“The owner of Chicago’s second-biggest hotel has been hit with the city’s largest foreclosure lawsuit in years, an early case in what could be a historic wave of distressed downtown property as COVID-19 wallops the hospitality sector.
“New York-based investor Thor Equities defaulted on a $333.2 million loan tied to the Palmer House Hilton hotel after failing to make mortgage payments since April, according to the complaint filed this month in Cook County Circuit Court. Lender Wells Fargo last week asked the court to appoint a receiver for the property at 17 E. Monroe St. as it seeks to take control of a hotel that is now worth nearly 40 percent less than what Thor owes on it, according to a recent appraisal. Wells Fargo represents investors in Thor’s 2018 mortgage, which was packaged with other loans and sold off to bondholders.
“The complaint is the largest and highest-profile foreclosure lawsuit against the owner of a downtown property since the coronavirus pandemic triggered widespread economic shutdowns starting in March. Hotels have arguably endured the worst of the outbreak’s assault on commercial property, with business and leisure travel sapped for months and no sign of when they’ll come back in a meaningful way. That has forced many to suspend operations and some to stop paying their mortgages or plead with lenders to modify terms of their loans to account for the worst crisis for hotels on record.
“With demand all but evaporated, the Palmer House is now worth just less than $306 million, according to an appraisal done earlier this month. That’s 45 percent less than the $560 million it was appraised at just more than two years ago when Thor refinanced the hotel amid surging tourism to Chicago.
“Wells Fargo asked the court to immediately transfer control of the property to a receiver because Thor doesn’t have the funds to cover critical operating expenses, ‘putting the hotel at physical risk’ and threatening the lender’s interest in the hotel, the complaint said.
“The Palmer House could be the first of several downtown hotels staring down potential foreclosure lawsuits if COVID continues to stunt the economy. Signs of impending distress among hotels with CMBS loans started popping up in May, when the delinquency rate on such loans among Chicago-area hotels jumped to a record-high 33.5 percent from 2.5 percent in April, according to New York-based research firm Trepp” (Ecke, 8/31/20)
“One of the city’s most famous hotels has been a Chicago mainstay since the 1870s. The Great Chicago Fire destroyed the Palmer House Hotel, which had opened just 13 days earlier. It quickly rose again from the ashes. Three decades later, it was replaced by the 24-story hotel that stands on the same spot today. The present Palmer House was the largest hotel in the world when completed in 1927. It features a grand gilded lobby designed in the French-Empire style with a formal staircase and Tiffany light fixtures, as well as several unique and colorful ballrooms. In 1945, the hotel was sold to Conrad Hilton, and it remains a Hilton Hotel to this day. A recent, thorough renovation restored this legendary landmark to its original grandeur.” (Open House Chicago)
Palmer House hit with $338 million foreclosure suit; The owner of the city’s second-largest hotel is facing one of the largest foreclosure lawsuits for a downtown property in years as COVID-19 hammers the hospitality sector. Danny Ecker, Crain’s Chicago Business, 8/31/20