Hotel in Chicago’s Loop scores $80M loan just before maturity of previous watchlisted debt

Lenders still willing to take chances on downtown lodging as recovery continues

EDC's Gerald Greenberg and Scott Greenberg with 201 North State Street (ECD Company)
EDC's Gerald Greenberg and Scott Greenberg with 201 North State Street (ECD Company)

A 310-key hotel in Chicago’s Loop scored an $80 million loan, days before it was due to repay a larger, previous one placed on a watchlist as the city’s hospitality market faces hurdles in emerging from the depths of the pandemic.

The hotel at 201 North State Street, operated by Hilton’s theWit DoubleTree brand and owned by an affiliate of suburban Chicago’s ECD Company, was facing maturity of a 10-year $87.6 million loan packaged into commercial mortgage-backed securities and sold to investors.

Its refinancing in mid-May and ability to pay off that loan underscores how lenders are still willing to take chances with mortgages on downtown lodging properties that have just barely paid their debts through the pandemic, with potential still building for a rebound in Chicago. The city trails the national average pace of the hospitality industry’s recovery.

In September, the previous 12 months of occupancy at theWit was 30 percent and revenue per available room was $56, compared to 81 percent and $181 for the same yearlong period ending in 2019.

Even before the health crisis, the previous CMBS loan was showing signs of distress, with declining food and beverage revenue from the property’s three restaurants contributing to the concern, a February Moody’s report on the previous loan said.

“The decrease in revenues can be partially attributed to new inventory of rooms in the area and fewer citywide conventions in 2019 along with the roof patio being under renovation during the first half of 2019,” Moody’s said. The 2019 net operating income of the property was more than 20 percent below underwritten levels.

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ECD didn’t respond to requests for comment. Barings, which shares an address with the lender, an entity called SBNA SIA Mortgage III, also didn’t respond to requests for comment.

Chicago hoteliers have been held back from a faster recovery by a lack of business conventions, which normally account for as much as a fifth of downtown bookings. Downtown hotels ended 2021 with an average occupancy rate of 43 percent, up from 27 percent in 2020 and nowhere near the pre-pandemic rate of 74 percent. Nationwide, the average was 58 percent compared with 66 percent in 2019.

Signs that the recovery could be speeding up were seen this spring, though. Loop hotels reached occupancies of 65 percent of 2019 levels, the Chicago Loop Alliance reported last month. The rate is a “marked improvement” over occupancies in March 2021, the report said.

“We know we still have a ways to go, but these are signs that travel is back,” Neil DeGuia of a central Loop Hilton Garden Inn and Canopy said in the report. “As a city, as an industry, we may not be at 2019 figures in terms of revenue, but what I know is that we are in a better position than we were last year, and better is good.”

ECD also was in a better position with theWit than other owners were with their Chicago-area hotel properties, an asset class that dominates the list of the CMBS loans considered most at-risk of default by a list compiled by Trepp.

Still, the business disruptions ECD suffered at theWit stemming from the pandemic as well as property damage during civil unrest in 2020 presented significant hurdles. The loan remained current as of January, yet Moody’s found the property generating just less than enough cash to pay off the debt.

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Chicago hotels recovering slower than national pace