Crestline, 1907 invest $35M to save historic hotel from foreclosure

A pair of investment firms have injected $35 million into a 350-key hotel in the Loop to stave off foreclosure. 

Miami-based 1907 Capital and Fort Worth-based Crestline Investors took a leading equity stake in the dual-brand Canopy by Hilton and Hilton Garden Inn at 226 West Jackson Boulevard, Crain’s reported. 

The investment helped pay off a $100.5 million mortgage originally taken by a venture of Chicago-based Phoenix Development Partners and Green Door Capital Investments, which spent $148 million to convert the historic 14-story building into a hotel in 2021. It was built in 1905 and was formerly the City Colleges of Chicago headquarters.

Phoenix and Green Door had been seeking new equity to settle their debt, as their lender, a venture of Goldman Sachs, threatened to foreclose on the property. 1907 and Crestline took out a $65 million mortgage from Citigroup to finalize the recapitalization. Despite the equity shift, Phoenix and Green Door remain partners in the hotel’s ownership.

The refinancing of the property highlights the brutal impact of rising interest rates and the ongoing recovery from the pandemic on downtown hotel valuations. Higher borrowing costs have created substantial gaps between debt and what can be borrowed against properties, forcing many investors to seek new equity.

For 1907 Capital and Crestline, market challenges present opportunities to restructure the financial framework of properties that are otherwise generating stable revenue. The partnership saw potential in the dual-brand Hilton hotel and stepped in to rescue Phoenix and Green Door, aiming to restore the property’s value as Chicago’s hospitality industry works to rebound. 

“If we can find a quality asset that’s located in a resilient submarket in Chicago, we’re very much open for business,” 1907 founder and executive director Adam Pieczonka told the outlet. 

Phoenix and Green Door initially invested $32.7 million in the former City Colleges of Chicago headquarters in 2019, securing landmark status and property tax incentives for its conversion.

The developers faced construction delays and cost overruns due to the pandemic, impacting the project’s financial stability. Despite the setbacks, the hotel itself  “is doing gangbusters,” Phoenix CEO John Mangel said. 

Chicago’s lodging industry started to bounce back last year, after the pandemic caused leisure travel and downtown foot traffic, wreaking havoc on hotel landlords across the city. Hotel revenue through the first half of last year surged to a record high of $1.12 billion, marking a 24 percent jump from the same period in 2022, according to Choose Chicago. Revenue per available room at downtown hotels is almost $148, down nearly $2 compared to pre-pandemic levels.  

—Quinn Donoghue 

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