Palmer House foreclosure points to industry’s trouble
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.