Sole Bid Wins Chicago Hotel Auction; Property’s Next Fight Looms

A sole $251 million bid by Wells Fargo for the Chicago Loop’s 610-room JW Marriott wrested control from Orlanda-based investment firm Estein USA.

The winning bid at a foreclosure auction on Friday by Wells Fargo, the trustee on a $204 million commercial mortgage-backed security loan on which Estein defaulted, sets up the property to be transferred to the loan’s senior bondholders. Estein didn’t return a request for comment.

While the proceeding ended one of Chicago’s biggest foreclosures of the pandemic, another one is just ramping up involving veteran developer Mike Reschke’s separate portion of the same building on Adams Street between LaSalle and Wells Streets.

Reschke partnered with Estein to redevelop the bottom part of the Adams Street building into the JW Marriott, a project considered by some to be risky when it was conceived amid the Great Recession more than a decade ago. It ultimately panned out, fueling a flurry of luxury hotel development nearby.

Yet the pandemic has bruised the lodging industry and Chicago hasn’t fully recovered. Some investors, including California’s Sunstone group, have sold assets for losses or faced foreclosure claims of their own.

Reschke bought the rest of the 22-story building housing the JW Marriott and is almost finished building a 234-room hotel he’s calling The LaSalle on its upper five floors. Yet he’s facing foreclosure — and fighting hard against it — on the five floors sandwiched between the two hotels where he had planned to convert vacant office space into more than 200 apartments.

Some people with knowledge of the negotiations over the building’s loan woes said there was a chance Reschke would bid on the JW Marriott as the building may be easier to finance and manage under a single owner. He didn’t, however, and he told The Real Deal that he expects the hotel to be awarded to the holder of the loan’s B note and the senior lender to be paid in full.

Midland National Life Insurance, the lender for the five floors of office space Reschke owns, plans to file a motion seeking judgment against the developer next week, a person familiar with the lawsuit said. Reschke, who didn’t comment on the case, said last month he was “close” to landing a refinancing for the property and stifling the foreclosure attempt.