A bankruptcy court approved a hotel debtor’s plan to sell new equity through an auction and to continue operating the hotel under the debtor’s Marriott International, Inc. franchise agreement over lenders’ objections. In re Wisconsin & Milwaukee Hotel LLC, 2026 WL 1278550 (Bankr. E.D. Wis. May 8, 2026).
Wisconsin & Milwaukee Hotel LLC, the hotel debtor, proposed to raise funds needed to renovate its hotel by selling ownership in the reorganized company, with its current owner, Jackson Street Management (JSM), acting as the starting bidder, or “stalking horse,” with an $8 million starting bid. Any competing bids were required to exceed $8.25 million. A stalking horse is a bidder that sets the initial floor price in an auction. The lenders argued that the auction process unfairly favored JSM and discouraged other auction bidders, but the court approved the auction with certain modifications and procedural safeguards to ensure fairness and competition.
The court found that renovation costs—estimated at approximately $8 million—were necessary because the hotel had to meet Marriott’s brand standards to keep its franchise agreement. Further, continuing as a Marriott luxury hotel was the property’s highest and best use based on its past performance. The court rejected the lenders’ argument that requiring the buyer to keep the Marriott brand limited competition because it “eliminate[s] a potentially large pool of bidders by forcing them into the Marriott brand,” explaining that the auction properly reflected the debtor’s chosen business plan and that no evidence showed the hotel would be worth more under a different hotel brand. The court also allowed JSM to serve as the stalking horse bidder, concluding that such insider participation was permitted as long as the process remained competitive. In addition, the court held that JSM had a legitimate business reason and motivation to serve as a stalking horse bidder because JSM had operated the debtor’s hotel profitably for many years and was only driven to bankruptcy by a “pandemic-related inability to secure refinancing . . . and its subsequent inability to pay the debt owed to [l]enders.” To protect competition, the court required an independent firm to run the auction, imposed equal bidding requirements, required the sale to be marketed, and retained court oversight. The decision shows that courts will approve insider-led auctions and franchise-dependent plans where procedures ensure a fair market test of value.