Blackstone Faces Foreclosure on Club Quarters Portfolio

Blackstone is set to lose a $275 million securitized portfolio of four hotels under the Club Quarters brand as bondholders close in.

The loan landed in special servicing in 2020, and the New York-based mega firm failed to pay off the balance when the loan matured earlier this month.

Although Blackstone and special servicer CW Capital Management attempted to come to a workout agreement, they were unable to do so ahead of the loan’s maturity date, loan commentary from MorningStar Credit shows.

The Club Quarters Hotels cater to business travel, which took a major hit during the pandemic and has yet to make a full recovery. Blackstone took out the $275 million senior debt in 2017, along with a $61 million mezzanine loan. At the time, the portfolio was appraised at $423 million. In October 2022, another appraisal valued it at $360 million.

Blackstone’s investment appeared to be reaching the point of no return last year when the firm sold off the mezzanine debt.

A representative of Blackstone previously told the Financial Times that the portfolio was considered “a very small investment that had been written down prior to Covid-19 as a result of unique operational challenges.”

Wilmington Trust, acting as a trust on behalf of CMBS bond holders of the properties, filed a lawsuit in Cook County Nov. 22 to initiate the foreclosure of a 429-key Chicago hotel in the portfolio, located at 111 West Adams Street.

The hotel is in the historic Clark Adams building, which also contains 330,000 square feet of office space under separate ownership. Chicago-based Primera Group and investor Marc Calabria purchased the office portion of the 41-story tower for $11 million in October with plans to convert it to residential units. The prior owners had similar plans but gave up the offices via foreclosure earlier this year.

Meanwhile, the trust is moving forward with individual foreclosure actions against the three other Blackstone-owned Club Quarters hotels.

A foreclosure auction for a Boston hotel in the portfolio was held in February, and the trust secured the winning bid. A contract is in the works with the trust and an unknown buyer to sell the credit bid for $75 million with a $3 million deposit. It is expected to close by the end of the month, MorningStar commentary states. Located at 161 Devonshire Street, the 178-key hotel is the smallest of the four Club Quarters locations in the debt package. The full portfolio totals 1,228 rooms.

For the other two properties in the portfolio, located at 424 Clay Street in San Francisco and 1628 Chestnut Street in Philadelphia, the foreclosure process is ongoing.

The prior owner of those properties could end up back in the driver’s seat.

Former owner MasterWorks Development could take over the portfolio because the firm bought the mezzanine loan backed by the hotels, although it’s unclear what will happen next.

A representative of Blackstone declined to comment, and representatives of MasterWorks and CW Capital Management did not respond to requests for comment.

New York-based Masterworks, an affiliate of the Club Quarters operating brand that previously sold the hotels to Blackstone, bought the mezzanine debt for the four locations last year for an undisclosed amount that was likely less than the loan’s $61 million balance.