JW Marriott foreclosure auction could be a broader sign of distress for the downtown hotel industry

Wells Fargo Bank took control of the 610-room JW Marriott Chicago hotel Friday morning with a winning bid of nearly $251 million during a foreclosure auction.

Orlando owner Estein USA had not made a payment on the $203 million loan tied to the property at 151 West Adams St. since last summer, according to the Illinois Foreclosure Listing Service. The amount owed eventually grew to $243 million, and as trustee for the investors in the loan, Wells Fargo filed a foreclosure lawsuit last year, with a foreclosure sale set for Friday. The bank was the only bidder for the hotel, which remains open.

The foreclosure is a potential sign of distress for the downtown hotel industry still struggling to recover from the pandemic. Tourists began to fill downtown hotels as warm weather returned, bringing much-needed relief to beleaguered homeowners. But business travelers remain in short supply, so the tough times may not be over, and other hotels could be in trouble, too.

“JW Marriott may not be the last hotel to find itself in the soup,” said Robert Habeeb, CEO of Maverick Hotels and Restaurants. “If a high-profile hotel like that can go into foreclosure, it’s a sign of some weakness in the market.”

The hotel opened in 2010, shortly after developers began transforming old office buildings in the financial district into hotels to serve convention goers and the growing tourist trade. It was on the up in 2019, the year before COVID shut down downtown, bringing in more than $72 million with expenses of about $50 million, according to CoStar data. But he lost more than $6 million in the first nine months of 2020.

Crain’s Chicago Business was the first to report on the JW Marriott Chicago auction. Wells Fargo did not return messages seeking comment.

It’s not the only hotel going through foreclosure, or even the biggest. Wells Fargo in 2020 also sued New York-based Thor Equities, owner of the iconic Palmer House Hilton, for missing $338 million in loan payments on the 1,641-room Loop hotel. That lawsuit has not yet been resolved.

Most hotel operators have so far avoided being taken to court by their lenders, Habeeb said, though in 2020 many thought the pandemic-related flood of red ink could overwhelm the industry. But the federal Paycheck Protection Program, which funneled billions to struggling businesses, coupled with the willingness of many lenders to renegotiate hotel loan payments, got many hotels through the initial crisis.

“Most people in the industry will admit that PPP saved their bacon, and lenders understood that the pandemic was a once-in-a-lifetime thing, so they were willing to be flexible,” Habeeb said.

And with tourists returning, downtown hotels are back in the black for now, according to Habeeb, who opened the 223-room Sable on Navy Pier in March 2021. Crowds at Millennium Park, museums, the Willis Tower and other attractions are raising hopes that the industry will finally get over the worst downturn in its history.

“We’re putting up some really good numbers this summer,” he said.

For the week ending July 2, downtown hotels were 78.3% occupied and overall occupancy for June will likely be around 70, about where it was in June 2019, according to Stacey Nadolny, CEO of HVS, an industry based in Chicago. consultant.

“The Loop was packed last week, just people everywhere,” he said. “It was so much fun seeing so many downtown and doing things in Chicago again.”

The real test will come when the summer is over and most of the tourists are gone. Historically, business travelers filled Chicago hotel rooms in the colder months, but with offices nationwide less than half full, most companies are reluctant to send employees on the road.

Hotel operators still see a future in the financial district. The 215-room Canopy by Hilton Chicago Central Loop opened in 2021 at 226 W. Jackson Blvd., and the 232-room LaSalle Chicago hotel, developed and owned by Michael Reschke’s The Prime Group, opened this year on the top five floors of 208 S. La Salle Street

That could be stiff competition for the JW Marriott Chicago, which has been popular with business travelers for its large meeting spaces, Nadolny said. She assumes Wells Fargo will now sell to recoup its losses, and JW Marriott will continue as manager, but whoever ends up owning the property may need to renovate it to keep up with new neighbors like LaSalle Chicago.

Regardless of what the future holds for downtown hotels, owners will still have to meet their loan payments, Habeeb said. Many also worry about rising property taxes, rising interest rates, and perceptions of rising crime. And unlike in 2020, lenders will likely be less flexible if financial difficulties continue.

“You can negotiate a new [loan] deal for a once-in-a-lifetime pandemic, but you won’t get one because of high crime rates,” he said.

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