If the owner of the Palmer House Hilton had to pay back its lenders today, it would be more than $100 million short.
That's the harsh new reality for New York-based Thor Equities, which now owes nearly 40 percent more on Chicago's second-largest hotel than it's worth as COVID-19 devastates demand in the hospitality sector.
An appraisal of the hotel done earlier this month valued the 1,639-room hotel at $305.5 million, according to a Bloomberg report tied to a $423 million loan on the property. That valuation of the historic property at 17 E. Monroe St. is a stunning 45 percent lower than its appraisal just more than two years ago, when New York-based Thor Equities refinanced the hotel.
The decimated property value reflects the pain facing hotel owners downtown after months of the coronavirus pandemic sapping travel and with little clarity about when demand for hotel rooms will return. The crisis has been especially painful for large hotels like the Palmer House, which rely heavily on business from group meetings, events and conventions and trade shows at McCormick Place. The convention center has been mostly empty since mid-March amid a statewide ban on indoor gatherings larger than 50 people.
That could result in a massive loss for bondholders that back the Palmer House loan, which was packaged with other mortgages and sold off to commercial mortgage-backed securities investors. A sale at the appraised price would wipe out all of a $94 million mezzanine loan and some of a $333.2 million senior loan that comprised the debt. The senior loan had an outstanding balance of about $329 million in April, when Thor stopped making its monthly mortgage payments, according to Bloomberg loan data. Thor has now missed more than $5 million in monthly loan payments, the data shows.
Thor's bottom line at the Palmer House was dropping before the pandemic. The hotel reported net operating income of $30.9 million in 2019, down 20 percent year over year, according to Bloomberg.
The 2018 loan marked the third time in six years that Thor refinanced the hotel. It tried twice to sell the hotel during that span, seeking about $575 million in a 2015 offering, but ultimately held onto the property as tourism to Chicago soared over the past decade.
Thor bought the Palmer House for $230 million in 2005 and completed a $131 million renovation in 2008.
Adding salt to the Palmer House wound for Thor is that the firm also owns the building's 60,000-square-foot State Street-facing retail space—the other commercial property sector bludgeoned by the coronavirus. Bloomberg data shows Thor has also missed five months of payments on a $62 million mortgage tied to the retail property, which has an outstanding balance of $60.3 million.
A Thor Equities spokeswoman declined to comment.
Many downtown hotels suspended operations in recent months and several larger ones remain shuttered due to the ban on large gatherings. A number of other properties with CMBS loans have been flagged for potential default amid the ongoing crisis, including the JW Marriott Chicago, Hotel Felix, Hilton Suites Chicago Magnificent Mile and the Whitehall Hotel.
While some borrowers may be able to work with lenders to modify loan terms, given the hospitality sector's ongoing nightmare, it may be harder to pull off for those with CMBS debt since the loans are part of a pool of mortgages.
The 610-room JW Marriott, which is owned by a venture of Orlando, Fla.-based real estate firm Estein USA, also saw its value slashed to $210 million in an appraisal this month, according to a Bloomberg report. That was down from more than $370 million when the property at 151 W. Adams St. was appraised in 2017. Estein is not underwater, however, as its debt on the hotel totals $203.5 million.
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August 28, 2020 at 04:39AM
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Chicago Palmer House Hilton value slashed by 45 percent - Crain's Chicago Business
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