeholders and other parties in interest
Prepare for Due Diligence and Plan Process
Moelis - responsible for contact
with parties
5. Confidentiality agreements
K&E - responsible for negotiating
agreements
Moelis - primarily responsible for
organization
AP Services- responsible for
6. Compile information and organize data room
compiling documents
K&E- responsible for reviewing
list of contents
K&E 17748469
K&E and Moelis - work together
Develop timeline for diligence and plan
to develop appropriate timeline
7.
formulation process
and determine how to address
competing interests
Moelis and Independent
Committee to conduct a
Analyze proposals from constituents and third
preliminary analysis of
8.
parties
indications of interests and
proposals received (including
Five Mile proposal to Midland)
Following recusals by members
ofthe Board ofTrustees as
9.
Presentation to Board of Trustees
appropriate, Moelis to present
detailed analysis of indications of
interest and proposals received
K&E and Moelis further
10.
Clarification/negotiation of indications of clarify/negotiate with parties as
interest and proposals
directed by the Board
Independent Committee, in
11. Independent Committee Recommendation
consultation with Moelis, to make
recommendations to the Board
K&E and Moelis to conduct
detailed analysis and engage in
12. Negotiate plan proposals
negotiations with parties as
directed by the Board
Entire Board, taking into account
13. Select plan proposal
recommendation of the
Independent Committee
Moelis - responsible for preparing
14. Reforecast of projections
reforecast
Moelis - advise on views on
15.
Valuation of enterprise and components valuation after projections
completed
2
K&E 17748469
Miscellaneous
K&E - primarily responsible with
16. Prepare for exclusivity hearing
assistance from Moelis
17.
Consider additions and modifications to tasks K&E, Moelis, and AP Services
3
K&E 17748469
Plan Process Responsibilities
Innkeepers USA Trust ("Innkeepers") has delineated the following plan process responsibilities
to promote the interests of the estates. These responsibilities are subject to modification by the
Board of Trustees of Innkeepers (the "Board"), based upon further developments, and, as
amended or modified from time to time, must be adhered to by Innkeepers' management and
advisors.
The responsibilities are broken down into the following three categories:
First, Moelis & Company ("Moelis"), under the guidance of Bill Derrough, will be primarily
responsible for coordinating and negotiating with major stakeholders regarding all restructuring
related financial and business inquiries, including communications from financial stakeholders
and third parties expressing an interest in Innkeepers. Moelis will be the point of contact and
will coordinate with Innkeepers and its other advisors, as appropriate. As part of its
responsibilities, Moelis will maintain a contact log that tracks communications with stakeholders
and other interested parties similar to those maintained in other comparable transactions.
Second, Kirkland & Ellis LLP ("Kirkland"), under the guidance of Jamie Sprayregen, Paul
Basta, and Anup Sathy, will be primarily responsible for the coordination of all restructuring
related legal inquiries. Kirkland will be the point of contact and will coordinate with Innkeepers
and its other advisors, as appropriate.
Third, the Board will receive frequent updates in a formal and informal manner from the advisors
as well as from management, and the Board is responsible for all significant strategic decisions.
This process will include the entire Board as well as a committee of the Board that will be
comprised of the independent members of the Board (the "Independent Committee") that will act
in accordance with the responsibilities expressly delegated by the Board thereto. The
Independent Committee will be separately represented by counsel; it has determined to retain
Fried, Frank, Harris, Shriver & Jacobson LLP. The Board will meet regularly, with separate
meetings for the Independent Committee. Additionally, the Board has an opportunity to enter
executive session (without management or advisors) as part of or separate from these meetings.
Innkeepers' advisors and management are available, as requested, for scheduled meetings of the
Board and for the executive sessions of the Board and the meetings of the Independent
Committee. Consistent with the roles described herein, Innkeepers' advisors and management
report regularly to and take direction from the Board, or the Independent Committee, with
respect to matters involving the Independent Committee's responsibilities as expressly delegated
by the Board thereto.
K&E 17748484

Exhibit C
Relevant Pleadings Regarding LNR Action (additional pleadings can be
found at http://iapps.courts.state.ny.us/fbem/mainframe.html or are
available upon request to the Debtors counsel)
FILED: NEW YORK COUNTY CLERK 10/27/2010
INDEX NO. 651850/2010
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 10/27/2010
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
------------------------------------X
LNR PARTNERS, LLC and LNR
SECURITIES HOLDINGS, LLC,
- against-
CRES INVESTMENT NO. II, LP,
Plaintiffs,
Defendant.
Index No.
Date Purchased: October 27, 2010
Plaintiff designates New York County as
the place of trial.
Venue is based on CPLR 503
SUMMONS
-------------------------------- ---X
TO THE ABOVE-NAMED DEFENDANTS:
YOU ARE HEREBY SUMMONED to answer the complaint in this action and to
serve a copy of your answer, or, if the complaint is not served with this summons, to serve a
notice of appearance, on the plaintiffs' attorneys within twenty (20) days after the service of this
summons, exclusive of the day of service (or within thirty (30) days after the service is complete
if this summons is not personally delivered to you within the State of New York). In case of
failure to appear or answer, judgment will be taken against you by default for the relief
demanded in the complaint.
Dated: New York, New York
October 27, 201 0
HERRICnFEINSTEI}'l LLP
B y ~ ~
Scott T. Tross
Lauren K. Podesta
Attorneys for Plaintiffs
2 Park A venue
New York, New York 10016
(212) 592-1400
Defendant's Address:
CRES Investment No. II, LP
8350 North Central Expressway
Suite 1275
Dallas, Texas 75206
HF6114ll00v.l #02850/0000 10/26/20100631 PM
- 2 -
COUNTY OF NEW YORK
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X
- against-
Plaintiffs,
Defendant.
------------ ------ ----------------X
Index No.
COMPLAINT
Plaintiffs LNR Partners, LLC ("LNR") and LNR Securities Holdings, LLC
("LNRSH") (collectively, "Plaintiffs"), by and through their attorneys, Herrick, Feinstein LLP,
as and for their Complaint in this action, respectfully allege as follows:
The Parties
1. Plaintiff LNR is, and at all times hereinafter mentioned was, a Florida limited
liability company, having a mailing address at 1601 Washington Avenue, Suite 700, Miami
Beach, Florida 33139.
2. Plaintiff LNRSH is, and at all times hereinafter mentioned was, a Delaware
limited liability company, having a mailing address at 1601 Washington Avenue, Suite 700,
Miami Beach, Florida 33139.
3. Upon information and belief, defendant CRES Investment No. II, LP (''CRES" or
"Defendant") is, and at all times hereinafter mentioned was, a Delaware limited partnership,
having a mailing address at 8350 N. Central Expressway, Suite 1275, Dallas, Texas 75206.
Introduction
4. This action arises from the purchase by JP Morgan Capital Corporation
("JPMCC"), CRES and LNRSH on or about November 30, 2007 of certain mortgage-backed
securities certificates ("Certificates") issued by a New York trust known as LB-UBS
Commercial Mortgage Trust 2007-C7 (the "C7 Trust").
5. At the time JPMCC, CRES and LNRSH purchased Certificates in the C7 Trust,
they entered into a Servicer Designation Agreement that provides as follows: "JPMCC and
CRES agree that so long as either owns Certificates of the Controlling Class, it shall vote such
Certificates in such manner as is necessary to select, and retain, LNR, as Special Servicer."
6. Although CRES currently owns the majority of the Certificates of the Controlling
Class, it has failed and refused to appoint LNR as Special Servicer of an $825 million loan
known as the Innkeepers Portfolio Mortgage Loan (the "Innkeepers Loan").
7. Plaintiffs seek specific performance of CRES 's obligation to appoint LNR as
Special Servicer of the Innkeepers Loan. Alternatively, plaintiffs seek a declaratory judgment
and damages.
Factual Background
8. The Innkeepers Loan is evidenced by two promissory notes ("Innkeepers Note A-
1" and "Innkeepers Note A-2"), each in the amount of $412,701,271. The Notes are secured by
mortgages on approximately 45 hotels in 16 states across the United States, including New York.
Copies of Innkeepers Note A-1 and Innkeepers Note A-2 are attached hereto as Exhibits A
and B, respectively.
9. The Innkeepers Loan is governed by a Co-Lender Agreement dated as of
August 13, 2007 (the "Co-Lender Agreement"), by and between Lehman Brothers Holdings,
Inc., acting as initial Innkeepers Note A-1 lender, and Lehman Brothers Holdings, Inc., acting as
2
initial Innkeepers A-2 lender. A copy of the Co-Lender Agreement IS attached hereto as
Exhibit C.
10. Innkeepers Note A-1 was included in LB-UBS Commercial Mortgage Trust 2007-
C6 (the "C6 Trust"), a New York trust created and governed by a Pooling and Servicing
Agreement dated as of August 13, 2007 (the "C6 PSA"), by and among Structured Asset
Securities Corporation II, as Depositor (the "Depositor"), Wachovia Bank, National Association
(now Wells Fargo, N.A.), as Master Servicer (the "Master Servicer"), Midland Loan Services,
Inc., as Special Servicer ("Midland"), and LaSalle Bank National Association, as Trustee (the
"Trustee"). A copy of the relevant portions of the C6 PSA is attached hereto as Exhibit D.
11. Innkeepers Note A-2 was included in the C7 Trust, a New York trust created and
governed by a Pooling and Servicing Agreement dated as of November 12, 2007 (the
"C7 PSA"), by and among the Depositor, the Master Servicer, LNR, as Special Servicer, and the
Trustee. A copy of the relevant portions of the C7 PSA is attached hereto as Exhibit E.
12. A Prospectus Supplement for the C7 Trust dated November 20, 2007 (the
"C7 Prospectus Supplement") stated that Midland was to be the initial special servicer for the
Innkeepers Loan and that Midland could be replaced pursuant to the terms of the C6 PSA:
"[Midland] is the special servicer under the [C6 PSA] and will, in that capacity, be the initial
special servicer for the entire [Innkeepers Loan], subject to resignation or replacement pursuant
to the terms of the [C6 PSA], including replacement, without cause, by the holders of a majority
interest in the controlling class of series 2007 -C6 certificates or the series 2007 -C7 controlling
class representative." A copy of the relevant portions of the C7 Prospectus Supplement is
attached hereto as Exhibit F.
13. Pursuant to the terms and conditions of Section 3.02(a) of the Co-Lender
Agreement, Section 6.09(d) of the C6 PSA and Section 6.ll(d) of the C7 PSA, the Controlling
3
Class Representative of the C7 Trust has the right to remove and replace the Special Servicer of
the Innkeepers Loan:
(a) Section 3.02 (a) of the Co-Lender Agreement provides, in pertinent part, that "the
Note A-2 Lender [the C7 Trust] may terminate the existing Special Servicer [Midland], with
respect to the Mortgage Loans [Innkeepers Loan], with or without cause, and appoint a successor
to any Special Servicer with respect to and solely with respect to the Mortgage Loans
[Innkeepers Loan], that has resigned or been terminated .... " The Note A-2 Lender's rights
under the Co-Lender Agreement were assigned to the C7 Trust.
(b) Section 6.09(d) of the C6 PSA provides, in pertinent part, that "[the C7 Trust]
shall be entitled, solely with respect to such Loan Combination [Innkeepers Loan], to exercise
any and all rights to terminate, appoint and/or replace the Special Servicer that are granted to the
Majority Controlling Class Certificateholder(s) pursuant to the first paragraph of Section 6.09(a)
[of the C6 PSA] .... "
(c) Section 6.11(d) of the C7 PSA provides, in pertinent part, that "the Controlling
Class Representative [CRES] is hereby authorized to exercise the rights and powers of the
Trustee, as holder of the [Innkeepers Loan], ... including ... rights to direct servicing and rights
to replace the related Outside Special Servicer [Midland] .... "
14. The Special Servicer for the Innkeepers Loan is responsible for maximizing
recovery of the amounts due under that loan. LNR has developed umque (and superior)
strategies and procedures for working with borrowers on defaulted loans designed to maximize
recovery on those loans.
4
The Servicer Designation Agreement
15. On or about November 30, 2007, JPMCC, LNRSH and CRES purchased
Certificates in several different classes of the C7 Trust. Among the Certificates purchased by
JPMCC, LNRSH and CRES were those of the Controlling Class.
16. At the time JPMCC, LNRSH and CRES purchased Certificates in the C7 Trust,
they entered into the Servicer Designation Agreement. A copy of the Servicer Designation
Agreement is attached hereto as Exhibit G.
17. LNRSH entered into the Servicer Designation Agreement for the purpose of
ensuring that it would control -- through its special servicer affiliate, LNR -- the workout and
resolution of defaulted loans held by the C7 Trust.
18. The Servicer Designation Agreement thus provides at paragraph 2 thereof as
follows:
JPMCC and CRES agree that so long as either owns Certificates of the
Controlling Class, it shall vote such Certificates in such manner as IS
necessary to select, and retain, LNR, as Special Servicer. ...
19. CRES is currently the Controlling Class Representative of the C7 Trust and, thus,
has the power to appoint the Special Servicer of loans held by the C7 Trust. The Servicer
Designation Agreement obligates CRES to select and retain LNR as Special Servicer.
20. The appointment of LNR as Special Servicer for loans held by the C7 Trust,
including the Innkeepers Loan, was of vital significance to Plaintiffs. LNRSH made its
investment in the C7 Trust in reliance on the fact that LNR would serve as Special Servicer.
5
Plaintiffs' Accommodation to CRES
21. In or around July 2008, Plaintiffs were advised that JPMCC intended to sell its
interests in a number of classes of Certificates for the C7 Trust, including those in the
Controlling Class of the C7 Trust.
22. LNRSH decided to purchase all of JPMCC's interests in these Certificates, which
would have made LNRSH the Controlling Class Representative of the C7 Trust.
23. Prior to effectuating this purchase, LNRSH was contacted by CRES, which
lacked the funds to purchase all of JPMCC's Certificates.
24. CRES specifically requested that it be allowed to purchase enough of JPMCC's
Certificates so that CRES would retain its role as Controlling Class Representative of the C7
Trust.
25. As an accommodation to CRES, LNRSH allowed CRES to purchase enough of
JPMCC's Certificates to retain its role as Controlling Class Representative of the C7 Trust.
LNRSH purchased the remainder of JPMCC's Certificates.
26. Plaintiffs' accommodation to CRES allowed it to remain as Controlling Class
Representative and thus to control the removal and retention of the Special Servicer for the
Innkeepers Loan.
CRES's Subsequent Refusal to Perform
27. The Innkeepers Loan has since gone into default and, in or about April 2010, it
was transferred to Midland for special servicing. On or about July 19, 2010, the borrowers under
the Innkeepers Loan commenced a Chapter 11 bankruptcy proceeding.
28. On or about April 23, 2010, Plaintiffs contacted CRES and requested that CRES
execute the documentation necessary to terminate Midland and appoint LNR as Special Servicer
of the Innkeepers Loan.
6
29. In violation of the Servicer Designation Agreement, CRES has failed and refused
to execute the documentation necessary to terminate Midland and appoint LNR as Special
Servicer of the Innkeepers Loan.
30. Plaintiffs believe that the prompt and expeditious designation of LNR as Special
Servicer of the Innkeepers Loan is of critical importance in light of the pending Chapter 11
bankruptcy proceeding.
First Cause of Action
(Specific Performance/Injunctive Relief)
31. Plaintiffs repeat and reallege each and every allegation contained in the preceding
paragraphs of the Complaint, as if fully set forth herein.
32. In the Servicer Designation Agreement, CRES agreed that so long as it owned
Certificates of the Controlling Class of the C7 Trust, it would vote such Certificates in such
manner as was necessary to select and retain LNR as Special Servicer.
33. CRES currently owns a majority of the Certificates of the Controlling Class and
serves as Controlling Class Representative of the C7 Trust.
34. The Innkeepers Loan went into default and, m or about April 2010, was
transferred to Midland as Special Servicer.
35. Beginning on or about April 23, 2010 and continuing to the present, LNR has
demanded that CRES execute the documentation necessary to terminate Midland and appoint
LNR as Special Servicer of the Innkeepers Loan. To date, CRES has failed and refused to
comply with this demand.
36. CRES's failure to comply with its contractual obligations is depriving LNR of its
bargained-for right to control workout and resolution of the Innkeepers Loan.
37. Plaintiffs have no adequate remedy at law.
7
Second Cause of Action
(Declaratory Relief)
39. Plaintiffs believe that the terms of the Servicer Designation Agreement, m
conjunction with the Co-Lender Agreement, the C6 PSA and the C7 PSA, require CRES to
perform all actions necessary to appoint LNR as Special Servicer of the hmkeepers Loan.
40. CRES has taken the unfounded position that it is not required to appoint LNR as
Special Servicer with respect to the Innkeepers Loan.
41. Accordingly, there exists a real and actual controversy between Plaintiffs and
Defendant with respect to whether CRES is obligated to perform all actions necessary to appoint
LNR as Special Servicer of the Innkeepers Loan.
42. Plaintiffs are entitled to a judgment declaring that CRES is required to perform all
actions necessary to appoint LNR as Special Servicer with respect to the Innkeepers Loan.
Third Cause of Action
(Breach of Contract)
44. The Servicer Designation Agreement constitutes a valid contract and the parties
agreed to be bound by the provisions contained therein.
45. Despite repeated requests, CRES has failed and refused to comply with its
obligation under the Servicer Designation Agreement to terminate Midland and appoint LNR as
Special Servicer of the Innkeepers Loan.
46. Such failure constitutes a breach of the Servicer Designation Agreement.
8
47. By reason of Defendant's breach, Plaintiffs have suffered damages and will
continue to suffer damages for so long as LNR is not appointed Special Servicer of the
Innkeepers Loan.
WHEREFORE, Plaintiffs respectfully request judgment m their favor and
against Defendant as follows:
a. on their First Cause of Action, directing CRES to comply with the terms
of the Servicer Designation Agreement and to take all steps necessary to
appoint LNR as Special Servicer of the Innkeepers Loan;
b. on their Second Cause of Action, declaring that CRES is required to
perform all actions necessary to appoint LNR as Special Servicer with
respect to the Innkeepers Loan;
c. on their Third Cause of Action, awarding Plaintiffs money damages in an
amount to be determined at trial, together with pre-judgment interest;
d. awarding Plaintiffs the attorneys' fees, costs and expenses they incur in
prosecuting this action; and
e. granting such other and further relief as the Court deems just and proper.
Dated: New York, New York
October 27, 2010
I-IF 6116617 v.5 #02850/0000 10/26/2010 06:37PM
HERRICK,
1
1\,INSTEIN LLP
/; &
B y : ~ ~ ~ d
Scott T. Tross, Esq.
Lauren K. Podesta, Esq.
Attorneys For Plaintiffs
2 Park A venue
212.592.1400
9
PRESENT:
At a Commercial Division Part __ of the Supreme
Court of the State of New York, held in and for the
County of New York at the Com1house, 60 Centre
Street, in the Borough of Manhattan, City, County
and State of New York, on the _day of October,
2010.
Hon. ______________________ _
Justice.
LNR PARTNERS, LLC and LNR SECURITIES
HOLDINGS, LLC,
Plaintiffs,
- against-
Defendant.
X
---------------------------------- X
Index No. 651850/10
ORDER TO SHOW CAUSE WITH
TEMPORARY RESTRAINTS
Upon the annexed Complaint, the accompanying Affidavits of Kevin Wodicka and
Lawrence P. Gottesman, Esq., both sworn to on October 26, 2010, and the exhibits annexed
thereto, all submitted in support of the application by plaintiffs LNR Partners, LLC ("LNR") and
LNR Securities Holdings, LLC ("LNRSH") (together, "Plaintiffs") for temporary and preliminary
injunctive relief, it is hereby
ORDERED, that defendant CRES Investment No. II, LP ("CRES") show cause
before this Comt, at the New York County Com1house, 60 Centre Street, New York, New York,
Room __ , on November_, 2010, at __ a.m./p.m., or as soon thereafter as counsel can be
heard, why an Order should not be made and entered preliminarily enjoining CRES from its
continuing breach of the Serviccr Designation Agreement and requiring CRES to take all actions
necessary to terminate Midland Loan Services, Inc. ("Midland") as Special Servicer of an
$825 million loan known as the Innkeepers Portfolio Mortgage Loan (the "Innkeepers Loan")
and to appoint LNR as Special Servicer of the Innkeepers Loan; and it is further
ORDERED, pending hearing and determination of Plaintiffs' application, CRES
shall direct Midland not to take any further action with respect to the Innkeepers Loan without
the consent of LNR; and it is fmther
ORDERED, that service of a copy of this Order, and the papers upon which it is
based, including the Summons and Complaint, upon CRES or its counsel by overnight courier on
or before October_, 2010 shall be deemed good and sufficient service; and it is further
ORDERED, that opposition papers, if any, shall be served so as to be received by
counsel for Plaintiffs, Herrick, Feinstein LLP, 2 Park Avenue, New York, New York 10016, on
or before November _, 201 0; and it is further
ORDERED, that reply papers, if any, shall be served so as to be received by
CRES or its counsel on or before November_, 2010.
ENTER:
J.S.C.
HF6114892 vJ #02S50/0UOO 10/27/20100428 PM
INDEX NO. 651850/2010
REQUEST FOR JUDICIAL INTERVENTION
UCS-840 (REV 1/2000)
For Clerk Only
SUPREME COURT, COUNTY OF NEW YORK INDEX NO.
651850!10
DATE PURCHASED
10/27/2010
PLAINTIFF'S Name(s): IAS entry date
LNR PARTNERS, LLC and LNR SECURITIES HOLDINGS, LLC
DEFENDANT'S Name(s): Judge Assigned
CRES INVESTMENT NO. II, L.P
RJI Date
Date issue joined: N/A Bill of particulars served: [] Yes No
NATURE OF JUDICIAL INTERVENTION (check
[] Request for preliminary conference
ONE box only AND enter information)
[] Note of issue and/or certificate of
readiness
[] Notice of motion
Order to show cause
(clerk enter return date
Relief sought preliminary injunction/TRO
[] Other ex parte application (specify
[] petition (return date
Relief sought
[] Notice of medical or dental malpractice
action (specify
[] Statement of net __
[] Vvri t of habeas corpus
[] Other (specify
NATURE OF ACTION OR PROCEEDING (Check ONE box only)
MATRIMONIAL TORTS
D Contested
D Uncontested
COMMERICAL
Contract
D Corporate
D
D
D
Insurance (where insurer is a
party, except arbitration)
UCC (including sales,
negotiable instruments)
*Other Commercial
REAL PROPERTY
D Tax Certiorari
D
D
D
Foreclosure
Condemnation
Landlord I 'l'enan t
D *Other Real Property
OTHER MATTERS
D --------------------------
-CM
-UM
CONT
-CORP
-INS
-ucc
-oc
-TAX
-FOR
-COND
-LT
-ORP
OTH
Malpractice
D Medical/Podiatric
D Dental
D *Other professional
D Motor Vehicle
D
D
D
D
D
*Products Liability
Environmental
Asbestos
Breast Implant
*Other Negligence
D *Other Tort (including
intentional)
SPECIAL
D Art.
D Art.
D Art.
PROCEEDINGS
75 (Arbitration)
77 (Trusts)
78
D Election Law
D
D
D
Guardianship (MHL art. 81)
*Other Mental Hygiene
-----
*Other Special Proceeding
-MM
-DM
OPM
-MV
-PL
-EN
-ASB
-BI
-OTN
-OT
-AR'l'7 5
-ART77
-AR'l'78
-ELEC
-GUARD81
-MHYG
-OSP
Check "YES" or "NO" for each of the follow questions:
Is this Action/proceeding against a:
[] YES [;g) NO Municipality: [] YES [;g) NO Public Authority:
(The State of New York and (Specify ________________ __
the City of New York as
possible tax lien holders)
[;g) YES [] NO Does this action/proceeding seek equitable relief?
[] YES [;g) NO
[] YES [;g) NO
Does this
Does this
action/proceeding
action/proceeding
seek recovery for personal injury?
seek recovery for property damage?
Pre-Note Time Frames:
(This applies to all cases except contested matrimonials and tax certiorari cases)
Estimated time period for case to be ready for trial (from filing of RJI to filing of Note of Issue):
[;g) Expedited: 0-8 months [] Standard: 9-12 months [] Complex: 13-15 months
Contested Matrimonial Cases Only: (Check and give date)
Has summons been served:
Was a Notice of No Necessity filed?
[] No
[] No
[] Yes, Date
[] Yes, Date
ATTORNEY(S) FOR PLAINTIFF(S):
Self Name Address Phone
-- --
Rep.
*
[] Herrick, Feinstein LLP 2 Park Avenue 212 592-1400
ATTORNEY(S) FOR DEFENDANT(S):
#
Self I
Name Address Phone #
Rep.* .
[]
*Self Represented: parties representing themselves, without an attorney, should check the "Self Rep."
box and enter their name, address, and phone # in space provided for attorneys.
INSURANCE CARRIERS:
N/A
RELATED CASES: (IF none, WRITE "none" BELOW)
Title Index Court
NONE
I AFFIRM UNDER PENALTY OF PERJURY THAT, 'TO MY
AND HAVE BEEN NO RElATED ACTIONS OR PROCEEDINGS,
PREVIOUSLY BEEN FILED INTHIS ACTION OR PROCEEDING.
Dated: October 27, 2010
HF 6114632v.2 #02850/0000
Nature of Relationship
Scott T. Tross
Attorney for Plaintiffs
INDEX NO. 651850/2010
COUNTY OF NEW YORK
------------------------------------X
LNR PARTNERS, LLC and LNR SECURITIES
HOLDINGS, LLC,
Plaintiffs,
- against-
Defendant.
------------------------------------X
Index No. 651850110
PLAINTIFFS' MEMORANDUM OF LAW IN SUPPORT
OF APPLICATION FOR TEMPORARY AND
PRELIMINARY INJUNCTIVE RELIEF
Of Counsel:
Scott T. Tross
Lauren K. Podesta
HERRICK, FEINSTEIN LLP
2 Park A venue
Tel: (212) 592-1400
LNR Partners, LLC and LNR
Securities Holdings, LLC
PRELIMINARY STATEMENT
In this action, plaintiffs LNR Securities Holdings, LLC ("LNRSH") and its
special servicing affiliate, LNR Partners, LLC ("LNR") (collectively, "Plaintiffs"), seek specific
performance and/or injunctive relief requiring defendant CRES Investment No. II, LP ("CRES")
to terminate Midland Loan Services, Inc. ("Midland") as Special Servicer for an $825 million
loan known as the Innkeepers Portfolio Mortgage Loan (the "Innkeepers Loan") and to appoint
LNR as Special Servicer for the Innkeepers Loan. Alternatively, Plaintiffs seek a declaratory
judgment and damages.
Plaintiffs' claims are predicated upon the terms of a Servicer Designation
Agreement, dated November 30, 2007, that was entered into by and among JP Morgan Capital
Corporation ("JPMCC"), CRES and LNRSH at the time they purchased certain mortgage-backed
securities certificates ("Certificates") from LB-UBS Commercial Mortgage Trust 2007-C7 (the
"C7 Trust"). In the Servicer Designation Agreement, JPMCC and CRES agreed that they would
appoint LNR as Special Servicer for loans in the C7 Trust. One half (approximately $412.7
million) of the Innkeepers Loan is included in the C7 Trust.
In accordance with the Servicer Designation Agreement, LNRSH demanded that
CRES -- which currently has the power to designate the Special Servicer of the Innkeepers Loan
--name LNR as Special Servicer. CRES has failed and refused to honor LNRSH's demand. As
a result, Plaintiffs have commenced this action for specific performance and/or injunctive relief
under the Servicer Designation Agreement and now apply for temporary and preliminary
injunctive relief.
As demonstrated below, Plaintiffs satisfy the standards for temporary and
preliminary injunctive relief. Specifically, Plaintiffs are likely to succeed on the merits of their
claims, they arc threatened with irreparable injury absent injunctive relief, and a balancing of the
equities favors Plaintiffs. Because the Innkeepers Loan is now in default and Innkeepers has
filed for bankruptcy, decisions arc being made and positions arc being taken in the bankruptcy on
a daily basis. Temporary and preliminary injunctive relief arc warranted.
STATEMENT OF FACTS
A. The Servicer Designation Agreement
In or about November 2007, JPMCC, LNRSH and CRES purchased all of the
Class L, M, N, P, Q, S and T Certificates of the C7 Trust. (Affidavit of Kevin Wodicka
("Wodicka Aff."), q[ 5). At the time LNRSH made its investment, it insisted upon and received
from JPMCC and CRES an agreement that they would select and retain LNR as Special Scrviccr.
(Wodicka Aff., q[ 5). The parties' agreement is reflected in paragraph 2 of the Scrviccr
Designation Agreement: "JPMCC and CRES agree that so long as either owns Certificates of
the Controlling Class [currently, Class T], it shall vote such Certificates in such manner as is
necessary to select, and retain, LNR, as Special Scrviccr." (Wodicka Aff., Ex. A).
This agreement by JPMCC and CRES to take such actions as were necessary to
designate LNR as Special Scrviccr was critical to LNRSH. (Wodicka Aff., q[ 7). As the largest
Special Scrviccr of securitized loans in the country, LNR has developed unique (and superior)
strategies and procedures for working with borrowers on defaulted loans so as to maximize
recovery on those loans. Since LNRSH -- by virtue of its investment in the C7 Trust -- would be
directly and immediately impacted by losses suffered on C7 Trust loans (including the
Innkeepers Loan), the Scrviccr Designation Agreement gave LNRSH the critical ability to
control the fate of its investment through the special scrviccr activities of LNR. (Wodicka Aff., q[
7).
2
B. Plaintiffs' Accommodation To CRES
Following execution of the Servicer Designation Agreement, JPMCC decided to
sell its Class L, M, N, P, Q, S and T Certificates in the C7 Trust. (Wodicka Aff., 9[ 8). Although
LNRSH was prepared to purchase all of JPMCC's interests, CRES requested that LNRSH allow
it to purchase enough of JPMCC' s interests to retain its role as Controlling Class Representative
of the C7 Trust. (Wodicka Aff., 9[ 8). As Controlling Class Representative, CRES has the power
to designate the Special Servicer for C7 Trust Loans. (Wodicka Aff., 9[ 8).
Because LNRSH was assured by reason of the Servicer Designation Agreement
that LNR would be the Special Servicer, LNRSH allowed CRES to purchase enough of
JPMCC's Class P, Q, S and T Certificates to remain as Controlling Class Representative.
(Wodicka Aff., 9[ 9). LNRSH purchased the remainder of JPMCC's Class L, M, N, P, Q, SandT
Certificates. (Wodicka Aff., 9[ 9).
C. CRES's Authority To Designate The Special
Servicer Of The Innkeepers Loan
Since the time that JPMCC sold its interests in the Class L, M, N, P, Q, S and T
Certificates to LNRSH and CRES, the Innkeepers Loan has gone into default. (Wodicka Aff.,
9[ 1 0). The Innkeepers Loan is evidenced by two promissory notes ("Innkeepers Note A-1" and
"Innkeepers Note A-2"), each in the amount of $412,721,271. (Wodicka Aff., 9[ 10). Innkeeper
Note A-2 (Wodicka Aff., Ex. B) is included in the C7 Trust. Innkeepers Note A-1 (Wodicka
Aff., Ex. C) is included in an earlier securitization known as LB-UBS Commercial Mortgage
Trust 2007 -C6 (the "C6 Trust").
Various agreements executed in connection with the Innkeepers Loan, the C6
Trust and the C7 Trust confer authority upon CRES to designate LNR as Special Servicer for the
Innkeepers Loan:
3
Section 3.02(a) of a Co-Lender Agreement dated as of August I3, 2007 (the "Co-
Lender Agreement") that was executed in connection with the Innkeepers Loan
(Wodicka Aff., Ex. D) provides as follows: "[T]he Note A-2 Lender [the
C7 Trust] may terminate the existing Special Servicer [Midland], with respect to
the Mortgage Loans [Innkeepers Loan], with or without cause, and appoint a
successor to any Special Servicer with respect to and solely with respect to the
Mortgage Loans l Innkeepers Loan], that has resigned or been terminated .... "
The Note A-2 Lender's rights under the Co-Lender Agreement were assigned to
the C7 Trust. (Wodicka Aff., 9! II).
Section 6.09(d) of the Pooling and Servicing Agreement dated as of August I3,
2007 (the "C6 PSA") that created the C6 Trust (Wodicka Aff., Ex. E) provides as
follows: "[The C7 Trust] ... shall be entitled, solely with respect to such Loan
Combination [Innkeepers Loan], to exercise any and all rights to terminate,
appoint and/or replace the Special Servicer that are granted to the Majority
Controlling Class Certificateholder(s) pursuant to the first paragraph of Section
6.09 (a) [of the C6 PSA] .... "
Section 6.II (d) of the Pooling and Servicing Agreement dated as of November
I2, 2007 (the "C7 PSA") that created the C7 Trust (Wodicka Aff., Ex. F) provides
as follows: "[T]he Controlling Class Representative [ CRES] is hereby authorized
to exercise the rights and powers of the Trustee, as holder of the [Innkeepers
Loan], ... including ... rights to direct servicing and rights to replace the related
Outside Special Servicer [Midland] .... "
4
The Prospectus Supplement for the C7 Trust dated November 20, 2007 (the
"C7 Prospectus Supplement") (Wodicka Aff., Ex. G) confirms that CRES has the right to
designate LNR as Special Servicer for the Innkeepers Loan: "[Midland] is the special servicer
under the [C6 PSA] and will, in that capacity, be the initial special servicer for the entire
[Innkeepers Loan], subject to resignation or replacement pursuant to the terms of the [ C6 PSA],
including replacement without cause, by the holders of a majority interest in the controlling class
of series 2007-C6 certificates or the series 2007-C7 controlling class representative." When
asked on or about October 18, 2007 who controlled the right to designate the Special Servicer for
the Innkeepers Loan, Lehman Brothers -- which had originated and securitized the Innkeepers
Loan -- responded as follows: "The Note A-2 Lender [the C7 Trust] is entitled to replace and
appoint the special servicer." (Wodicka Aff., Ex. H).
1
1
Due to the voluminous nature of the C6 PSA, the C7 PSA and the C7 Prospectus Supplement, Plaintiffs
have attached only the relevant portions of these documents to the Affidavit of Kevin Wodicka. Full
copies of these documents are available on the United States Securities and Exchange Commission's
website at the following addresses:
C6 PSA: http://www .sec .gov/Archives/edgar/data/ 1408673/0000950 13607006405/fi le3 .htm
C7 PSA: http://www .sec .gov/ Archives/edgar/data/ 14143 15/0000950 13607008399/file3 .htm
C7 Prospectus Supplement:
http://www .sec.gov/ Archives/edgar/data/ 1414315/0000950 13607008065/file l.htm
5
D. CRES's Refusal To Designate LNR As Special
Servicer Of The Innkeepers Loan
The Innkeepers Loan went into default and, in or about April 2010, it was
transferred to Midland for special servicing. In accordance with the Servicer Designation
Agreement, LNRSH demanded on or about April 23, 2010 that CRES appoint LNR as Special
Servicer of the Innkeepers Loan. (Wodicka AfT, 9[ 17). CRES, which at all relevant times has
had the power to designate the Special Servicer for the Innkeepers Loan, has to date failed and
refused to do so. (Wodicka Aff., 9[ 17).
Midland, as the current Special Servicer of the Innkeepers Loan, is presently
making key decisions and judgment calls in the Innkeepers bankruptcy that will affect the future
value of the Innkeepers Loan. (Affidavit of Lawrence P. Gottesman ("Gottesman Aff. "), 9[9[ 7-
15). Indeed, there are important motions currently scheduled to be briefed and heard by the
Bankruptcy Court in early November 2010. (Gottesman Aff., 9[ 13). Thus, it is critical that
CRES be required to immediately terminate Midland and appoint LNR as Special Servicer of the
Innkeepers Loan. (Gottesman Aff., 9[ 15).
ARGUMENT
The circumstances 111 which injunctive relief may be granted are set forth 111
CPLR 6301, which provides as follows:
A preliminary injunction may be granted in any action where it
appears that the defendant threatens or is about to do, or is doing or
procuring or suffering to be clone, an act in violation of the
plaintiffs rights respecting the subject of the action, and tending to
render the judgment ineffectual, or in any action where the plaintiff
has demanded and would be entitled to a judgment restraining the
defendant from the commission or continuance of an act, which, if
committed or continued during the pendency of the action, would
produce injury to the plaintiff. A temporary restraining order may
be granted pending a hearing for a preliminary injunction where it
appears that immediate and irreparable injury, loss or damage will
6
result unless the defendant is restrained before the hearing can be
had.
To obtain a preliminary injunction, the movmg party must demonstrate ( 1) a
likelihood of success on the merits, (2) irreparable injury, and (3) a balancing of the equities in
its favor. Aetna ins. Co. v. Capasso, 75 N.Y.2d 860, 862,552 N.Y.S.2d 918,919 (1990); Terreii
v. Terrell, 279 A.D.2d 301, 303, 719 N.Y.S.2d 41, 43 (1st Dep't 2001). Here, Plaintiffs can
establish each of these three elements. Further, where the threat of irreparable injury, loss or
damage is "immediate," the Court may grant a temporary restraining order. CPLR 6301,
6313.
A. Plaintiffs Are Likely To Succeed On Their Claims
In the Complaint, Plaintiffs assert claims for specific performance and/or
injunctive relief, declaratory relief and breach of contract. All three claims are predicated upon
the terms of the Servicer Designation Agreement, in which CRES agreed that it would appoint
LNR as Special Servicer.
"[WJhen parties set down their agreement in a clear, complete document, their
writing should as a rule be enforced according to its terms." W.W.W. Assocs. v. Giancontieri,
77 N.Y.2d 157, 162, 565 N.Y.S.2d 440, 443 (1990). This is especially true where, as here, the
parties to the contract are sophisticated business entities. See, ~ . Chimart Assocs. v. Paul, 66
N.Y.2d 570, 571, 498 N.Y.S.2d 344, 345 (1986). ("Where a written agreement between
sophisticated, counseled businessmen is unambiguous on its face, one party cannot defeat
summary judgment by a conclusory assertion that ... the writing did not express his own
understanding"). Such a rule makes eminent sense because it "imparts 'stability to commercial
transactions by safeguarding against fraudulent claims, pe1jury, death of witnesses, infirmity of
memory [and] the fear that the jury will improperly evaluate the extrinsic evidence."' W.W.W.
7
Assocs., 77 N.Y.2d at 162, 565 N.Y.S.2d at 443 (citing Fisch, New York Evidence, 42, at 22
(2d ed. 1977)). See also Evans v. Famous Music Corp., 1 N.Y.3d 452,458, 775 N.Y.S.2d 757,
761 (2004) ("If [the parties'] intent is discernible from the plain meaning of the language of the
contract, there is no need to look further").
Defendant has breached the terms of the Servicer Designation Agreement by
failing to appoint LNR as Special Servicer of the Innkeepers Loan. On or about April 23, 2010,
LNRSH contacted CRES and requested that CRES appoint LNR as Special Servicer of the
Innkeepers Loan pursuant to the Servicer Designation Agreement. (Wodicka Aff., 9! 17 ). CRES
has refused to do so notwithstanding the clear and unambiguous language of the Servicer
Designation Agreement, which provides that "so long as [ CRES J owns Certificates of the
Controlling Class [currently, Class T], it shall vote such Certificates in such manner as is
necessary to select, and retain, LNR, as Special Servicer." (Wodicka Aff., Ex. A).
Defendant's authority to designate LNR as Special Servicer cannot be disputed
given the express language contained in Section 3.02(a) of the Co-Lender Agreement (Wodicka
Aff., Ex. D), Section 6.09 of the C6 PSA (Wodicka Aff., Ex. E) and Section 6.11(d) of the
C7 PSA (Wodicka Aff., Ex. F). Such authority is further confirmed in the C7 Prospectus
Supplement (Wodicka Aff., Ex. G) and Lehman Brothers' response to an October 18, 2007
inquiry seeking to determine who controlled the right to designate the Special Servicer for the
Innkeepers Loan: "The Note A-2 Lender [the C7 Trust] is entitled to replace and appoint the
special servicer." (Wodicka Aff., Ex. H).
By reason of the foregoing, it is evident that Plaintiffs are likely to succeed on
their three contract-based claims. Accordingly, Plaintiffs have satisfied the first prong of the test
for injunctive relief.
8
B. Plaintiffs Will Suffer Irreparable Harm Absent
Injunctive Relief
Plaintiffs will suffer irreparable harm absent the injunctive relief they seek.
Specifically, if Plaintiffs are not awarded the injunctive relief they seek, they will forever lose a
bargained-for contractual right -- the right to control the workout and resolution of the now-
defaulted Innkeepers Loan. In addition, the damages being caused by CRES's breach of the
Servicer Designation Agreement would not be easily quantifiable. And, if this Court fails to
grant the injunctive relief sought by Plaintiffs, their bargained-for contract right to act as Special
Servicer of the Innkeepers Loan will be rendered meaningless. For all of these reasons, the
second prong of the test for injunctive relief should be deemed satisfied.
1. Loss of Bargained-For Control
New York law recognizes that where, as here, a party usurps control in violation
of bargained-for contractual rights, irreparable injury has occurred for purposes of awarding
injunctive relief. Vanderminden v. Vanderminden, 226 A.D.2d 1037, 1041, 641 N.Y.S.2d 732,
737 (3d Dep't 1996) (plaintiffs' "alleged harm, an opportunity for defendants to shift the balance
[of] power and assume management and control of the company, may properly be viewed as
irreparable injury"); Casita v. Maplewood Equity Partners (Offshore) Ltd., 17 Misc. 3d 1137(A),
851 N.Y.S.2d 68 (Sup. Ct. N.Y. Co. 2007) (finding that the loss of voting and decision-making
rights may constitute irreparable injury); Canwest Global Comm. Corp. v. Mirkaei Tikshoret
Ltd., 9 Misc. 3d 845, 872, 804 N.Y.S.2d 549, 571 (Sup. Ct. N.Y. Co. 2005) (loss of the right to
participate in management of a business was a factor necessitating a finding of irreparable harm).
See also Wisdom Import Sales Co., LLC v. Labatt Brewing Co. Ltd., 339 F.3d 101, 114 (2d Cir.
2003) (the denial of bargained-for rights may constitute irreparable harm for purposes of
obtaining a preliminary injunction); Audubon Levy Investors, LP v. East West Realty Ventures,
9
LLC, 698 F. Supp. 2d 328, 332 (E.D.N.Y. 2010) (finding that a "loss of bargained-for
managerial control over an entity constitutes irreparable harm"); Oracle Real Estate v. Adrian
Holdings, 582 F. Supp. 2d 616, 626 (S.D.N.Y. 2008) (irreparable harm found where plaintiff
sought to enforce "a bargained-for right to corporate control").
LNRSH bargained for the right to control the decision-making process should the
Innkeepers Loan require the appointment of a special servicer. This bargained-for right to
control the fate of its investment was of vital importance to Plaintiffs. (Wodicka AfT, 9! 7). As
in the cases referenced above, CRES 's breach of contract is causing, and will continue to cause,
Plaintiffs to suffer irreparable harm.
2. Plaintiffs' Damages Are Not Easily Quantifiable
New York's courts have consistently held that where, as here, the damages that
would be caused by a breach of contract are not easily quantifiable, irreparable injury exists for
purposes of awarding injunctive relief. See AIU Ins. Co. v. The Robert Plan Corp., 44 A.D.3d
355, 356, 841 N.Y.S.2d 878, 879 (1st Dep't 2007) (holding that a party established irreparable
harm "in light of the difficulty and uncertainty in calculating the future damages it would suffer
as a result of AID's breach of the agreement"); Pfizer Inc. v. PCS Health Systems, Inc., 234
A.D.2d 18, 19, 650 N.Y.S.2d 164, 165 (1st Dep't 1996) ("The remedy of an injunction was
appropriate here in light of the difficulty and uncertainty in calculating the substantial future
damages that plaintiff would suffer from defendant's breach of the agreement"); Casita,
17 Misc. 3d 1137(A), 851 N.Y.S.2d 68 (holding that plaintiff adequately demonstrated the
potential for irreparable injury because plaintiff's loss of its investment would not be
"compensable by money damages that would be capable of calculation to a reasonable degree of
certainty"). See also Oracle Real Estate, 582 F. Supp. 2d at 625 ("where the contract right has
10
'intrinsic value' that cannot easily be quantified, the bargained-for provisions may provide a
basis for injunctive relief''); Wisdom Import Sales, 339 F.3d at 114 (awarding injunctive relief
because "Wisdom expressly negotiated for and received the right to veto certain transactions
with which it disagreed before those transactions commenced, a right that is irretrievably lost
upon breach, and may not be compensable by non-speculative damages").
LNRSH negotiated for and received the right for its affiliate, LNR, to be selected
and retained as Special Servicer of the Innkeepers Loan. (Wodicka Aff., <JI 5). As the largest
special servicer of securitized loans in the country, LNR possesses unique skills that it intends to
utilize in the workout of the Innkeepers Loan. (Wodicka Aff., 91 7). The impact that LNR's
skills would have on the ultimate recovery and the corresponding impact on the value of
LNRSH's investment would not be easily quantifiable. See AIU Ins. Co., 44 A.D.3d at 356, 841
N.Y.S.2d at 879; Pfizer Inc., 234 A.D.2d at 19, 650 N.Y.S.2d at 165. For this reason, too,
Plaintiffs have established that they will suffer irreparable harm if injunctive relief is not
awarded.
3. Plaintiffs' Contractual Rights Will Be Rendered
Meaningless Absent Injunctive Relief
Finally, in determining whether irreparable injury will result absent injunctive
relief, New York courts have considered whether a contract right would be rendered meaningless
or substantially diminished in value by the end of the litigation. Burmax Co. v. B & S Indus.,
135 A.D.2d 599, 601, 522 N.Y.S.2d 177, 179 (2d Dep't 1987) (holding that plaintiff satisfied the
irreparable harm prong of the test for injunctive relief because defendants were about to do an act
"in violation of the plaintiff's rights respecting the subject of the action, and tending to render the
judgment ineffectual"). See also Oracle Real Estate, 582 F. Supp. 2d at 626 (finding irreparable
11
harm where the contractual right plaintiff sought to enforce "could be meaningless or
substantially diminished in value by the end of litigation").
Each day that Midland continues to serve as Special Servicer of the Innkeepers
Loan, Plaintiffs' rights are being compromised. If Plaintiffs are not awarded injunctive relief at
this time, the rights for which Plaintiffs are fighting could be rendered meaningless or
substantially diminished in value. This is yet another basis upon which to hold that Plaintiffs
will suffer irreparable injury.
C. The Balance of Equities Weighs in Plaintiffs' Favor
The third prong of the test for injunctive relief involves a balancing of the
equities. Aetna Ins. Co., 75 N.Y.2d at 862, 552 N.Y.S.2d at 919. To balance the equities, a
court must weigh the risk of irreparable harm to the plaintiff against the legitimate rights of the
defendant. See Sau Thi Ma v. Xuan T. Lien, 198 A.D.2d 186, 186-87, 604 N.Y.S.2d 84, 85 (1st
Dep't 1993) ("the 'balancing of the equities' usually simply requires the court to look to the
relative prejudice to each party accruing from a grant or a denial of the requested relief''). The
analysis here is simple and requires a finding in Plaintiffs' favor.
Plaintiffs bargained for the right to have LNR act as Special Servicer. It cannot
be disputed that the right to have LNR act as Special Servicer was critical to LNRSH. (Wodicka
Aff., 9[ 7). Weighing further in Plaintiffs' favor is the fact that LNRSH could have replaced
CRES as Controlling Class Representative of the C7 Trust when JMPCC sold its Certificates.
As an accommodation to CRES, LNRSH allowed CRES to purchase enough of JPMCC's
Certificates to retain its role as Controlling Class Representative of the C7 Trust. (Wodicka AfT,
9[ 9). LNRSH would never have provided CRES with such an accommodation if it had known
that CRES intended to ignore the provisions of the Servicer Designation Agreement.
12
CRES, on the other hand, will not be harmed if it is required to honor its
contractual obligations. CRES clearly understood at the time it purchased Certificates in the
C7 Trust that it was important to LNRSH that it have control over the workout and resolution of
defaulted loans. CRES willingly agreed to give LNRSH that control. For CRES now to renege
on its agreement can hardly be described as equitable. This is particularly so given the
accommodation made by LNRSH at the time JPMCC sold its C7 Trust Certificates.
D. The Risk of Irreparable Injury Is Immediate
The risk of irreparable injury to Plaintiffs is imminent due to the status of the
Innkeepers Loan bankruptcy proceedings. As set forth in detail in the Affidavit of Lawrence P.
Gottesman, Midland, as Special Servicer, is currently making important decisions and judgment
calls in the Innkeepers bankruptcy that will impact the ultimate value of the Innkeepers Loan.
But for CRES's breach of the Servicer Designation Agreement, LNR would be making those
decisions and judgment calls.
Indeed, key hearings are fast approaching in the bankruptcy proceeding. There is
an important motion scheduled for November 10, 2010, the outcome of which will determine
whether competing reorganization plans may be proffered in the bankruptcy proceeding.
Opposition papers on the motion are scheduled to be filed on October 27, 2010 and the Special
Servicer's reply papers are due on November 5, 2010. The need for LNR to be inserted into this
process immediately is obvious.
13
CONCLUSION
For the foregoing reasons, Plaintiffs' application for temporary and preliminary
injunctive relief should be granted in all respects.
Dated: 1'-Jevv York, York
October 27, 2010
14
I-IF 6114966v.5 #02850/0000 October 27.2010 1132 AM
HERRICK, FEII)-l'
1
STEIN LL(/

By:
Scott T. Tross
Lauren K. Podesta
2 Park A venue
(212) 592-1400
INDEX NO. 651850/2010
COUNTY OF NEW YORK
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X
Plaintiffs,
Index No.
06 I ~ 5 0 /I 0
- against-
AFFIDAVIT OF
KEVIN WODICKA
Defendant.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X
STATE OF FLORIDA )
) ss.:
COUNTY OF MIAMI-DADE )
KEVIN WODICKA, being duly sworn, deposes and says:
1. I am the Director of Investment Management for LNR Securities
Holdings, LLC ("LNRSH"), one of the plaintiffs in the above-referenced action. I am fully
familiar with the facts and circumstances set forth herein and make this affidavit in support of
plaintiffs' motion for temporary and preliminary injunctive relief.
Introduction
2. In this action, LNRSH and its special servicing affiliate, LNR Partners,
LLC ("LNR"), seek specific performance and/or injunctive relief requiring defendant CRES
Investment No. II, LP (''CRES") to terminate Midland Loan Services, Inc. ("Midland") as
Special Servicer for an $825 million loan known as the Innkeepers Portfolio Mortgage Loan (the
"Innkeepers Loan") and to appoint LNR as Special Servicer for the Innkeepers Loan.
Alternatively, plaintiffs seek a declaratory judgment and damages.
3. Plaintiffs' claims are predicated upon the terms of a Servicer Designation
Agreement, dated November 30, 2007, that was entered into by and among JP Morgan Capital
Corporation ("JPMCC"), CRES and LNRSH at the time they purchased certain mortgage-backed
securities certificates ("Certificates") from LB-UBS Commercial Mortgage Trust 2007-C7 (the
"C7 Trust"). In the Servicer Designation Agreement, JPMCC and CRES agreed that as long as
either owned Certificates in the C7 Trust they would vote such Certificates in such manner so as
to select and retain LNR as Special Servicer. One half (approximately $412.7 million) of the
Innkeepers Loan is included in the C7 Trust.
4. In accordance with the Servicer Designation Agreement, LNRSH
demanded that CRES -- which currently has the power to designate the Special Servicer of the
Innkeepers Loan -- name LNR as Special Servicer. CRES has failed and refused to honor
LNRSH's demand. In the absence of specific performance and/or injunctive relief, LNRSH will
be irreparably deprived of its contractually bargained-for right to control the workout and
resolution of the Innkeepers Loan, which is currently involved in Chapter 11 proceedings in the
United States Bankruptcy Court for the Southern District of New York.
The Servicer Designation Agreement
5. In or about November 2007, JPMCC, LNRSH and CRES purchased all of
the Class L, M, N, P, Q, S and T Certificates of the C7 Trust. At the time LNRSH made its
investment, it insisted upon and received from JPMCC and CRES an agreement that they would
select and retain LNR as Special Servicer.
6. The parties' agreement is reflected in a Servicer Designation Agreement,
dated November 30, 2007, by and among JPMCC, LNRSH and CRES. Specifically, paragraph 2
of the Servicer Designation Agreement (Exhibit A hereto) states as follows: "JPMCC and CRES
agree that so long as either owns Certificates of the Controlling Class [currently, Class T], it shall
vote such Certificates in such manner as is necessary to select, and retain, LNR, as Special
Scrviccr."
2
7. This agreement by JPMCC and CRES to take such actions as were
necessary to designate LNR as Special Servicer was critical to LNRSH. As the largest Special
Servicer of securitized commercial real estate loans in the country, LNR has developed unique
(and, we believe, superior) strategies and procedures for working with borrowers on defaulted
loans so as to maximize recovery on those loans. Since LNRSH --by virtue of its investment in
the C7 Trust-- would be directly and immediately impacted by losses suffered on C7 Trust loans
(including the Innkeepers Loan), the Servicer Designation Agreement gave LNRSH the critical
ability to manage and control the fate of its investment through the special servicer activities of
LNR.
Plaintiffs' Accommodation To CRES
8. Following execution of the Servicer Designation Agreement and pursuant
to the terms thereof, JPMCC decided to sell its Class L, M, N, P, Q, S and T Certificates in the
C7 Trust. Although LNRSH was prepared to purchase all of JPMCC' s interests, CRES
requested that LNRSH allow it to purchase enough of JPMCC's interests to retain its role as
Controlling Class Representative of the C7 Trust. As Controlling Class Representative, CRES
has the power to designate the Special Servicer.
9. Because LNRSH was assured by reason of the Servicer Designation
Agreement that LNR would be the Special Servicer, LNRSH allowed CRES to purchase enough
of JPMCC's Class P, Q, S and T Certificates to remain as Controlling Class Representative.
LNRSH purchased the remainder of JPMCC's Class L, M, N, P, Q, SandT Certificates.
CRES's Authority To Designate The
Special Servicer Of The Innkeepers Loan
10. Since JPMCC sold its interests in the Class L, M, N, P, Q, S and T
Certificates, the Innkeepers Loan has gone into default. The Innkeepers Loan is evidenced by
3
two promissory notes ("Innkeepers Note A-1" and "Innkeepers Note A-2"), each in the amount
of $412,721,271. Innkeeper Note A-2 (Exhibit B hereto) is included in the C7 Trust. Innkeepers
Note A-1 (Exhibit C hereto) is included in an earlier securitization known as LB-UBS
Commercial Mortgage Trust 2007-C6 (the "C6 Trust").
11. Various agreements executed in connection with the Innkeepers Loan, the
C6 Trust and the C7 Trust make it crystal clear that CRES has the right to designate LNR as
Special Servicer for the Innkeepers Loan. Specifically, Section 3.02(a) of a Co-Lender
Agreement dated as of August 13, 2007 (the "Co-Lender Agreement") that was executed in
connection with the Innkeepers Loan (Exhibit D hereto) provides as follows: "[T]he Note A-2
Lender [the C7 Trust] may terminate the existing Special Servicer [Midland], with respect to the
Mortgage Loans [Innkeepers Loan], with or without cause, and appoint a successor to any
Special Servicer with respect to and solely with respect to the Mortgage Loans [Innkeepers
Loan] that has resigned or been terminated .... " The Note A-2 Lender's rights under the Co-
Lender Agreement were assigned to the C7 Trust.
12. Further, Section 6.09(d) of the Pooling and Servicing Agreement dated as
of August 13, 2007 (the "C6 PSA") that created the C6 Trust provides as follows: "[The
C7 Trust] shall be entitled, solely with respect to such Loan Combination [Innkeepers Loan], to
exercise any and all rights to terminate, appoint and/or replace the Special Servicer that are
granted to the Majority Controlling Class Certificateholder(s) pursuant to the first paragraph of
Section 6.09(a) [of the C6 PSA] .... " A copy of Section 6.09(d) of the C6 PSA and related
provisions is attached hereto as Exhibit E.
13. And, Section 6.1l(d) of the Pooling and Servicing Agreement dated as of
November 12, 2007 (the "C7 PSA") that created the C7 Trust provides as follows: "[T]he
Controlling Class Representative rcRES] is hereby authorized to exercise the rights and powers
4
of the Trustee, as holder of the [Innkeepers Loan], ... including ... rights to direct servicing and
rights to replace the related Outside Special Servicer [Midland] .... " A copy of Section 6.11 (d)
of the C7 PSA and related provisions is attached hereto as Exhibit F.
14. The Prospectus Supplement for the C7 Trust dated November 20, 2007
(the "C7 Prospectus Supplement") confirms that CRES has the right to designate LNR as Special
Servicer for the Innkeepers Loan: "[Midland] is the special servicer under the [C6 PSA] and
will, in that capacity, be the initial special servicer for the entire [l!mkeepers Loan], subject to
resignation or replacement pursuant to the terms of the [C6 PSA], including replacement,
without cause, by the holders of a majority interest in the controlling class of series 2007 -C6
certificates or the series 2007 -C7 controlling class representative." A copy of the relevant
portions of the C7 Prospectus Supplement is attached hereto as Exhibit G.
15. Indeed, the authority of the Controlling Class Representative of the
C7 Trust to designate the Special Servicer of the Innkeepers Loan was the subject of specific
inquiry at the time JPMCC, LNRSH and CRES were considering investment in the C7 Trust.
When asked on or about October 18, 2007 who controlled the right to designate the Special
Servicer for the Innkeepers Loan, Lehman Brothers -- which had originated and securitized the
Innkeepers Loan -- responded as follows: "The Note A-2 Lender [the C7 Trust] is entitled to
replace and appoint the special servicer." The transmittal e-mail attached hereto as Exhibit H
makes it clear that JPMCC, LNRSH and Presidio were all copied on that response.
16. Thus, at the time JPMCC, LNRSH and CRES were all considering
investment in the C7 Trust, it could not have been clearer that the Controlling Class
Representative of the C7 Trust would have the power to designate LNR as Special Servicer for
the Innkeepers Loan. It was also clear that JPMCC, LNRSH and/or CRES would initially
constitute the Controlling Class and that LNRSH was guaranteed to control any workout and
5
resolution of the Innkeepers Loan for so long as they continued to constitute the Controlling
Class. This guarantee was critical to LNRSH's decision to invest in the C7 Trust and its
subsequent decision to purchase the Certificates sold by JPMCC.
CRES 's Refusal To Designate LNR As
Special Servicer Of The Innkeepers Loan
17. In accordance with the Servicer Designation Agreement, LNRSH
demanded on or about April 23, 2010 that CRES terminate Midland and appoint LNR as Special
Servicer of the Imlk:eepers Loan. CRES has to date failed and refused to do so. As demonstrated
in the accompanying Affidavit of Lawrence P. Gottesman, it is critical that CRES be required to
immediately terminate Midland and appoint LNR as Special Servicer of the Innkeepers Loan. In
the event CRES is not required to do so, LNRSH will be irreparably deprived of its contractually
bargained-for right to control the workout and resolution of the Innkeepers Loan.
18. No prior application has been made to this or any other Court for the relief
sought herein.
CINEY TORRES
CommissioD II DD 778236
My Commission Expires
Mayl7,2012
HF 6 l 2 J 065 v.5 #02850/0000 l 0/26/20 l 0 0 l :07 P\1
KEVIN \VODICKA
6
INDEX NO. 651850/2010
NYSCEF DOC. NO. 8-1 RECEIVED NYSCEF: 10/27/2010
EXHIBIT A
November 30, 2007
Mr. Kenneth R. Schutter
Vice President
LNR SECURITffiS HOLDINGS, INC.
1601 WashingtonAvenue
Miami Beach, FL 33139
JPMorgan Capital Corporation.
21 South Clark Street, 14th Floo1
Cbicago,TIL 60670-0616
Mr. Michael G. Loftis
President and Chief Executive Officer
CRES Investment No. II, LP
8350 N. Central Expressway
Suite 1275
Dallas, :rexas 75206
Re: Purchase of certain non-investment grade certificates in the LB-UBS Commercial
Mortgage Trust 2007-C7 (the by JPMorgan Capital Corporation or
its affiliate ("JPMCC,), LNR Securities Holdings, Inc. or its affiliate ("LNRSH,)
and CRES Investment No. II, LP or its affiliate ("CR:ES")
Dear Mr. Schutter and Mr. Loftis:
We are 'Writing this letter agreement (this "Agreement") to set forth the agreements
among JPMCC, LNR Partners; lnc. ("LNR"), LNRSH, an affi.liate ofLNR, and CRES relating to
the purchase by JPMCC, LNRSH and CRES of certain Class L Certificates, Class M
Certificates, Class N Certificates, Class P Certificates, Class Q Certificates, Class S Certifi0ates
and Class T Certificates (collectively, the "Certificates
11
) pursuant to the Transaction. All other
capitalized tenns herein shall have the definitions set forth in the pooling and servicing
agreement (the "PSA'') with respect to the Transaction.
1. JPMCC, LNRSH and CRES shall purchase the corresponding percentage of the
face value of all of the Certificates of the Class as set forth in the following chart:
Class JPMCC LNRSH CRES
L 52% 33% 15%
M 52% 33% 15%
N 37% 33% 30%
p
55% 15% 30%
LB-UBS 2007-C7
Page2of7
November 30, 2007
Q
s
T
55%
42.5%
42.5<fo
15% 30%
15% 42.5%
15% 42.5%
2. JPMCC and CRES agree that so long as either owns Certificates of the
Coptrolling Class, it shall yote such Certificates in such manner as. is necessary to select, and
retain, LNR. as Special Servicer. Nothing contained :herein shall prevent JPMCC or CRES from
exercising its rights under Section 7.01(b) of the PSA in the event that there is an Event of
Default with respect to LNR Wider Section 7.01(a) of the PSA. Nothing herein, shall
cause LNR to violate any provision of the PSA or the Servicing Standard.
3. JPMCC, LNRSH and CRES agree that, so long as any owns Certificates of the
Controlling Class, it shall vote such Certificates in such manner as is necessary to select, and
retain, CRBS, as Controlling Class Representative; provided however, if af any time JPMCC or
LNRSH holds a majority of the Certificates of the Controlling Class, JPMCC or LNRSll, as
applicable, may yote such Certificates in such manner as is necessary to select, and retain,
JPMCC or LNRSH, as applicable, as the Controlling Class Representative. LNR will provide
the Controlling Class Representative notice of any action to be taken Wider Section 6.11 of the
PSA, and such proposed action will be deemed approved by the Controlling Class Representative
if the Controlling Class Representative does not object in writing within ten (10) Business Days
ofbeing notified thereof.
4. Notwithstanding anything contained in the PSA to the contrary, JPMCC agrees
that, so long as it owns Certificates of the Controlling Class, it shall vote in such manner as is
necessary to effectuate an election by CRES to purchase on its own or through its assignee a
Specially Serviced Trust Mortgage Loan in accordance with Section 3 .18(b) of the PSA, it being
understood that the PSA requires such election be made by the Majority Controlling Class
Certi:fi.cateholder(s); provided hOWf!Ver, if at any time JPMCC holds a n.tajority ofthe Certificates
of the Controlling Class, JPMCC may vote such Certificates in such manner as is necessary to
purchase on its own or through its assignee a Specially Serviced Trust Mortgage Loan in
accordance with Section 3.18(b) of the PSA.
S. Notwithstanding anything contained hi the PSA to the contrary, in connection
with the exercise of each Purchase Option Holder's right to purchase any Specially Serviced .
Trust Mortgage Loan at a price equal to the FV Price of such Specially Serviced Trust Mortgage
Loan in accordance with Section 3.18( d) of the PSA, JPMCC and LNRSH agree not to (i) make
a FV Bid for 30 days after receiving notice of the FV Price from the Special Servicer pursuant to
Sections 3.18(o) and (f) of the PSA and (ii) make a competing bid following notice from the
Special Servicer that CRES or its assignee has made a FV Bid within 30 day period;
provided however, if at any time JPMCC or LNRSH holds a majority of the Certificates of the
ControlUng Class, JPMCC and LNRSH, as app.Iicable, may, without being subject to the
aforesaid 30 day restriction, make a FV Bid in such manner as is necessary to purchase a
Specially Serviced Trust Mortgage Loan in accordance with Section 3.18( d) of the PSA. For the
29060485.DOC
LB-UBS 2Q07-C7
Page3of7
November 30, 2007
avoidance of doubt, JPMCC and LNRSH understand and agree that the purpose of this Section 4
is to provide CRES or its assignee, so long as JPMCC or LNRSH, as applicable, does not hold a
majority of the Certificates of the' Controlling Class, with the sole assignable option .to purchase
any Specially Serviced Trust Mortgage Loan in accordance with Section 3.18{ d) of the PSA for
30 days after its receipt of the Special Servicer's notification ofthe calculation of the applicable
FV Price. Nothing contained in this Section 5 is intended to afford any right to purchase any
Specially Serviced Mortgage Loan to any person or entity other than the Purchase Option
Holders identified as such in Section 3.i8(b) ofthe PSA.
6. In the event that JPMCC, LNRSH or CRBS (the "Offering Party") shall desire to
sell any Certificates it owns (the "Offered Certificates"), it shall fust provide to the others of
them (the "Non-Offering Parties") notice of such desire (the "Notice"). Each Non-Offering
Party shall 4ave tbree (3) Business Days :from the receipt of the Notice to advise the Offering
Proiy in writing whether it (i) desires to purchase the Offered Certificates, (ii) desires to sell its
own Certificates corresponding to the Offered Certificates or (iii) declines to purchase the
Offered Certificates and declines to sell its own cop:esponding Certificates. If a Non-Offering
Party advises the Offering Party that it desires to purchase the Offered Certificates in accordance
with the previous sentence, suGh Non-Offerlng Party shall provide to the Offering Party in
writing (a) the price upon which it agrees to purchase the Offered Certificates, and (b) the
percentage of the Offered Certificates it agrees to purchase (the "Non-Offering Party Offer"). If
there are two Offering Parties, the Non-Offering Party Offer shall be for either the purchase of
all of the Offered Certificates or such purchase shall be pro rata in accordance with the principal
balance of the Offering Parties' Certificates bearing the same rating. The Offering Party shall
accept or decline each Non-Offering Party Offer within three (3) Business Days of receipt of
such Non-Offering Party Offer. If the Offering Party agrees to accept the Non-Offering Party
Offer, the closing on such purchase shall tal<:e place witpin. five (5) Business Days from the date
of such acceptance. If two Non-Offering Parties provide the Offering Party with a Non-Offering
Party Offer and the price provided in the Non-Offering Party Offer of one Non-Offering Party
(the "Inferior Offeree") is lower than the price provided in the Non-Offering Party Offer of the
other Non-Offering Party (the "Superior Offeree"), such Inferior Offeree shall have the right' to
match the price provided by the Superior Offeree within one (1) Business Day of receipt of the
Non-Offering Party Offer of the Superior Offeree. If the Inferior Offeree matches the price
provided by the Superior Offeree, then the Offering Party shall sell the Offered Certificates to
both the Superior Offeree and the Inferior Offeree, pro rata to the extent the total of the two
offers is greater than the amount of the Offered Certificates, in each case, at the price provided
by the Superior Offeree. If both Non-Offering Parties J?urchase the Offered Certificates, such
purchase shall be pro rata in accordance with the principal balance of the Non-Offering Parties'
other Certificates bearing the same rating. If (x) both Non-Offering Parties decline to purchase
the Offerf,Xl Certificates, (y) the Offering Party does not accept any Non-Offering Party Offer, in
its sole discretion or (z) the Non-Offering Parties do not advise the Offering Party in writing
within three (3) Business Day fi:om the receipt of the Notice, then the Offering Party shall have
the right to offer and sell (subject to Section 5 of this Agreement) the Offered Certificates to a
bona fide third party (the "Third PartY').
29060485.DOC
LB-UBS 2007-C7
Page4of7
November 30, 2007
7. Notwithstanding Seotion 6 of this Agreement, ifthe Offered Certificates are Class
P Certificates, Class Q Certificates, Class S Certificates or Class T Certificates, the Offering
Party shall also provide to the Non-Offering Party or Parties that negotiated in good faith but
were not able to come to an agreement to purchase the Offered Certificates ("Good Faith Non-
Offering Party") the opportunity to provide a final competing bid, before accepting any fmn and
unconditional writtan offer to or from a Third Party relating to the Offered Certificates that the
Offering Party would be willing to accept (an "Offer"). The Offering Party shall timely provide
in writing the terms of the Offer to the Good .Faith Non-Offering Party or Parties. If notice of
terms of the Offer is received before 1 p.m. Eastern Time, then such Good Faith Non-Offering
Party or Parties shall have until 5 p.m. Eastern Time on the Business Day on which an Offer is
received to advise the Offering Party in writing whether it (i). desires to purchase the Offered
Certificates at an amoUl'lt above the Offer or (ii) declines to purchase the Offered Certificates (the
"Offer Response"). If sucli notice is received after 1 p.m. Eastern Time, then such Good Faith
Non-Offering Party or Parties shall have until 11 a.m. Eastern Time on the following Business
Day to deliver the Offer Response. If auch Good Faith Non-Offering Party or Parties timely
deliver an Offer Response to the Offering Party stating that it desires to purchase the Offered
Certificates at an amount above the Offer, the Offering Party shall accept such Offer Response
and sell the Certificates to such Good Faith Non-Offering Party or Parties at such If two
Good Faith Non-Offering Parties pUrchase the Offered Certificates at an amount above the Offer,
such purchase shall be pro rata in accordance with the principal balance of the Non-Offering
Parties' other Certjficates bearing the same rating. The closing for a purchase pursuant to this
Section 6 shall take place within five (S) Business Days :from acceptance of an Offer Response.
If no Good Faith Non-Offering Party offers to purchase the Offered Certificates at an amount
above the Offer within the above time requirements set forth above, then the Offering Party shall
have the right to sell the Offered Certificates to a Third Party on the terms contained in the Offer.
8. If both Non-Offering Parties (or Good Faith Non-Offering Parties, as the case
may be), agree to purchase a portion of the Offered Certificates pursuant to the terms of Section
5 or Section 6 of this Agreement and any one su.ch Non-Offering Party defaults in its obligation
to purchase such portion of the Offered Certificates, as set forth therein, then (a) the non-
defaulting Non-Offering Party shall the right to purchase such Certificates on the same
terms within one (1) Business Day after notice of such default, and (b) such defaulting Non-
Offering Party shall not be entitled to the rights to purchase Offered Certificates under Section 6
and Section 7 of this Agreement for any future offers by an Offering Party, but shall still be
bound thereby for any offer or sale of Certificates it owns.
9. Nothing contained in this Agreement is intended to prevent any party from
obtaining financing froin. a bona fide institutional lender using the Certificates as collateral, or
from entering into a repurchase transaction involving the Certificates, and any lender shall have a
valid lien on the Certificates and be entitled to the remedies afforded to a. lender having
ce1'tificates such as the Certificates as collateral, and any repurchase buyer shall own the
Certificates and shall be entitled to exercise rights with respect to the Certificates, and in each
case upon the exercise of remedies, such lender or repurchase buyer shall not be subject to the
tenus of this Agreement. JPMCC, LNR or CRES sponsored or participated vehicles, such as
29060485.DOC
..
LB-UBS 2007-C7
PageS of7
November 30, 2007
warehouse vehicles, investment funds, CDOs and Re-REMICs, or repurchase transaction and
repurchase buyer which such party contributes to, enters into, or sells to, as applicable, shall not
be deemed to be Third Parties for pilrposes of this letter. Section 6 and Section 7 of this
Agreement shall not apply to transfers made by a party hereto to affiliated entities controlled by,
under common control wit:b, or that control the transferor.
. 10. If a Third Party buys the Offered Certificates, this Agreement with respect to such
Offered Certificates shall terminate and any remaining Certificates owned by any party to this
Agreement shall remafu subject to this Agreement.
11. Reference is hereby made to that certain.letter agreement (the "UCC Side Letter")
dated on or about November 30, 2007, by and among JPMCC, Structured Asset Securities
Coiporation II, UBS Real Estate Securities Inc., LaSalle Bank National Association and
KeyBank National Association. A copy of the UCC Side Letter is attached hereto as Exhibit A.
. Pursuant to the UCC Side Letter, JPMCC has agreed to pay the Trustee's costs and expenses
reasonably expected to be incurred in connection with the filing of assigrunents of UCC
financing statements (which exceed the amount paid by the Depositor, the UBS Mortgage Loan
Seller and the Key Mortgage Loan Seller). JPMCC shall provide LNRSH and CRES with copies
of any invoices received from the Trustee in connection with the UCC Side Letter promptly upon
its receipt of same. Within i 0 business days of receipt of any such invoice, LNRSH an:d CRES
agree to reimburse JPMCC for 15% and 42.5%, respectively, of the amount invoiced. JPMCC
shall remit to the Trustee all sums required to be paid by JPMCC pursuant to the UCC Side
Letter within the time periods set forth therein. Any refunds from time to time received by
JPMCC on account of amounts previously paid by JPMCC pursuant to tho tenns of the UCC
Side Letter shall be retained by IPMCC or remitted to CRES and LNRSH, as applicable, based
upon the payment p<(rcentages remitted by each of. them with respect to such payment. The UCC
Side Letter shall not be modified, amended or tenninated without the prior written consent of
CRES and LNRSH:.
12. Any communications provided for or permitted hereunder shall be in writing and,
unless otherwise expressly provided herein, shali be deemed to have been duly given only when
received, to: (i) in the case of JPMCC, JPMorgan Capital Corporation; 21 South Clark Street,
14th Floor, .Chicago, n., Attention: Kenneth R. Schutter, Vice President, telecopy
number: (312) 732-1751, e-mail: kenneth.r.schutter@jpmorgan.com, with a copy to David
Geiftnan, Executive Director, telecopy n'l'!rilber: (312) 732-5995, e-mail:
david.a.geifinan@jpmorgan.com; (ii) in the case ofLRN and LNRSH, LNR Securities Holdings,
Inc., 1601 Washington Avenue, Miami Beach, FL 33139, Attention: Kevin Wodicka, Director,
Investment Management, telecopy number: (305) 695-5601,
kwodicka@lnrproperty.com; and (iii) in the case of qlliS, CRBS Investment No. TI, LP, 8350
N. Central Expressway, Suite 1275, Dallas, Texas 75206,,Attention: Michael G. Loftis, telecopy
number: (214) 691-1930, e-mail: mloftis@presidioinvestrnents.com, with a copy to. Bert Crouch,
Vice President, (214) 389-9013, e-mail: bcrouch@presidioinvestments.com.
If the foregoing accurately sets forth our agreements, please sign this letter in the space provided.
We look fotward to closing this deal and to the :future deals we will do together.
29060485.DOC
LH-U:SS 2007-C1
Page6of7
November 30, 2007
Accepted .aud agreed
This aoth day of 200'7
JPMOROAN CAPITAL CORPORATION
.By:
Kenneth R. Shutter
.
Vice Presldeilt
.2906048'S.DOC
Vecy-truly yours,
LNR s.ECURIT.IBS HOLDINGS, LLC
nr..J.
. Wodioka
Title: .Dlr6otor, MSfi1t.
CitES Thl'VESTMI!NT NO. n, LP
By Presidio CRBS fioldings li,LLC, its
general partner
By: ____ _
Name: Miohael tl. Loftis
Title; Manager
LNn. PARTNERS, INC,
By: =
title:
lt11ndolph' J. Woll'lo'rt
VIce pjijsident
LB-UBS 2007-C7
Page6of7
November 30, 2007
Accepted and agreed
This 30th day ofNovember, 2007
Very truly yours,
LNR SECURITIES HOLDINGS, LLC
By:
Kevin Wodlcka
Title: Director. Investment Mgmt.
JPMORGAN CAPITAL CORPORATION CRBS INVESTMBNTNO.II, LP
. ) 1 "
By: / ' .$:( ..... Presidio CRBS Holdings II, LLC. Its
Kenneth R. Shutter general partner
Title: Vlce President
29060485.DOC
By: __________ _
Name: Michael 0; Loftis
Title: Manager
LNR PARTNERS, INC.
By:
Title:
.
: t ' .. ;: .. .,
: .
. . .
...
.. ..
; . : ...... 2-oo7..ti
'I . ,I to
.. 1 :. , ... Page6 of7
I II I t
t ;I .... : 0 : ,ot I : ::'
.....
I '
: : : . : November 30J 200?
: t
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...
. .
,.
Accepted and agreed
: .
,
This 30th day ofNovember, 2007
'' ..
' ..
'
Very truly yours,
LNRSECURITJES HOLDINGS, LLC
By:
Kevin Wodicka
Title: Director, Investment Mgmt.
JPMORGAN CAPITAL CORPORATION CRES INVESTMENT NO. II, LP
-,
By: =---:--:---=-----
. Kenneth R. Shutter
Title: .Yioe President
2906048S.DOC
By Presidio CRES Holdings II, LLC, its
genmlp;z ' .
Dr.
Name: Michael G. Loftis
7
Title: Manager
L'NR PARTNERS, INC.
By:
Title:
.
EXHIBIT A
See attached.
INDEX NO. 651850/2010
COUNTY OF NEW YORK
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X
Index No. {o 5 I '& S 0 J I 0
Plaintiffs,
-against-
Defendant.
------------------------------------X
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
AFFIDAVIT OF
LAWRENCE P. GOTTESMAN
LAWRENCE P. GOTTESMAN, being duly sworn, deposes and says:
I. I am a member of Bryan Cave, LLP ("Bryan Cave" or the "Firm") and of
the Firm's Bankruptcy, Restructuring and Creditors' Rights Client Service Group. I have
practiced exclusively in the area of commercial bankruptcy and restructuring for in excess of
twenty years. I have served as bankruptcy counsel for plaintiff LNR Pminers, LLC ("LNR") in
its capacity as special servicer for commercial mortgage-backed securities ("CMBS") trusts in
numerous cases under chapter II of Title II of the United States Code (the "Bankruptcy Code'').
I am fully familiar with both the chapter II process as well as the role of special servicers in
complex chapter I 1 cases and make this affidavit in suppmi of the motion by plaintiffs LNR and
LNR Securities Holdings, LLC (jointly, "Plaintiffs") for temporary and preliminary injunctive
relief.
2. Innkeepers USA Trust and certain of its affiliates (collectively.
"Innkeepers") own 72 hotels located in 20 states across the United States. On July 19, 20 I 0,
Innkeepers filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code (the
"Petition Date"), in the United States Bankruptcy Court for the Southern District of New York,
Case No. 10-13800 (SCC) (the "Innkeepers Bankruptcy").
3. The Innkeepers Bankruptcy is a large and complex chapter 11 case, with
approximately $1.2 billion of outstanding secured debt, multiple creditor constituencies and
other parties in interest and in excess of 92 individual debtors.
1
Briefly stated, the secured debt
is comprised of (a) a secured loan with an outstanding principal balance of approximately $825
million secured by 45 hotel properties (the "Innkeepers Loan"),
2
(b) a secured loan with an
outstanding principal balance in the amount of approximately $238 million secured by 20 hotel
properties (the "Floating Rate Loan''), (c) multiple other property level loans secured by
individual hotel properties and (d) mezzanine loans.
4. The Innkeepers Loan. which is the largest secured claim in the Innkeepers
Bankruptcy and is currently specially serviced by Midland Loan Services, Inc. ("Midland"), is
the subject of the above-captioned action brought by Herrick, Feinstein LLP as counsel for
Plaintiffs. Five of the other property level loans in the outstanding aggregate principal amount of
approximately $160 million (collectively, the "Property Level Loans'') are held in two separate
CMBS trusts, for which LNR serves as special servicer. Bryan Cave serves as counsel for LNR
and these CMBS trusts in connection with the Innkeepers Bankruptcy, and I am the partner in
charge ofthat representation.
1
The current docket for the Innkeepers Bankruptcy is available at http://omnimgt.com/SBLite/Templates/ A/
DocumentsList.aspx?tagid=400&cl ientl FL 72gLq UN wtjY iY un MJkGyhC
3pvux6vAxTEbXTL2ouiExJta6Kw%3d. As of the date hereof, there were approximately 583 docket entries in the
Innkeepers Bankruptcy.
The Innkeepers Loan is referred to as the "Fixed Rate Loan in the bankruptcy proceeding.
2
5. Innkeepers filed a motion (the "PSA Motion") on the Petition Date
seeking approval of a Plan Support Agreement (the "PSA"). with Lehman ALI Inc. ("Lehman")
as the sponsor of the plan of reorganization contemplated thereby (the "Lehman Plan"). The
Lehman Plan. if ultimately confirmed by the Bankruptcy Court, would have resulted in, among
other things, substantial reductions in the principal balances of the Innkeepers Loan and the
Property Level Loans.
6. Midland filed its objection to the PSA Motion in the Bankruptcy Court on
August 23, 2010. Annexed as Exhibit 17 to its objection was an unsigned letter agreement
between Five Mile Capital II Pooling REIT LLC, an affiliate of Five Mile Capital Partners LLC
(collectively "Five Mile''), negotiated by Midland (the "Initial Five Mile Proposal'').
3
The Initial
Five Mile Proposal provided for a plan of reorganization, sponsored by Five Mile, pursuant to
which, among other things, the Innkeepers Loan would be written down by a substantial amount,
albeit slightly less than the amount contemplated by the Lehman Plan.
7. Pursuant to section 1121 of the Bankruptcy Code, Innkeepers has the
exclusive right to file a plan and to seck confirmation of such plan for the first 120 days and
180 days of the Innkeepers Bankruptcy, respectively (jointly, the "Exclusive Periods").
4
The
purpose of these Exclusive Periods is to permit the debtor and its creditors to attempt to negotiate
a consensual plan of reorganization. It is the normal practice, particularly in larger commercial
chapter 11 cases, for the patiies to engage in substantial negotiations. In the context of chapter
11 cases involving secured debt held by CMBS trusts, these negotiations as well as all other
Unsealed Appendix Of Evidence In Support Of Objection Of Midland Loan Services, Inc. To Debtors' Motion
For An Order (A) Authorizing The Debtors To Assume The Plan Support Agreement And (B) Granting Related
Relief [Docket No. 368-4], Exhibit 17, at APP-00640.
4
Under the Bankruptcy Code, these periods may be extended or terminated "for cause'' upon motion to the
Bankruptcy Court.
3
activities in the Bankruptcy Court, including litigation - are conducted on behalf of such trusts
by their respective special servicers.
8. On August 30, 2010, Midland filed a motion seeking to terminate
Innkeepers' Exclusive Periods in order to allow Midland to file a plan or reorganization and to
solicit acceptances of such plan (the "Midland Motion"). In support of the Midland Motion,
Midland attached a revised proposal by Five Mile to sponsor a plan (the "Revised Five Mile
Proposal''). The Revised Five Mile Proposal provided for marginally better terms than the Initial
Five Mile Proposal. Additionally, the Revised Five Mile Proposal would provide secured
lenders with the option of taking their collateral in satisfaction of the loan if they are dissatisfied
with the proposed treatment under the Revised Five Mile Proposal.
9. LNR, as special servicer of the Property Level Loans, has indicated to
Midland that it would favor taking back its collateral over the proposed treatment under the
Revised Five Mile Proposal. Should LNR and/or any other secured lender elect to take back its
collateral, this will create the need to increase the writedowns for the remaining secured lenders,
leaving an enormous amount of uncertainty regarding ultimate recoveries with respect to the
Innkeepers Loan under the Revised Five Mile Proposal.
10. Following a day-long hearing on September 1, 2010, the Bankruptcy
Comi denied Innkeepers' PSA Motion.
11. On September 14, 2010, LNR filed a motion to terminate Innkeepers'
Exclusive Periods (the "LNR Motion'' and, together with the Midland Motion, the "Exclusivity
Motions"). LNR joined in the arguments made by Midland and further asserted that Innkeepers'
Exclusive Periods should be terminated on a broader basis and not limited to Midland, so as to
4
permit LNR to file separate plans with respect to the borrowers on the Property Level Loans to
the extent necessary and appropriate.
12. Following a September 14, 2010 meeting with the Debtors, LNR
requested a separate meeting with Midland to discuss the Revised Five Mile ProposaL but was
rebuffed. LNR has subsequently repeated this request to no avail.
13. The hearing on the Exclusivity Motions 1s currently scheduled for
November 10, 2010. Innkeepers will file an objection to the Exclusivity Motions and a motion
to extend its exclusive periods on October 27, 2010 (the "Innkeepers' Exclusivity Motion"). The
date by which Midland and LNR must file their replies in support of the Exclusivity Motions and
their objections to Innkeepers' Exclusivity Motion is November 5, 2010.
14. In the event that the Midland Motion is granted and exclusivity is
terminated, Midland will have the right to file and prosecute a chapter 11 plan for Innkeepers. In
the event that the Midland Motion is denied, such chapter 11 plan will be filed by Innkeepers. In
either case, such plan will specify, among other things, the treatment of the Innkeepers Loan,
which may include debt writedowns, as required by the Lehman Plan and the Revised Five Mile
Proposal above, or other modifications to the loans, such as changes to the interest rate, term,
structure or other features of the loan. Midland, if it retains its role as special servicer of the
Innkeepers Loan, will have responsibility for the Innkeepers Loan and will have a pivotal role in
determining such treatment, by negotiation or otherwise.
15. In no event will the Innkeepers Bankruptcy slow down, much less pause,
while the instant lawsuit is litigated to conclusion. Vitally important decisions and judgment
calls, including those discussed above regarding the potential modification of the loans, that will
inevitably affect the recoveries with respect to the Innkeepers Loan will need to be made by the
5
pending such determination.
to before me this
day of October, 20 I 0
KATHLEEN E. PALAZZOLtA
NOTARY PUBLIC, State of New York
No. 43-4503546 Qual. in Rich. Co.
Certificate Filed in New York
Commission Expires Jan. 31,
llF 6123<JX6v.3 !102X50i0000
LAWRENCE

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