Prudential-led JV sells 2 Rosemont hotels at deep discount

The venture sold the two hotels for nearly $50 million less than what it paid for them

Jun.June 11, 2019 01:00 PM
From left: Embassy Suites by Hilton Chicago O’Hare Airport and Doubletree by Hilton Chicago O’Hare Airport

From left: Embassy Suites by Hilton Chicago O’Hare Airport and Doubletree by Hilton Chicago O’Hare Airport

Nine months after seeking to cash out of the area’s strong hotel market, a joint venture led by Prudential Insurance’s real estate investment arm sold two Rosemont hotels at a deep discount.

A venture of Prudential-subsidiary PGIM and Dow Hotel Company sold the DoubleTree Rosemont for $28.5 million, Cook County Property records show. The joint venture also sold the Embassy Suites Rosemont for $24.4 million. The deals closed in late May.

By selling the two properties for a total $52.8 million, the joint venture took a significant loss. The venture bought the hotels in two separate deals for a combined $100 million, not including money spent on upgrades, property records show.

New Jersey-based PGIM and Seattle-based Dow Hotel bought the 369-key DoubleTree at 5460 North River Road in 2007 in a land lease deal for $61.4 million, according to property records. In 2000, the group picked up the 294-room Embassy Suites at 5500 North River Road for $39 million before spending $10 million in renovations.

Minnesota-based Nath Companies and Chicago-based Syndicated Equities Group bought the two hotels from PGIM and Dow last month. TCF Bank provided two loans totaling $46.3 million to finance the deals, records show.

The sales come as the O’Hare hotel submarket is riding high. Revenue per available room in the O’Hare market jumped 6 percent year over year last summer, and the airport itself is in the midst of an $8.5 billion expansion and overhaul that will allow it to serve an additional 20 million passengers per year and potentially bring in more guests to area hotels.

The O’Hare market even withstood a downturn that hit the overall Chicago hotel industry in the first quarter, and it has not seen an influx of new hotel inventory as Downtown has, hotel consultant Ted Mandigo said.

The O’Hare market had even better years leading up to the recession. That, combined with a lack of available sites for new hotels, caused some buyers to pay top-dollar for hotel properties in the market at the time, Mandigo said.

PGIM and Dow bought the DoubleTree in 2007, just before the recession. If it sold near its previous price of $61 million, it would have been the priciest O’Hare hotel deal since 2015, when the Westin O’Hare traded for $82 million.

Since then, the highest price paid for a hotel in the submarket came in March 2018, when a Hong Kong firm paid $37 million for the Rosemont Hilton as part of a $650 portfolio sale.

The value of properties in the are has dropped so much because many are in need of improvements, Mandigo said. And the expansion and redevelopment of O’Hare could make matters worse for existing innkeepers by increasing competition: The project could bring as many as three new hotels to the area, he said.

“It’s a very competitive market,” said Mandigo, of TR Mandigo & Company. “There are a number of projects that could come on board. That dampened the enthusiasm of some.”

PGIM declined to comment on the deal, and Dow Hotel did not respond to requests for comment. A representative for Nath Companies did not respond to requests for comment. A principal at Syndicated confirmed the company’s preferred equity interest in the deal, but did not disclose the terms of the deal.

Nath Companies’ first acquisition in Chicago was in 2017, when the firm picked up the 385-room Renaissance Chicago North Shore in Northbrook for $30 million, Crain’s reported at the time. Syndicated Equities has a diverse portfolio, including retail, office and eight hotels throughout the country.

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