Gold Coast hotel strikes out in foreclosure auction

No thanks. This was the message LNR Partners received after a failed attempt to auction off the Hilton Chicago Magnificent Mile Suites. No bidders answered a lender’s $51 million opening bid, meaning it will retain ownership of the property.

The 345-key Gold Coast hotel hit the block Thursday in a sheriff’s foreclosure sale. Procaccianti Companies transferred the 30-story property to LNR, special servicer on a $77.2 million loan on the property, via a deed-in-lieu of foreclosure in September 2021. The Rhode Island-based real estate investment firm stopped making loan payments shortly after the pandemic began in March 2020.

It’s not clear whether LNR, as the special servicer of the debt issued to Procaccianti, will seek another buyer for the property. The loan servicer’s parent company, Starwood Property Trust, didn’t return a request for comment.

The pandemic has crushed the Chicago area’s hospitality industry, with a number of large hotel foreclosures and notable properties heading to auction in the past year, with mixed results.

One of Chicago’s biggest foreclosures spurred by the pandemic ended in July when sole bidder Wells Fargo, as trustee of a separate loan, paid $251 million to acquire the Loop’s 610-room JW Marriott from Orlando-based investment firm Estein USA in July. Estein defaulted on a $204 million CMBS loan, whose senior bondholders will likely receive the property once it’s transferred by the trustee.

And in October, Monarch Alternative Capital bought the Hotel Felix in River North out of distress for $29 million, resulting in a shortfall on a $47 million commercial mortgage-backed security loan issued against the property in 2013 and an even further fall from the $69 million the property was appraised at that year.

And the Palmer House Hilton Chicago, the second-largest hotel in the city, is set to head to auction after owner Thor Equities was hit with an order of foreclosure for defaulting on its $333.2 million mortgage on the Palmer House Hilton.

The Hilton Mag Mile’s value has declined since the loan was issued. It was appraised at $68.1 million in April, down from $112.4 million, according to ratings agency DBRS Morningstar. The property is located at 198 East Delaware Place.