Lender ACORE Seizes River North Hotel from JRE

The owner of a hotel in a 16-story River North building handed the property over to a lender to avoid foreclosure after trying — and failing — to sell it since early 2024, in the latest reminder that there’s still plenty of financial trouble to shake out of Chicago’s lodging sector amid its ongoing recovery.

New York-based landlord JRE Partners signed over a deed in lieu of foreclosure for the 297-room 21c Museum Hotel at 55 East Ontario Street, as San Francisco-based lender ACORE Capital moved to seize the asset, according to public records, with the transfer effective Sept. 25.

JRE in 2018 purchased the hotel — then called the James Hotel before a pricey renovation and rebrand into the 21c Museum — for $83.1 million. At the time, the landlord was known as Junius Real Estate Partners and was a division of J.P. Morgan. It split off and rebranded as JRE Partners in 2022.

The hotel reopened in 2020 as 21c Museum Hotel Chicago after the landlord spent $33.5 million on upgrades.

JRE borrowed $67.5 million from ACORE to finance the purchase. In 2019, JRE and ACORE agreed to increase the mortgage amount to $73 million. Records show the deed in lieu valued the property at just under $60 million; it’s unclear if that figure represents the remaining debt owed to ACORE or its estimated value, though either would mark a big hit to the property’s worth.

JRE Partners and ACORE Capital did not immediately respond to requests for comment.

Hospitality brand 21c Museum lists six other properties flying its banner, the signature of which is the exhibition of contemporary art pieces at each, according to its website. Five of them are in the middle of the nation in cities including St. Louis; Cincinnati; Louisville and Lexington, Kentucky; and Bentonville, Arkansas. Its other property is in the Southeast, in Durham, North Carolina.

JRE put the Chicago hotel up for sale in February 2024, when it hired JLL brokers Adam McGaughy, John Nugent, Mark Jindra and Nick Sullivan to market the property. But it never traded until ACORE moved to take over the asset through the deed in lieu, which allows borrowers to avoid the lengthy foreclosure process by turning over a property’s keys and control.

The financial snafu marks the second straight dropoff for the River North’s property’s value. When JRE Partners bought the hotel in 2018, it was at a steep discount from its previous sale price. New York-based Denihan Hospitality Group bought it in 2008 for $136.6 million.

Denihan faced its own debt troubles in the wake of the financial crisis later that year. The loan was put into forbearance in 2012, and in 2014 the firm refinanced with a loan from Deutsche Bank, property records show.

Last month’s takeaway marks ACORE’s second recent action in the distressed Chicago hotel market. The lender in August filed a $187 million foreclosure lawsuit against local hotelier Su-Mei Yen over allegedly unpaid debts tied to two South Loop properties totaling 368 rooms with another 85 extended stay suites at one of them.

JRE’s surrender comes despite a record year in Chicago’s hospitality market. Hotels in Chicago’s central business district broke occupancy and revenue records this summer, topping the pre-pandemic high from 2019, according to Choose Chicago. Travelers in the district booked 3.6 million room nights from June through August, a 4.3 percent increase over last summer.

The bookings brought in $949 million, a record high and a 0.8 percent increase from last year.

But higher costs for construction, labor and rising property tax assessments have squeezed profit margins despite the rising revenue. Other hotels, including the business traveler-focused 429-room Club Quarters at 111 West Adams Street as well as the humongous Palmer House, have fallen into distress and not yet emerged.

The uneven market has led to some unconventional strategies in the sector. Richard Branson’s Virgin Hotel Chicago sold in June to Michigan-based Accelerated Assets, a timeshare conversion specialist. The new owner plans to turn the building into a 250-unit Sports Illustrated-themed resort, with timeshare sales to begin next year.