Two Chicago hotels sell for combined $130M

One of them, the Hilton Garden Inn near Mag Mile, was bought for $91.8 million in 2012

600 North State Street and 10 E. Grand Ave. Chicago (Tripadvisor, Reservationdesk)
600 North State Street and 10 E. Grand Ave. Chicago (Tripadvisor, Reservationdesk)

Two hotels in downtown Chicago operated by Hilton sold in a $129.5 million deal disclosed Thursday by California lodging investor Sunstone, marking losses from their values achieved in the last decade.

The deal involves the 368-key Embassy Suites Chicago at 600 North State Street and the 361-key Hilton Garden Inn at 10 East Grand Avenue, according to SEC filings.

The price reflects a cost of $178,000 per room between the hotels and marks a drop of the combined values of the properties amid a pandemic that has slammed the market for hotels in Chicago and across the nation.

“We are pleased to announce the sale of these two hotels as it marks our exit from the Chicago market, which has been hindered by excess supply and an inability to drive meaningful rate and profitability growth,” Sunstone CEO Bryan Giglia said in a statement.

Sunstone bought the Hilton Garden Inn in 2012 for almost $92 million, or $257,000 a key, it said in a news release at the time, and the Embassy Suites in 2006 secured a $75 million loan at a 5.5 percent interest rate that was set to mature in 2017, as part of refinancing a previous $37 million loan that was scheduled to mature in 2008, SEC filings show. The $75 million loan was paid in full and at the point of maturity the Embassy Suites property was appraised at $114 million on its own, or more than $311,000 per key, according to DBRS Morningstar.

The $178,000 price per room in the two-property deal undercuts a December sale of Chicago’s 191-key Kimpton Hotel Monaco at $188,500 per room, which was a 35 percent cut from the 2013 appraised value of that property at 225 North Wabash Avenue.

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Across the nation, 713 hotel loans packaged in commercial mortgage-backed securities, or CMBS, totaling about $14.3 billion that were modified or granted some form of relief since March 2020, according to a Morningstar report published Wednesday. That was about 15 percent of the $95 billion in outstanding hotel loans.

“Because of these relief measures, the flood of distressed CMBS hotel assets was smaller than expected, while loss severities have been much lower compared with liquidations after the Great Recession,” the Morningstar report said. “As forbearance periods expire, it’s unlikely we’ll see an overwhelming increase in foreclosures even as many operators deal with underfunded reserves, which paid debt service and are critical to remaining competitive.”

As of September, 62 percent of Chicago hotel loans packaged in commercial mortgage-backed securities had gone into special servicing, with a total unpaid balance of $1.2 billion. None were in special servicing at the end of 2019, according to Morningstar.

A Sunstone spokesman didn’t respond to requests for comment, and information about the buyers wasn’t disclosed by the company.