River North, Schaumburg hotels face foreclosure suits

In Schaumburg, a venture of Chicago-based Arbor Lodging Partners and Northbrook-based Middleton Partners faces a foreclosure complaint on a $38.7 million loan it took out to finance its 2018 acquisition of the 398-room Marriott Schaumburg, records show.

The disputes are part of a growing number of foreclosure complaints against hotel owners that have been starved for business for almost a full year as the pandemic stifles travel demand.

Some banks have held off on taking steps to seize hotel properties, hopeful that demand will rebound in a big way with vaccine distribution and others simply having no interest in taking control of a cash-hemorrhaging property. But the distress has become too much in some cases, particularly for hotels that weren’t thriving pre-COVID and those where debt on the property was packaged with other loans and sold off to commercial mortgage-backed securities investors. Such CMBS loans involve multiple loans tied together and sold off to bondholders, making them much harder to restructure than a loan with a single lender.

At the 225-room Hotel Felix, a joint venture including Chicago-based developers Oxford Capital Group and Gettys Group defaulted on a $47 million loan after failing to make its loan payments on the River North property since May, according to a December foreclosure complaint filed in Cook County Circuit Court and Bloomberg data tied to the CMBS mortgage.

Like many downtown hotels, the property’s value was crushed by the pandemic: It was appraised in July at just $23.5 million, down from $68.6 million when the owners took out the loan in 2013. That refinancing allowed the owners to cash out some of their equity, but COVID decimated the hotel’s appraised value to just half of what they owe now.

A Cook County judge appointed Matt Tarshis, principal of Chicago-based Frontline Real Estate Partners, as a receiver in late January to maintain the property, which remains closed during the pandemic.

Tarshis was also named receiver for the Holiday Inn Express—formerly the Hotel Cass—at 640 N. Wabash Ave., where a separate joint venture including Oxford and Gettys was hit with a foreclosure complaint in December on a $23.5 million CMBS loan. The owners stopped making loan payments in May, a Bloomberg report shows.

That 174-room hotel saw a similar plunge in its appraised value to just $12.4 million in July, down from $36.3 million when the owners took out the loan in 2013, according to Bloomberg. The property had been struggling before the pandemic, with just more than $1.2 million net cash flow in 2019, less than the nearly $1.6 million annual debt service, Bloomberg data shows.

A spokesman for the hotels’ owners couldn’t be reached. But a source familiar with the properties’ finances said the hotels had lined up contracts with the city of Chicago to help house essential workers during the pandemic—similar to the ones struck at other Oxford hotels last year—but that special servicer LNR Partners rejected the deals. A spokeswoman for LNR couldn’t be reached.

In Schaumburg, a venture of New York-based lender Ladder Capital filed to foreclose on the owners of the Marriott Schaumburg after they failed to make their January debt service payment, according to the complaint.

The complaint came three years after the Arbor-White Lodging venture bought the property at 50 N. Martingale Road in the northwest suburb for $35.5 million—the largest deal for a single hotel in Schaumburg in more than a decade—and completed a $22 million renovation of the 13-story building in late 2019.

A Cook County judge appointed Jeffrey Kolessar of Philadelphia-based GF Hotels & Resorts as the receiver for the property. An Arbor spokesman couldn’t be reached.

The expanding pool of local hotel foreclosure suits also includes the 269-room Hilton Orrington hotel in Evanston, where its New York-based owner plans to walk away from the property after defaulting on its $40 million loan tied to the property, according to court records and a Bloomberg report.

Other reports tied to CMBS loans indicate more possible foreclosure actions.

At the 523-room Residence Inn/SpringHill Suites hotel in River North, a joint venture of Chicago-based Friedman Properties and Merrillville, Ind.-based White Lodging stopped making payments on the property’s $120 million CMBS loan early in the pandemic, Bloomberg data show. Special servicer Midland Loan Services is negotiating a potential loan modification while it also pursues a “parallel path” to foreclosure, according to a Bloomberg report.

At the 403-room W hotel in the Loop, Tysons, Va.-based owner Park Hotels & Resorts stopped making monthly debt payments in January on a $76 million CMBS loan tied to the property, the company disclosed last month in an annual report.

It’s unclear what changed that prompted the real estate investment trust to stop its mortgage payments after making them throughout 2020, though CEO Thomas Baltimore told analysts on a conference call last week that “the issue related to that asset is really unique” and that the company stopped paying the loan to begin discussions about modifying the loan with special servicer LNR Partners. The loan is due to mature in August 2023, according to Bloomberg data tied to the mortgage.

Nevertheless, Park disclosed in its annual report that while it “hopes to negotiate an amendment with the lender, there can be no assurances that such an agreement will be reached.”

The W has suspended operations and reported a net cash flow loss of nearly $6.3 million in 2020, Bloomberg data shows. The hotel generated $6.6 million in positive net cash flow in 2019, though that number was 40 percent lower than the property’s net cash flow five years before, according to Bloomberg.