Foreclosure suit hits suburban Westin hotel
(Crain's) — The lender group on the Westin Chicago North Shore has filed to foreclose on the 412-room hotel in northwest suburban Wheeling, five months after the owner stopped making loan payments.
The Westin is straining under an $86-million loan taken out three years ago, when the hotel market was booming and lenders were still shoveling money out the door. But local occupancies and room rates have tumbled since then, and bad loans keep piling up.
Hotel values have plunged, too, meaning the Westin's lenders could face steep losses. The hotel at 601 N. Milwaukee Ave. was appraised at $110 million in May 2007 but just $51.2 million in March, according to a loan report by Bloomberg L.P.
Local developer Harp Group Inc. built the hotel in 2006 but cashed out most of its stake a year later when it refinanced the property with $15-million investment from New York-based Marathon Asset Management LLC and the $86-million loan from J. P. Morgan Chase & Co.
J. P. Morgan divided the loan into three parts: a $37.1-million senior note that it sold in a commercial mortgage-backed securities (CMBS) offering; a $24.9-million junior note held by Oak Brook-based Inland American Real Estate Trust Inc., and the lowest-ranking $24-million piece owned by Stamford, Conn.-based Five Mile Capital Partners LLC.
If the hotel could be sold for $51.2 million, Marathon and Five Mile would recover none of their investment and Inland American would recover a little more than half of its principal. CMBS investors would get paid back in full.
A Harp executive referred a reporter to a Marathon representative, who did not return calls. A Five Mile executive also did not return phone calls, while an Inland American spokesman referred a reporter to a Chicago-based lawyer representing the lenders, John Weiss of Duane Morris LLP, who declines to comment.
A spokeswoman for the servicer of the loan, Pennsylvania-based Berkadia Commercial Mortgage LLC, also declines to comment.
It's a familiar story for a growing number of local hotels that loaded up on debt during the boom. New York-based research firm Real Capital Analytics Inc. estimates that $1.4 billion of Chicago hotels are in financial distress, up from $680 million a year ago.
The list includes three Harp hotels: the Wheeling Westin, the 556-room InterContinental Chicago O'Hare in Rosemont, which is under Chapter 11 bankruptcy protection, and a 426-room Holiday Inn Select in Naperville, which was hit with a $20-million foreclosure suit in March.
Another Harp investment, the 285-room Ambassador East in the Gold Coast, was sold to in March Ian Schrager for less than the debt owed on the property.
The Westin loan was placed on a watch list in December, after Marathon warned that the hotel wouldn't generate enough cash flow to cover loan payments. Cash flow before debt service at the hotel totaled $317,218 in 2009, down from $1.27 million in 2008, according to the Bloomberg report.
Related story: Default danger for Westin hotel in Wheeling
Marathon missed its January interest payment, according to the foreclosure suit, which was filed last month in Cook Count Circuit Court. Including interest and fees, Marathon owes $86.6 million, the complaint says.
