Chicago Palmer House Hilton hit with $338 million foreclosure lawsuit
Wells Fargo represents investors in Thor’s 2018 mortgage, which was bundled with other loans and sold to bondholders.
The complaint is the largest and most high-profile foreclosure lawsuit against the owner of a downtown property since the coronavirus pandemic triggered widespread economic shutdowns starting in March. Hotels have arguably borne the brunt of the outbreak’s onslaught on commercial properties, with business and leisure travel sapped for months and no sign of when it will return significantly. It has forced many to suspend operations and some to stop paying mortgages or implore lenders to change the terms of their loans to take into account the worst crisis on record for hotels.
The pandemic has been particularly painful for large, full-service hotels like the 1,635-room Palmer House, which depend on operations from group meetings, food and beverage sales, conventions and trade shows at McCormick Place. The convention center has been mostly empty since mid-March as part of a statewide ban on indoor gatherings of more than 50 people.
With demand all but evaporated, the Palmer House is now worth just under $306 million, according to an appraisal conducted earlier this month. That’s 45% less than the $560 million appraised just over two years ago when Thor refinanced the hotel amid booming tourism in Chicago.
The decimated value means that if Thor were to repay his lenders today, he would be over $100 million short. In addition to the $333.2 million senior loan, Thor’s Palmer House debt also includes a $94 million mezzanine loan that was packaged separately with other mortgages and sold to equity-backed securities investors. commercial mortgages. Including interest and other late fees, Thor owes nearly $338 million on the senior loan, according to the lawsuit.
Wells Fargo has asked the court to immediately transfer control of the property to a receiver because Thor lacks the funds to cover essential operating expenses, ‘putting the hotel in physical danger’ and threatening the interests of the lender in the hotel, according to the complaint.
A spokeswoman for Thor declined to comment.
Palmer House’s bottom line was down before the pandemic hit. It generated $30.9 million in net operating income in 2019, down 20% year-over-year, according to a Bloomberg report related to the senior loan.
But Thor had already banked big gains on the Palmer House, which he bought for $230 million in 2005 and spent $131 million on renovations in 2008. The company refinanced the property in 2014 with a loan of $420 million, repaying a previous loan of $365 million. and probably pocket the $55 million difference. The 2018 loan allowed him to cash in an additional $7 million in equity compared to the previous one, adding to his annual operating profit from the property.
He twice tried to sell the hotel in the past decade – seeking around $575 million in a 2015 bid – but ultimately held on.
Thor also owns the 60,000 square foot building sales area facing State Street and also missed five months of payments on a $62 million mortgage tied to that property, according to Bloomberg lending data.
The Palmer House could be the first of several downtown hotels to consider possible legal action if COVID continues to dampen the economy. Signs of impending distress among hotels with CMBS loans began to appear in May, when the delinquency rate on such loans among Chicago-area hotels hit a record high of 33.5% from 2.5% in April, according to New York-based research firm Trepp.
Today, many of these hotels have been flagged for potential default, including the JW Marriott Chicago, Hotel Felix, Hilton Suites Chicago Magnificent Mile and Whitehall Hotel. The 610-room JW Marriott was also appraised this month at $210 million, up from $370 million when the 151 W. Adams St. property was appraised in 2017.
While the Palmer House foreclosure lawsuit deals a blow to Thor, the company has had big wins elsewhere in the city center this year. In May, it sold the new 98,000 square foot Mondelez International headquarters in the Fulton Market District at 905 W. Fulton Market for more than $86 million, break the previous mark for the most expensive sale ever for a Chicago office building per square foot.
Just over a block east of this property, Thor is developing an 18-story, 450,000-square-foot office building at 800 W. Fulton Market, where dental office services company Aspen Dental has recently leased approximately 200,000 square feet for its new headquarters.