River North’s Hotel Felix loan heads to auction

The listing will provide another test of investor appetite for distressed hotels downtown as hospitality sector demand recovers from the public health crisis. Strong leisure travel and the return of large group events at hotels over the past few months have lifted occupancy and room rates to their highest levels since late 2019, signs that might entice hotel investors to bet on the recovery.

Occupancy at downtown hotels averaged 78% last month, up from 59% in July 2021 and just shy of the 82% average in July 2019, according to hospitality data and analytics firm STR.

Yet business travel, which accounts for a larger share of hotel demand in Chicago than it does in most cities, has been slower to come back and hampered the recovery for the downtown hotel market. That has weighed down property values and triggered a wave of distress across the market.

The Hotel Felix was one of many downtown hotels to be clobbered by the pandemic. The property was appraised at $23.5 million in July 2020, a fraction of the $68.6 million appraised value when the property’s owner, a joint venture of Chicago-based Oxford Hotels & Resorts and Gettys Group, took out the loan in 2013. That refinancing allowed the ownership venture to cash out on some of its equity in the property, which it bought in 2007 for $24 million.

The Felix was most recently appraised at $24.1 million in December, according to Bloomberg data tied to the loan. The mortgage was packaged with other loans and sold off to commercial mortgage-backed securities investors, making much of the property’s financial data publicly available.

Miami Beach, Fla.-based special servicer LNR Partners is overseeing the loan on behalf of CMBS bondholders. A spokesman for LNR declined to comment on the offering.

Paramount is marketing the loan as an opportunity for a buyer to complete the foreclosure process and take control to the hotel. The brokerage said in marketing materials that the owner “remains cooperative with (the) lender towards transition of title” and that buyers could pursue “alternative branding or potential alternative use” with the 12-story building.

Oxford President and CEO John Rutledge said in a statement that the ownership group had already generated “attractive returns” from its 2013 refinancing and that the venture could not come to terms with its lender on a plan to continue owning the property.

“Despite several years attempting to create solutions to overcome (pandemic-related) challenges at this hotel, such as identifying a social services agency to occupy the hotel as we did at many other hotels, the lender would not agree to any of our proposals,” the statement said. “As such, we and our partners, reluctantly but voluntarily, agreed to an amicable resolution with the lender.”

The starting bid for the auction, which is being operated by commercial real estate auction platform Ten-X, is listed at $7.5 million, according to marketing materials.

The Hotel Felix auction comes as other prominent downtown hotels move through the foreclosure process.

A Cook County judge late last month issued a judgment of foreclosure against the owner of the Palmer House Hilton Chicago—the city’s second-largest hotel—for defaulting on its $333.2 million CMBS loan. That puts a trustee representing investors in the mortgage in position to take control of the property through an auction.

Separately, a trustee on behalf of investors in a $203.5 million CMBS loan tied to the JW Marriott Chicago hotel in the Loop submitted the sole bid in an auction last month to take control of the property.