HAYNES AND BOONE, LLP 1221 Avenue of the Americas, 26th Floor New York, New York 10020

Telephone: (212) 659-7300 Facsimile: (212) 884-8211 Lenard M. Parkins (NY Bar # 4579124) John D. Penn (NY Bar # 4847208) Mark Elmore (admitted pro hac vice) Attorneys for Midland Loan Services, Inc. UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re: INNKEEPERS USA TRUST, et al., Debtors. ) ) ) ) ) ) ) Chapter 11 Case No. 10-13800 (SCC) Jointly Administered

OBJECTION BY MIDLAND LOAN SERVICES, INC. TO THE MOTION OF AD HOC COMMITTEE OF PREFERRED SHAREHOLDERS FOR ORDER DIRECTING APPOINTMENT OF STATUTORY COMMITTEE OF PREFERRED SHAREHOLDERS PURSUANT TO BANKRUPTCY CODE SECTION 1102(a)(2) Midland Loan Services, Inc. (Midland),1 special servicer pursuant to that certain pooling and servicing agreement dated as of August 13, 2007 (the Special Servicing Agreement) for the Fixed Rate Trustee (as defined below), files this Objection (the Objection) to the Motion of Ad Hoc Committee of Preferred Shareholders for Order Directing the

Midland is the special servicer pursuant to the Pooling and Servicing Agreement dated as of August 13, 2007 (the Special Servicing Agreement) for that certain secured loan in the amount of not less than $825,402,542 plus interest, costs and fees (the Fixed Rate Mortgage Loan) owed by certain of the above referenced debtors. The Fixed Rate Mortgage Loan was made pursuant to that certain loan agreement dated as of June 29, 2007 (as amended, the Fixed Rate Mortgage Loan Agreement), and is evidenced by (i) a certain Replacement Note A-1 and (ii) a certain Replacement Note A-2, each dated as of August 9, 2007, and each in the original principal amount of $412,701,271. Replacement Note A-1 was assigned to LaSalle Bank National Association as trustee for the holders of the LB-UBS Commercial Mortgage Trust 2007-C6. Bank of America, N.A. is the successor-in-interest to LaSalle Bank National Association. Replacement Note A-2 is currently held by the trustee for the holders of the LB-UBS Commercial Mortgage Trust 2007-C7.

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Appointment of Statutory Committee of Preferred Shareholders (Motion) and respectfully represents as follows: 1. The Motion outlines the standard for appointing official equity holders

committees in the Southern District of New York. It states, in pertinent part, Courts in this District and elsewhere have developed a number of criteria to consider in determining whether to appoint a statutory equity committee: (i) whether the interest of shareholders are adequately represented absent the appointment of a statutory equity committee; (ii) whether the Debtors appear hopelessly insolvent and the likelihood of shareholders receiving a distribution; (iii) the timing of the motion relative to the case; and (iv) whether the administrative costs of the statutory committee outweigh the benefits of adequate representation. See e.g., In re Kalvar Microfilm, Inc., 195 B.R. 599, 600 (Bankr. D. Del. 1996); In re Williams Commcns Group, 281 B.R. 216, 220 (Bankr. S.D.N.Y. 2002); In re Johns-Manville Corp., 68 B.R. 155, 160; In re Wang Labs., Inc., 149 B.R. 1, 2 (Bankr. D. Mass. 1992). In addition to other factors, courts also weigh the size and complexity of the cases. See e.g., In re Beker Indus., 55 B.R. 945, 949 (Bankr. S.D.N.Y. 1985). Motion, 16 (emphasis added). 2. The criteria for the formation of an equity committee have not been met. In

particular, the administrative costs of an equity committee outweigh the benefits of representation of a limited number of parties with such a narrow economic interest, and the costs of these cases are such that any distribution to preferred shareholders will be negligible. 3. The projected administrative expenses should be included in evaluating both the

likelihood of the preferred shareholders receiving a distribution and the cost / benefit of appointing an equity committee. The current and any reasonable estimate of administrative expenses incurred and to be incurred in these cases is likely to consume most, if not all, of any value in excess of the secured debts against the hotels described in the Motion. The Debtors projected cash flows estimate that professional fees (excluding any applicable success or

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transaction fees) incurred through November 2010 by the Debtors and Creditors Committee will exceed $9.87 million.2 See Greenspan Dec.3 4. If the Court nevertheless believes that an equity committee should be formed, its

role and administrative costs should be limited in such a way that the fees and expenses of the equity committees professionals would never equal (much less exceed) the value that the equity interest owners may recover. Having professional costs that are a large percentage of the constituents recovery might be suspect. See In re Emons Indus. Inc., 50 B.R. 692, 694 (noting that [i]f a plan is proposed and confirmed that provides nothing for shareholders, then it may well be that no fees and disbursements would be awarded to [counsel for the Equity Committee] because in light of the outcome the amounts were not reasonable nor reflective of actual, necessary services and that [t]he value of the services must be viewed with the benefit of hindsight). If the costs exceed the constituents recovery, the costs areat bestunjustifiable. 5. Of particular note is the fact that the Motion never alleges that there is any

monetary value in the Fixed Rate Hotels that would exceed the obligations against those hotels. Instead, the Motion carefully argues that there may be value to the preferred shareholders positions through a few individual hotels and a joint venture. The Motion asserts, . . . up to five to seven hotels and a joint venture interest owned by the Debtors estates have value for the preferred shareholders. (Motion, 3) Given the size of these cases, the total number of hotels
2

Kirkland & Ellis ($5.725 million), Alix Partners ($2.025 million), Moelis ($0.77 million), Morrison & Foerster ($0.9 million) and Jefferies ($0.45 million). Contemporaneously with this Objection, Midland submitted the Declaration of Ronald F. Greenspan in Support of (1) Midland Loan Services, Inc.s Objection to the Application Pursuant to Sections 327(A), 328(A), and 1103 of the Bankruptcy Code Authorizing the Retention and Employment of Jefferies & Company, Inc. as the Financial Advisor and Investment Banker to the Official Committee of Unsecured Creditors Nunc Pro Tunc to July 30, 2010 and (2) Objection by Midland Loan Services, Inc. to the Motion of Ad Hoc Committee of Preferred Shareholders for Order Directing Appointment of Statutory Committee of Preferred Shareholders Pursuant to Bankruptcy Code Section 1102(A)(2) (the Greenspan Dec.).

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and overall indebtedness, the potential value emanating from five hotels and one joint venture represents an extremely small sliver of the Debtors capital structure. 6. Midland objects to the use of its cash collateral to fund the operations and

professionals of any equity committee unless and until it is established that there is value in the Fixed Rate Pool above and beyond Midlands debt that would flow to the benefit of an equity committees constituents. The value of controlling fully encumbered properties (Motion, 3) is contingent and somewhat speculative, at best. In any event, Midlands cash collateral should not be taxed with the cost of an equity committee seeking to exploit any control value since it is exceedingly unlikely that there is any demonstrable benefit to Midland in such an endeavor. 7. As Midland has discussed previously in this case, Midland objects to the use of its

cash collateral for any activities that are contrary to Midlands interests. In a typical carve-out situation, a debtor (or other estate professional) is not entitled to use a secured creditors cash collateral to finance efforts to challenge a secured lenders claims or interests in its collateral. Accordingly, the equity committee and any professionals it employs, as estate professionals, cannot use the Midland cash collateral to advocate a challenge to Midlands position. 8. Likewise, Midlands collateral cannot be surcharged. The Second Circuit

has held time and time again that a secured creditors collateral cannot be surcharged for payment of estate professionals fees unless there is a direct benefit, one not merely incidental to the reorganization. See, e.g., In re Flagstaff Foodservice Corp. (Flagstaff I), 739 F.2d 73 (2d Cir. 1984); In re Flagstaff Foodservice Corp. (Flagstaff II), 762 F.2d 10 (2d Cir. 1985); Harvis Trien & Beck, P.C. v. Federal Home Loan Mortgage Corp. (In re Blackwood Assocs., L.P.), 153 F.3d 61 (2d. Cir. 1998); In re Hotel Syracuse, Inc., 275 B.R. 679 (Bankr. N.D.N.Y. 2002). To the extent that the Ad Hoc Committee cannot show that there is any discernable equity above all of

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the debt securing Midlands loan, there is no legal basis to use Midlands cash collateral to pay the administrative expenses of a preferred shareholders committee consisting of preferred shareholders who derive no value from the Debtors that are obligated to Midland. LOCAL RULE 9013-1(a) This Motion includes citations to the applicable rules and statutory authorities as support and a discussion of their application to this Motion. Accordingly, this Motion satisfies Rule 9013-1(a) of the Local Rules for the Southern District of New York and respectfully requests the waiver of the need to file a supporting memorandum of law. CONCLUSION Premises considered, Midland requests that this Court enter an order i) denying the Motion; or, if the Court grants the Motion ii) implant procedures described herein to limit the burden on the estates from the appointment of an equity committee (and its professionals); iii) note Midlands continuing objection to the use of its cash collateral to fund an equity committee and iv) grant Midland such other and further relief to which it might show itself justly entitled. Respectfully submitted this 23rd day of September, 2010. /s/ John D. Penn HAYNES AND BOONE, LLP 1221 Avenue of the Americas, 26th Floor New York, New York 10020 Telephone: (212) 659-7300 Facsimile: (212) 884-8211 Lenard M. Parkins (NY Bar# 4579124) John D. Penn (NY Bar # 4847208) Mark Elmore (admitted pro hac vice) ATTORNEYS FOR MIDLAND LOAN SERVICES, INC.

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