Gaw Capital slapped with $39M foreclosure suit on Ambassador Hotel

Special servicer claims firm couldn’t fetch buyer, failed to pay off debt by deadline

Gaw Capital Partners' Goodwin Gaw and Situs' Michael Franco with 1301 North State Parkway (Gaw Capital Partners, Situs Holdings, Google Maps, Getty)

Sam Lounsberry

Jul 13, 2023, 7:15 AM

Goodwin Gaw’s Gold Coast hotel gamble is tilting toward a big loss for the investor as a lender aims to take over his historic Chicago asset.

An affiliate of Hong Kong-based Gaw Capital was dealt a foreclosure lawsuit in Cook County court this month by a lender who claims the firm’s $39 million debt tied to the Ambassador Hotel at 1301 North State Parkway remains unpaid after the maturity deadline was extended until May.

The Ambassador, a 17-story, 285-room hotel, is nearly a century old, having opened its doors in 1926 and becoming a celebrity hotspot for a time, with guests such as Frank Sinatra and Marilyn Monroe.

But in recent years it’s struggled to generate revenue and fallen out of favor among the city’s lodging consumers, because it’s further from the Loop business district and Magnificent Mile retail scene than newer, competing Gold Coast hotels. Restaurateurs have also struggled to make a go at the property, which lacks an eatery right now, and investors are wary of expensive contracts that labor unions struck to operate the asset, according to Chicago hoteliers. It also has smaller bathrooms and may need renovations to get back up to speed.

The foreclosure suit was filed by SitusAMC, the special servicer of the debt Gaw obtained in 2016, when it bought the property for $61.5 million and put another $11 million into renovations. The landlord used a $39 million mortgage to buy the property at the time, and the debt was since securitized, packaged with other loans and sold off to investors in financial markets. The suit claims more than $33 million is still owed on the loan, meaning the value of the property is less than half of what its owner spent on it.

Gaw didn’t return a request for comment, and an attorney for Situs declined to comment.

Gaw hired the firm RobertDouglas to market the Ambassador for sale last year, but the effort failed to draw a buyer willing to pay enough to clear the debt in time.

If Situs takes over the property on behalf of the lender, it would be far from the only Chicago hotel to change hands due to litigation regarding financial distress since the pandemic evaporated travel and lodging demand, roiling real estate markets. Elsewhere on the Gold Coast, the 345-key Hilton Chicago Magnificent Mile Suites at 198 East Delaware Place was transferred to LNR Partners, special servicer on a $77.2 million loan on the property, in September 2021.

At a foreclosure auction early this year, the lender represented by LNR was the successful bidder, though the lender hasn’t yet resold the property or publicly disclosed a path forward for the asset, which, like the Ambassador, had its value plummet in recent years. As the pandemic eased, however, its valuation reversed course.

An appraisal of the Hilton property performed last year pegged its value at $68 million, up from a $57 million appraisal performed in 2021 but down nearly 40 percent from the $112 million valuation in place in 2015, when its former landlord, Rhode Island-based Procaccianti Companies, obtained a $77 million loan for the 30-story asset, according to credit ratings agency Morningstar. The firm surrendered the asset to the lender during the health crisis.

Gaw’s failure to pay back the loan for the Ambassador is also indicative of how much more cautious lenders have gotten when it comes to borrowers using hotels as collateral.

Even with hotel performance across the city and state improving — at least according to Governor J.B. Pritzker’s announcement of record Illinois hotel revenue this week — it would have been nearly impossible for Gaw to refinance the Ambassador’s debt at an equal or higher valuation in today’s market of rising interest rates, an industry insider said.

Gaw also recently demonstrated an ability to avoid a foreclosure judgment. Last month, the firm escaped a $170 million foreclosure lawsuit over a loan tied to the Standard High Line in New York City, though it remains unclear how the debt will be resolved.

New York