The owners of an Embassy Suites hotel in Chicago’s western suburbs look ready to hand back the keys to their lender.
A $25.3 million loan backed by the 262-room hotel at 707 East Butterfield Road in Lombard is in default after the borrower failed to pay it off ahead of a May 22 maturity date, according to public loan data collated by Morningstar Credit. Phoenix-based Western Alliance Bank originated the loan in 2019 and it was later sold off to commercial mortgage-backed securities investors, making details of its performance public.
The loan report this month stated that the “borrower has no plans to refinance,” and added that the lender’s counsel is preparing to send the landlord a default notice as well as a pre-negotiation agreement. The agreement could provide an opportunity for the borrowers to get onto a workout plan for the debt if they end up interested in keeping the asset. The loan’s management has been taken over by its special servicer, an affiliate of KeyBank tasked with ironing out troubled CMBS debts.
While Seaview Investors — an Orange County, California-based lodging investment firm — signed off on the now-distressed $25 million mortgage when it was issued, San Diego-based Chelsea Property Group appears to have been involved in the deal as well.
Chelsea, led by Gary Stougaard, bought the hotel in 2015 for $33 million and took out a construction loan to perform renovations on the site shortly after, public records show. At the time, a press release stated that the group planned to spend $9 million on renovations of the property, which was appraised at over $39 million in 2019, loan data shows.
The two companies are led by former executives with hospitality REIT Sunstone Hotel Investors, which pulled out of deals in Chicago in 2022 with the sale of two assets in the city at losses, including an Embassy Suites property at 600 North State Street. Hotelier Rob Alter founded Sunstone in 1985 and later brought on Stougaard as chief investment officer. Alter and Stougaard later went on to found Seaview Investors and Chelsea Hospitality Group, respectively.
Representatives of the two firms did not respond to requests for comment.
Even as financial distress is roiling Chicagoland’s hospitality sector, it has been steadily recovering since the pandemic. Revenue per available room grew 6 percent in Chicago in the first quarter of 2025 compared to the same quarter last year, data from JLL shows, though inflation has been cutting into the industry’s margins.
And struggles in the suburban office market — still facing a record-high vacancy rate — are weighing on surrounding hotels. Plus, the Embassy Suites property sits in a pocket of the Chicago suburbs that’s particularly hard-hit by commercial real estate distress in a number of key asset classes.
Right down the road from the troubled Embassy Suites in Lombard, an affiliate of New York-based JPMorgan Chase is trying to offload the Landmark V office complex in neighboring Downers Grove after taking over the property from borrower Adventus Realty Trust. Adventus, based in British Columbia, Canada, bought the building for $71.6 million in 2015 and took out a $35.7 million loan from JPMorgan that it was struggling to pay off ahead of the bank’s attempt at a lender-led sale.
Similarly, New York-based investor Teresa Tsai defaulted on nearly $29 million of debt on a Downers Grove office at 3075 Highland Parkway.
Debt trouble hasn’t been limited to the office sector. Private equity giant KKR and Pacific Retail Capital, its partner in the Yorktown Center shopping mall across the street from the Embassy Suites, skipped loan payments on the 787,000-square-foot mall in the early days of the pandemic. But last year they landed $92 million in financing to enliven the property by adding up to 600 apartments to aid its retail components. A former Carson’s store is set to be replaced by 271 market-rate rental units in its first phase.
Recent suburban hotel sales show sellers have been struggling to turn a profit, as well.
The 412-room Westin Chicago North Shore, at 601 North Milwaukee Avenue in Wheeling, was acquired at the bargain price of $34 million, or $83,000 per key last year. The sale was a 34 percent discount from the $51 million it last sold for in 2013.
In Evanston, Rhode Island-based firm Magna Hospitality sold the Hilton Garden Inn at 1818 Maple Avenue to a venture led by Parag Patel for $25 million, or $140,000 per key, after buying for $23 million in 2016. Magna had put nearly $7 million into renovations to the property since purchasing it. Magna’s purchase had been part of a $60 million portfolio.
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