Palmer House fore­clo­sure points to in­dus­try’s trou­ble

Chicago Sun-Times - - BUSINESS - BY DAVID ROEDER AND EM­MANUEL CA­MAR­ILLO David Roeder is the Sun-Times’ Busi­ness & La­bor Re­porter. Em­manuel Ca­mar­illo is a CST Wire Re­porter.

With a fore­clo­sure suit filed against its owner, the Palmer House Hil­ton ho­tel has be­come the most prom­i­nent Chicago vic­tim of the col­lapse of the lodg­ing in­dus­try due to the pan­demic.

The owner, an af­fil­i­ate of Thor Eq­ui­ties, was ac­cused in a Cook County Circuit Court law­suit of de­fault­ing on a $333.2 mil­lion mort­gage. Wells Fargo Bank, trustee for the hold­ers of se­cu­ri­ties that in­clude the Palmer House loan, filed the suit Aug. 20 and asked the court to ap­point a re­ceiver for ho­tel op­er­a­tions.

The Palmer House has been closed since early in the pan­demic and, ac­cord­ing to a Hil­ton Ho­tels spokes­woman, has not set a re­open­ing date. Hil­ton op­er­ates the Palmer House un­der a man­age­ment con­tract. New York-based Thor could not be reached for com­ment.

The sec­ond-largest Chicago ho­tel, the Palmer House at 17 E. Mon­roe St. de­pends on con­ven­tions and busi­ness travel that have largely dried up dur­ing the strug­gle to con­tain COVID-19. While the own­er­ship could change, the busi­ness it­self and Hil­ton’s longterm con­nec­tion to the ho­tel — it owned it for decades — are likely to con­tinue.

But ex­perts said the Palmer House’s prob­lems de­mon­strate the fi­nan­cial pres­sure all ho­tel own­ers face. The own­ers of­ten are in­vestor groups, not the ma­jor chains such as Hil­ton or Mar­riott that have their names on a prop­erty but only as op­er­a­tors.

The law­suit said Thor owes $337.8 mil­lion on the mort­gage, count­ing prin­ci­pal, in­ter­est and penal­ties. It also said there’s a $94.4 mil­lion mez­za­nine loan on the prop­erty. A mez­za­nine loan is a higher-in­ter­est form of debt sub­or­di­nate to the mort­gage.

The next hear­ing on the case is sched­uled for Fe­bru­ary 2021, al­though Thor is ex­pected to pro­vide its re­sponse by Sept. 10 to the re­quest for a re­ceiver.

The Amer­i­can Ho­tel & Lodg­ing As­so­ci­a­tion

has said one in four ho­tel loans na­tion­wide is more than 30 days over­due and four in 10 work­ers in the in­dus­try are un­em­ployed. The as­so­ci­a­tion has asked Congress for more aid, join­ing a pa­rade of in­dus­tries seek­ing ad­di­tional help to stay open and re­hire work­ers.

Michael Ja­cob­son, CEO of the Illi­nois Ho­tel & Lodg­ing As­so­ci­a­tion, said huge con­ven­tion ho­tels such as the Palmer House will sur­vive, in part be­cause the prop­er­ties can’t eas­ily be con­verted into some­thing else, such as con­dos. But he said he’s fear­ful of smaller op­er­a­tions that rely on leisure trav­el­ers. “There are some of those we might lose per­ma­nently,” he said.

Over­all ho­tel oc­cu­pan­cies in the down­town area are run­ning at about 20%, ac­cord­ing to data from STR as pro­vided by the as­so­ci­a­tion. That per­cent­age is based only on Chicago’s open ho­tels; it would be lower if the closed prop­er­ties were fac­tored in.

Data show nearly a third of the cen­tral area’s more than 300,000 rooms are un­avail­able be­cause the prop­er­ties are closed.

Among big con­ven­tion ho­tels, the Sher­a­ton Chicago and the Chicago Hil­ton are shut. The city’s largest ho­tel, the Hy­att Re­gency, is open. Ja­cob­son said the Mar­riott on Michi­gan Av­enue re­opened Tues­day.

But the dif­fi­cult tourism and travel mar­ket is li­able to con­tinue for months. The pan­demic has wiped out events on Mc­Cormick Place’s sched­ule, and Navy Pier, one of the big­gest tourism draws in the state, will close for the win­ter af­ter La­bor Day.

“The virus is the boss here,” said Jon Peck, a Chicago-based con­sul­tant for the lodg­ing in­dus­try.

PALMERHOUS­EHILTONHOT­EL.COM

The Palmer House Hil­ton is the sec­ond-largest Chicago ho­tel.

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