LENOX — The historic Kemble Inn, a downtown Gilded Age landmark built in 1881 as a seasonal home, has filed for bankruptcy protection at the U.S. Bankruptcy Court, District of Massachusetts, in Worcester.
The legal action Monday by owner Scott Shortt’s company, the Frederick LLC, cancels a foreclosure auction for the property previously scheduled for Wednesday.
Shared Estates Asset Fund, a real estate syndicator that uses crowdsourced investments to purchase historic Berkshire estates and mansions, and to market them as short-term vacation rentals, has offered to buy the Kemble Inn for $3.2 million.
Bankruptcy Judge Elizabeth Katz scheduled an emergency hearing on the case for 10 a.m. Thursday, to be conducted by telephone.
The storied property was built for Frederick Frelinghuysen, secretary of state under President Chester A. Arthur.
According to court documents, the mansion had an operating loss of $104,000 on gross revenue of $921,384 in 2019. Last year, during the COVID-19 pandemic, revenue plunged to $127,000, creating a loss of $245,000. For the first half of this year, a small profit of $24,000 is on the books, based on revenue of $129,000.
Shortt’s attorney, Andrea O’Connor, of the Fitzgerald Law Firm in East Longmeadow, told the court that the inn’s bankruptcy filing stemmed from “insufficient cash flow and availability of credit to continue its current operations.”
The financial setbacks “were exacerbated by the pandemic,” O’Connor stated. As a result, the company defaulted on its mortgage with Adams Community Bank, which offloaded the loan to MA Opportunity Investments LLC in April. This month, that company scheduled the foreclosure auction, now canceled.
The court filing lists the inn’s assets as $3,316,000, including the real estate and furnishings, as well as $116,000 in cash.
The Frederick LLC owes $2.6 million on its mortgage, $450,000 to the U.S. Small Business Administration and $91,000 to American Express.
At the emergency hearing Thursday, the Bankruptcy Court will rule on Shortt’s request for temporary cash collateral, based on the value of the property, to pay for goods and services needed to operate the inn and its restaurant, Table 6, for guests scheduled to arrive Friday for the holiday weekend.
Shared Estates Assets Fund holds a purchase and sale agreement for the inn. The fund’s founder and managing director, Daniel Dus, told The Eagle last week that he could not disclose financing arrangements for the inn’s purchase, pending filings with the Securities and Exchange Commission, if crowdsourced funding will be used.
Dus has used investor funding for his two previous projects, The Playhouse at Foxhollow in Lee, which he sold last November for $1.3 million, after a six-year renovation, and for The Freeman Berkshires in Egremont. That estate now is being restored after Dus’ $1.6 million purchase based on seller funding and $890,000 from 141 investors who hold a stake in the property and will be able to rent rooms there at a 15 to 20 percent discount.
To finance the Kemble Inn acquisition, Dus predicted “a minority of bank notes” to help offset the ownership costs and “optimize the returns for our investors” since interest rates are at historic lows. He also cited a 90- to 120-day period of “due diligence” for inspecting and reviewing the property and assessing the cost of renovations at the inn, which has nine guest rooms.