Foreclosure Lawsuit Adds to West Suburban Medical Struggles

A lender is moving to seize a $34 million slice of a distressed Chicago-area medical portfolio, bypassing a toxic partnership dispute between landlord Rathnaker Patlola and operator Manoj Prasad that triggered sudden hospital closures.

Miami-based Rialto Capital Advisors, the special servicer for the loan, filed a foreclosure complaint Friday in Cook County Circuit Court against Clarendon Realty LLC and River Forest Realty LLC, entities controlled by Patlola and his New Jersey-based firm Ramco Healthcare Holdings. While the newest lawsuit doesn’t target the shuttered hospital buildings like Weiss Memorial in Chicago and the recently condemned West Suburban Medical Center in Oak Park, it seeks to strip Patlola’s grip on a medical office campus in River Forest.

The properties at 7420 Central Avenue, 420 William Street and 7411 West Lake Street in River Forest, alongside the standalone 945-space parking garage serving Weiss Memorial in Chicago’s Uptown neighborhood, are all subject to Rialto’s lawsuit and could fall into the hands of the lender, which is a group of bondholders in a commercial mortgage-backed securities trust.

The CMBS loan was originated by an Argentic fund for $22 million in October 2023. The lender’s demand has since ballooned to $33.8 million after the borrowers stopped paying property taxes in mid-2024, forcing PNC Bank-owned master servicer Midland Loan Services to advance $3.4 million to protect the collateral. The claim includes a $6.2 million yield maintenance premium and $1.4 million in default interest.

The foreclosure targets assets separate from West Suburban Medical Center, located 2.5 miles away in Oak Park. While West Suburban isn’t subject to the foreclosure, it remains ensnared in a separate web of local code enforcement and partnership litigation. Municipal officials last week condemned that facility following a terminal elevator breakdown that forced firefighters to manually evacuate upper floors, displacing a 140-patient-per-week dialysis unit.

Patlola told The Real Deal he was informing his attorneys of the foreclosure lawsuit and intends to resolve it amicably, but declined to comment on the other litigation involving him and his properties. Attorneys for Prasad didn’t return requests for comment.

The targeted real estate sits atop a fractured $89 million capital stack. The facilities’ former owner Pipeline Health holds a $67 million subordinate note tied to the broader hospital operations. According to court records, Patlola’s hospital tenants, which are affiliates of the Resilience Healthcare operator group run by Prasad, defaulted on that note in December 2024. That prompted Pipeline to launch a corporate asset foreclosure and credit-bid $50,000 to reclaim the Resilience books and records. Resilience, however, refused to cede control, freezing the junior debt stack.

An attorney for Pipeline didn’t return a request for comment, and neither did representatives of Resilience and West Suburban.

As the buildings failed, Patlola and Prasad also went to war in court. Patlola last month accused Prasad of shifting $35 million — including a $10 million state loan — into an unmonitored private account. Prasad denied the allegations, claiming the funds were routed back into operations. A Cook County judge recently kept Prasad in place, ruling that the general operational halt stemmed from a lack of money rather than fraud.

Earlier this month Scott Kaplan, an attorney for Ramco, agreed that it appeared much of the $35 million at issue went back into healthcare operations.. He raised concern, however, with a $2 million payment from a hospital fund he says Prasad made to a consulting firm run by his daughter.

In any case, Rialto isn’t waiting for the local courts to untangle the partnership. The CMBS trust abandoned workout attempts after the borrower group repeatedly ignored communications from Rialto, records show. Interest continues to accrue on the real estate now subject to foreclosure at a combined pace of more than $8,560 per day, legal documents show.

The severe distress stands in contrast to the broader Chicago health care real estate sector, where medical office properties remain in high demand. Driven by an aging population and low inventory, investors are treating clinical space as a refuge from the traditional office slump, pushing local medical deal volume past $600 million this year.

Among the biggest deals in the space is IRA Capital’s January purchase for $56 million of an Advocate Health Care-occupied ground lease in Lakeview. Scott Goodman’s Chicago-based Farpoint Development partnered with the Landes Group in March to buy a 175,000-square-foot medical office complex at the Silver Cross Hospital Campus in New Lenox for $88 million. More recently, Advocate Medical Group bought a suburban outpatient center in Naperville from Capital Healthcare Properties as part of a dual-property expansion totaling $38 million. Publicly traded real estate investment trust Welltower also cashed out of two suburban medical ground leases for $57 million, selling the land directly to occupant Endeavor Health.

A hearing in Pipeline’s lawsuit against Resilience is set for July 13 in Cook County court, while the foreclosure lawsuit is set to receive its first hearing in December.