The “take your licks until 2026” mantra has officially expired for the owners of the Embassy Suites by Hilton hotel in Lombard, as they’re still feeling the post-pandemic pain of depressed commercial real estate values.
Months after the 263-key hotel slipped into distress, a group of lenders steered by special servicer KeyBank are moving to strip operational control from its landlord, a joint venture of Corona del Mar, California-based Seaview Investors and San Diego-based Chelsea Hospitality Partners. The lenders asked a DuPage County judge to appoint Jeff Kolessar of GF Hotels & Resorts as receiver to manage the property amid a $24 million foreclosure lawsuit, with a hearing set for March 3, public records show.
The move signals a cold reality for suburban hotel owners: Even as downtown Chicago hotels enjoyed a summer of 2019-level revenue, the suburbs remain a landscape of steep haircuts and aggressive foreclosures.
The lawsuit highlights a ballooning debt stack for the hotel. While the principal sits at $21.5 million, the bill has been padded by $1.6 million in default interest, $576,000 in deferred interest and various late fees.
The lender, a consortium of investors that bought the debt after it originated in 2019 as part of a commercial mortgage-backed securities deal, alleged the Seaview and Chelsea venture defaulted by failing to repay the loan upon its summertime maturity date last year. The landlords previously indicated they wouldn’t try to refinance the property to save the deal, an acknowledgment of its value sliding too far since the loan origination before the pandemic.
Now, the owners signed a pre-negotiation agreement with the lender and are “engaged in discussions regarding possible exit strategies,” according to KeyBank. “The special servicer continues to assess all options to maximize recoveries,” it said last month in a report on the deal.
The lender is also seeking permission to fast-track $200,000 to $300,000 in tenant improvements without court oversight — a sign the group of banks that hold the note are already prepping the hotel for a post-foreclosure life.
If appointed, GF Hotels affiliate LOIL Associates would manage the property for $7,000 a month or 3 percent of gross revenue, whichever is higher, according to legal documents.
Still, the Lombard Embassy Suites deal remains profitable on paper. The property has had no trouble bringing in enough revenue to cover its debt service costs, loan data shows, as it generated over $11.4 million for the 12-month period ending in March of last year, with expenses of just under $8 million and debt service costs of $2.4 million, leaving a roughly $1 million cushion.
The legal pressure extends beyond the real estate. The loan was guaranteed by trusts tied to hospitality industry veterans Robert Alter and Gary Stougaard, who have ties to Seaview. Their trusts were required to maintain a combined net worth of at least $35 million. So far, the borrowers haven’t indicated they will fight the receivership.
Neither Seaview nor an attorney for KeyBank returned requests for comment.
The Lombard case is the latest data point in a harrowing Chicagoland hospitality market. Suburban properties are especially desperate, as business travel and corporate visits to office campuses stay muted, while workspace vacancy hovers at a record high of over 30 percent in the suburbs.
Last year, a 318-key Crowne Plaza hotel in Northbrook sold out of foreclosure for just $6.5 million, a 50 percent discount from its last purchase price in 2021, and the former Tremont Hotel in Chicago’s Gold Coast fetched just $13 million after a stint as a shelter and a foreclosure dispute. Locally based investor Parag Patel has bought multiple properties at steep bargains in both the city and suburbs, including the Aloft Bolingbrook property he bought out of foreclosure, making him a potential candidate to buy the nearby Lombard Embassy Suites grappling with distress.
Yet, the pain is climbing into bigger hotel deals, too. Just blocks from the renowned Magnificent Mile, Quadrum Global is currently moving to foreclose on Oxford Capital’s Godfrey Hotel in an $88 million debt dispute.