Hilton Suites Chicago Magnificent Mile returns to lender
The move will add the 30-story property at 198 E. Delaware Place to the list of downtown hotels sacked by the pandemic, which has reduced travel demand for 18 months and raised questions about when part of it will come back someday.
Some banks have been patient with hotel owners, making deals to defer loan payments in order to buy properties while they recover. But it has been more difficult for owners of properties like the Hilton Chicago, whose loans were bundled with other mortgages and sold to investors in commercial mortgage-backed securities, to make such agreements because the trustees of the CMBS loans oversee many related loans. Other prominent downtown hotels, including the Palmer House Hilton and the JW Marriott Chicago, also have CMBS debt and have been hit by massive foreclosure lawsuits.
For Procaccianti, the pandemic struck less than seven months before his $ 77.2 million loan on the property fell due. According to Bloomberg data related to the loan, homeowners stopped repaying the loan shortly after COVID put an end to things, and LNR Partners – a special department appointed to oversee the loan on behalf of bondholders – began to collect all cash flow from the property. LNR revealed in July that it was in the process of closing a deal with the owners of the hotel.
The current loan balance is just under $ 70 million, according to Bloomberg data.
A spokesperson for Procaccianti declined to comment and a spokesperson for LNR could not be reached.
It is not clear whether LNR will hold the property until the hotel market stabilizes or try to sell it earlier to recoup money for bondholders, which would likely incur a loss if the hotel was negotiated today.
Another group of investors, meanwhile, are happy the hotel has succumbed to distress. The property is one of a handful of Chicago-area hotels with debt tied to CMBX 9, a U.S. credit derivatives index linked to CMBS lending groups. Hedge funds and other short sellers began increasing bets on CMBX 9 last year due to its outsized exposure to hotel debt.
In addition to the Hilton Suites Chicago Magnificent Mile, three other Chicago-area hotels are linked with loans that are part of CMBX 9, according to research firm Trepp: the 317-room Hyatt at 1400 Corporetum Drive in Lisle, the Holiday 145 Inn & Suites rooms at 205, boulevard Remington. in Bolingbrook and the 101-room Holiday Inn Express & Suites at 1490 W. Lake St. in Roselle.
Bloomberg data shows that owners of the Lisle property have not missed any loan payments despite an average 16% occupancy of the hotel in the 12 months ending in June. The trustee of the bondholders of the Bolingbrook mortgage has agreed to extend its maturity date until July 2022.
The Procaccianti company purchased the Gold Coast hotel in 2005 as part of a portfolio of five properties it acquired from GE Capital and spent nearly $ 16 million to renovate it before refinancing the property with the current mortgage in 2015, according to a document related to the loan. . The hotel was valued at $ 112.4 million, or more than $ 325,000 per room, at the time of refinancing, according to Bloomberg data.
The performance of the establishment fell before the pandemic. With an average occupancy rate of 79%, the hotel generated less than $ 4.4 million in free cash flow in 2019 on revenue of $ 20.9 million, according to Bloomberg data . That net cash flow was less than the nearly $ 4.9 million homeowners paid in debt service.
Revenue per available room, a key performance metric that takes into account both occupancy and room rate, averaged less than $ 41 among downtown hotels that were open this year until the end of June, according to hotel data and analytics company STR. This is a slight increase from the annual average of $ 35.29 for 2020, but a decrease of 56% from the RevPAR average from June to date in 2019.