New York's W Hotel Union Square rises three short blocks from the birthplace of Theodore Roosevelt. The hotel's embattled owners should consider a quick pilgrimage and, while there, Teddy's second-most-famous bit of advice: "Keep your eyes on the stars," Roosevelt said, "but remember to keep your feet on the ground."

Something called LEM Capital LLC took control of the hotel in December by purchasing one of many slices of debt and then instigating a uniform commercial code, or UCC, foreclosure sale. In other complex distressed real estate situations, debtholders have used this maneuver to gain control of the property itself, most notably Boston's John Hancock Tower last year. But the tactic requires cooperation or at least a modus vivendi between various creditors. In this case, the move resulted in multiple bankruptcies, dueling lawsuits and such weird turns as the former debtor becoming a major creditor and then attempting to oust its former creditor from the board of the hotel.

LEM is an affiliate of Lubert-Adler Real Estate Funds, one of the many giant money combines that have come together to take advantage of the ruinous state of the once-high-flying commercial property market, where values have fallen by 40% or more.

In this case, LEM was either being too clever by half or simply didn't pay enough attention to the ground shifting under its feet as it launched its assault. The hotel now stands as an example not only of the sector's woes and the messiness of debt that underwrote the bubble, but of the difficulties distressed investors can face trying to get their hands on property.

Dubai's Istithmar World bought the hotel in October 2006 and piled on multiple levels of debt. Three years later, it defaulted on everything. LEM, which by then owned the junior-most debt, foreclosed on the collateral -- shares in the company that owns the hotel itself -- and obtained them through what is called a credit bid.

But that made LEM responsible for repaying the more senior debt. When it tried to negotiate down, Germany's DekaBank Deutsche Girozentrale, which holds the $60 million most senior mezzanine debt, said "pay up in full," declared LEM in default and scheduled its own foreclosure auction. Meanwhile, Istithmar acquired the other piece of mezzanine debt, paying about 10% of its $37 million face value.

In late March, two days before the foreclosure auction, Istithmar attempted to remove LEM principals from the board of the hotel-owning entity. The next day, LEM put one debt-holding entity into bankruptcy, aborting the auction. It followed up two days later by putting the other debt-holding company into Chapter 11.

Since then, DekaBank and Istithmar have filed motions to nullify the bankruptcies. LEM agreed not to put the hotel itself into bankruptcy until a hearing next month when a U.S. bankruptcy judge will attempt to sort out the mess.