As the owner of the Palmer House Hilton hotel grapples with a $338 million foreclosure lawsuit amid the COVID-19 crisis, it's now facing a separate complaint from the lender on the hotel's retail space.
New York-based Thor Equities hasn't made payments since May on its $62 million mortgage for the Palmer House retail shops along the 100 block of South State Street and is now in default, according to a foreclosure lawsuit filed last month in Cook County Circuit Court.
Piling onto the debt woes at the city's second-largest hotel, a venture of Wilmington, Del.-based lender Wilmington Trust asked the court to appoint a receiver for the property, which includes 60,000 square feet of retail shops and a parking garage. Wilmington represents investors in Thor's 2015 mortgage, which was packaged with other loans and sold off to commercial mortgage-backed securities bondholders.
The lawsuit was filed four months after Thor was hit with a similar one at the 1,635-room Palmer House itself. Together, they underscore the financial carnage caused by a pandemic that for more than 10 months has crushed demand for both full-service hotels and bricks-and-mortar retail space.
The complaints also highlight the complex situation that needs to be sorted out to determine the property's future: The Palmer House is tied to separate and distinct CMBS mortgages for the hotel's senior loan, its mezzanine loan and the loan on the retail portion. Each could be dealt with differently by trustees that represent the respective bondholders.
As of October, a Thor venture owed nearly $76 million in principal, interest and other fees for the retail property, according to the complaint, filed Dec. 16.
The retail portion entered 2020 on an upswing, belying a retail sector that has been reeling in recent years as more people shop online. The property was 98 percent leased in 2019 and reported net cash flow before debt service of more than $4 million, its best year since 2016, according to a Bloomberg report tied to the CMBS loan.
But then came the double whammy of a pandemic that not only forced the hotel to close, but also sapped foot traffic in the Loop that might have led shoppers to Skechers, New York & Co., Naturalizer or other stores in the property.
A Thor Equities spokeswoman did not provide a comment, and a spokesman for LNR Partners, the special servicer overseeing the loan, couldn't be reached.
Thor purchased the Palmer House in 2005 and refinanced the retail portion with the 2015 loan. The retail property was appraised at nearly $93 million at the time it took out the existing mortgage, according to Bloomberg data.
It's unclear if the retail property has been appraised since the onset of COVID-19, but the appraised value of the hotel itself last year was just less than $306 million—45 percent less than the $560 million it was appraised at when Thor refinanced the property in 2018.
Cook County Circuit Court records show Boston-based hotel asset management firm CHMWarnick was recently appointed as a receiver to oversee the Palmer House hotel property as the foreclosure complaint proceeds.
Thor cashed out on other retail properties on State Street in recent years. It sold an 18,800-square-foot retail space at 36 S. State St. in 2018 for $26 million, a sharp increase from the $11.5 million it paid for the property in 2004, according to research firm Real Capital Analytics. Prior to that sale, Thor also sold the retail space just south of the Palmer House at 133 S. State St. in 2017.
More recently it has been busy in the Fulton Market District. Thor developed a new headquarters for snack maker Mondelez International at 905 W. Fulton Market that it sold last year to a German investor for a record high price per square foot for a Chicago office building. Thor is also developing a 450,000-square-foot office building at 800 W. Fulton Market that will be anchored by dental practice services company Aspen Dental.
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January 26, 2021 at 12:53AM
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