Bondholders sue JPMorgan over $333M Palmer House hotel foreclosure

The second-largest hotel in Chicago is at the center of a legal battle over a $333 million distressed loan.

Bondholders represented by trustee Wells Fargo have sued JPMorgan Chase & Company for allegedly failing to disclose crucial information about the ownership of the historic Hilton Palmer House at 17 East Monroe Street, Bloomberg reported. 

The lawsuit, filed in New York federal court, centers on complications that arose from the hotel’s complex ownership structure. 

Thor Equities subdivided the property into three separate parcels after it bought the property two decades ago, and two of the parcels were assigned to affiliated entities. This ownership subdivision has complicated the foreclosure process, which began after the hotel owner defaulted on a $333 million loan in 2020 due to the pandemic. 

New York-based Thor Equities bought the 1,641-key hotel in 2005. The 60,000-square-foot ground-floor retail space and parking garage are owned by a different Thor entity called Thor Palmer Hotel & Shops.

The bondholders, which include BlackRock and MetLife, contend that JPMorgan, which provided the loan in 2018 and packaged it into a commercial mortgage backed security, failed to disclose the hotel’s complex subdivision. 

The New York lawsuit is a hedge against the Cook County foreclosure suit, the outlet reported.

“If, in the Cook County Litigation, the court interprets various agreements related to the Loan and governing the operation of the hotel consistent with the arguments advanced by borrower and its affiliates, then there were breaches of the representations and warranties” by JPMorgan, the lawsuit stated.

Wells Fargo has also sued Thor Equities in New York.

The lawsuit against JPMorgan could test how much information lenders are required to provide to bondholders, as waves of commercial real estate distress hit the bond market, the outlet reported.

The Hilton Palmer House was built in 1925, the third iteration of a hotel constructed in 1870, a year before the Great Chicago Fire, which destroyed it. The hotel’s Empire Room held performances by such entertainment luminaries as Ella Fitzgerald, Lena Horne and The Supremes.

— Andrew Terrell

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