Commercial Real Estate
Chicago

Covid-19 crisis could wipe out these debt-laden Chicago hotels

As many as one-third of CMBS-tied hotel properties in the area may not be able to pay their mortgages in coming months

Palmer House at 17 E. Monroe Street (Credit: <a href="https://www3.hilton.com/en/hotels/illinois/palmer-house-a-hilton-hotel-CHIPHHH/index.html" target="_blank" rel="noopener noreferrer">Hilton</a>, iStock)

Palmer House at 17 E. Monroe Street (Credit: Hilton, iStock)

Dozens of hotels in the Chicago area may not be able to overcome the deadly combination of historic low occupancy rates and high debt levels.

According to an analysis of commercial mortgage backed securities attached to hotels, nearly a third of such properties are at risk of default, Crain’s reported.

“If you took 9/11 and the recession of ’08 and ’09 and put them together, you still wouldn’t be close” to the chaos Covid-19 has wrought, Robert Habeeb, founder and CEO of Maverick Hotels & Restaurants, told the outlet.

If things break well, the crisis will abate and hotels will be able to pack rooms in the summer, providing desperately-needed revenue. Still, even then many won’t be able to shore up enough cash to satisfy lenders. Uncomfortable conversations will have to be had with their banks.

The analysis by Crain’s covered 29 Chicago-area hotels with loan balances exceeding $10 million that have been resold as CMBS debt.

With $423 million in such debt, Thor Equities’ Palmer House could be among the first big hotels to go under. Net cash flow before debt was already down to $27 million in the 12 months through September, which barely covered the $25 million in debt payments. With occupancy rates now below double digits, it looks highly unlikely revenues will cover mortgage payments in the immediate term.

Thor bought the 1,600-room-plus Palmer House for $230 million in 2005 and finished a $131 million renovation in 2008. Most recently it tried to sell the hotel for about $575 million before pulling it from the market. Thor snagged a $427 million refinancing in 2018 from a lending consortium led by JPMorgan Chase.

Other vulnerable large hotels in the Loop include theWit, with net cash flow before debt at $4.6 million and $4.2 million in annual debt payments, and the W Chicago City Center, which had net cash flow before debt at $6.6 million and debt costs at $6 million, per the analysis.

Others, such as the boutique Whitehall Hotel, the Wrigleyville hotel portfolio, and the HIE at Magnificent Mile, are already not generating more revenue than required debt payments.

Hoteliers on the CMBS bubble will likely have to persuade special servicers to either give them more time or restructure loans. If that doesn’t work, they could lose the asset following a lengthy court battle, Stacey Nadolny, managing director and senior partner of hospitality consulting firm HVS, told Crain’s. [Crain’s] — James Kleimann

COMPANIES AND PEOPLE

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Commercial Real Estate
Chicago

Covid-19 crisis could wipe out these debt-laden Chicago hotels

As many as one-third of CMBS-tied hotel properties in the area may not be able to pay their mortgages in coming months

Palmer House at 17 E. Monroe Street (Credit: <a href="https://www3.hilton.com/en/hotels/illinois/palmer-house-a-hilton-hotel-CHIPHHH/index.html" target="_blank" rel="noopener noreferrer">Hilton</a>, iStock)

Palmer House at 17 E. Monroe Street (Credit: Hilton, iStock)

Dozens of hotels in the Chicago area may not be able to overcome the deadly combination of historic low occupancy rates and high debt levels.

According to an analysis of commercial mortgage backed securities attached to hotels, nearly a third of such properties are at risk of default, Crain’s reported.

“If you took 9/11 and the recession of ’08 and ’09 and put them together, you still wouldn’t be close” to the chaos Covid-19 has wrought, Robert Habeeb, founder and CEO of Maverick Hotels & Restaurants, told the outlet.

If things break well, the crisis will abate and hotels will be able to pack rooms in the summer, providing desperately-needed revenue. Still, even then many won’t be able to shore up enough cash to satisfy lenders. Uncomfortable conversations will have to be had with their banks.

The analysis by Crain’s covered 29 Chicago-area hotels with loan balances exceeding $10 million that have been resold as CMBS debt.

With $423 million in such debt, Thor Equities’ Palmer House could be among the first big hotels to go under. Net cash flow before debt was already down to $27 million in the 12 months through September, which barely covered the $25 million in debt payments. With occupancy rates now below double digits, it looks highly unlikely revenues will cover mortgage payments in the immediate term.

Thor bought the 1,600-room-plus Palmer House for $230 million in 2005 and finished a $131 million renovation in 2008. Most recently it tried to sell the hotel for about $575 million before pulling it from the market. Thor snagged a $427 million refinancing in 2018 from a lending consortium led by JPMorgan Chase.

Other vulnerable large hotels in the Loop include theWit, with net cash flow before debt at $4.6 million and $4.2 million in annual debt payments, and the W Chicago City Center, which had net cash flow before debt at $6.6 million and debt costs at $6 million, per the analysis.

Others, such as the boutique Whitehall Hotel, the Wrigleyville hotel portfolio, and the HIE at Magnificent Mile, are already not generating more revenue than required debt payments.

Hoteliers on the CMBS bubble will likely have to persuade special servicers to either give them more time or restructure loans. If that doesn’t work, they could lose the asset following a lengthy court battle, Stacey Nadolny, managing director and senior partner of hospitality consulting firm HVS, told Crain’s. [Crain’s] — James Kleimann

COMPANIES AND PEOPLE

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