American Hospitality REITs filed Chapter 11 as audits surfaced founder self-dealing

American Hospitality Properties REIT I and II — Dallas vehicles sponsored by Phoenix American Hospitality to buy premium branded hotels — filed for Chapter 11 in the Northern District of Texas on October 4, 2026. The parent REITs listed almost no assets, their 14 debtor subsidiaries reported $50–100 million in liabilities, and the cases arrived with no DIP financing; the debtors warned that failing to obtain financing could force conversion to Chapter 7.

The first-day declaration and a forensic audit by FTI Consulting laid out founder William Lee 'Perch' Nelson's self-dealing. In 2023, as REIT CEO and director, he had REIT I lend him about $9.4 million so he could personally buy an 80% stake in the two Fort Wayne hotel companies — he still holds legal title. In August 2025 he directed REIT I's transfer agent to issue about $4.5 million of common stock to an entity he controlled; the issuance appears in neither REIT's books, and he collected about $40,000 in dividends on the shares through May 2026.

The hotels ran on management agreements the declaration called self-interested transactions negotiated by Nelson with himself — his PAH Management held the contracts, owed the franchise fees, and had no independent approval. The fees went unpaid at four Marriott-branded hotels, reaching about $1.6 million; Marriott's September 2026 default notices threatened reservation-system cutoff and franchise termination from October 31. He did not pay even though the boards directed him to, and the seven-hotel LP7 portfolio's operating income fell 45% to $2.6 million with debt-service coverage at 0.63x.

The filing is the second act of the year: in June 2026 the SEC charged that the REITs' $86 million fundraising was built on untrue statements, settled by consent judgments that bar Nelson from being an officer or director for five years. The ground-lease landlord on the Cape Canaveral Residence Inn is meanwhile seeking at least about $4.3 million from REIT I and Nelson's PAH.

The founder sat on every side of the table: he controlled the REITs, the sponsor PAH and the manager PAHM, and negotiated the hotels' management agreements with himself.

Company cash flowed to the founder — a $9.4 million loan so he could buy hotel stakes in his own name, and $4.5 million of stock issued to his own entity without being recorded.

Franchise fees went unpaid even after the boards directed payment, putting brand and reservation-system access at seven Marriott hotels at risk.

The REITs reached court with no DIP financing and admitted they may not be able to fund the cases at all.

When one person controls the owner, the sponsor and the manager, every fee, loan and share issue needs an independent check — the bankruptcy court will find what the boards skipped.

Marriott's notices set payment deadlines of October 17 and 19, 2026, with franchise termination possible as early as October 31, invoking guaranties from REIT I and Nelson personally. Spirit has moved for summary judgment of at least about $4.3 million against REIT I and PAH on the Cape Canaveral ground lease. The Fort Wayne stake remains in Nelson's name; debtors' counsel told the first-day hearing that either a refinancing of the Fort Wayne loan or the lender's consent would trigger the transfer of the 80% interests to REIT I.