A Beffert-led venture backed by a high-net-worth family in the Oklahoma City area paid more than $34 million for the nine-story property at 1710 Orrington Ave. in Evanston, sources said. The Westin’s purchase price could not be determined.
The deals mark the largest distressed hotel sales in the Chicago area since the start of the pandemic, a sign that some investors see a clear road to recovery for local inns. Chicago-area hotels have approached pre-pandemic levels in the past few months, driven by increased demand for leisure travel and the return of large group gatherings. Room rents are higher now than they were in 2019.
Local hotels still face major challenges from high labor costs, rising Cook County property taxes and business travel returning at a glacial pace, but Beffert’s deals show that investors can still line up to acquire distressed properties if the discount is so severe.
The Evanston Agreement finalizes the Orrington Consent Short Sale, which means the owner sells the property for less than the value of the loan tied to it with the approval of its lender.
New York-based real estate firm Olshan Properties and its lender put Jones Lang LaSalle’s Chicago office on the property market earlier this year, more than 10 months after Olshan faced a foreclosure lawsuit for allegedly defaulting on its $40,000 loan. million loans. The loans were packaged with other securities and sold to commercial mortgage-backed securities investors, making most of the assets’ financial data public.
When the foreclosure complaint was filed, Olshan indicated to the special servicer Midland Loan Services — which is overseeing the mortgage on behalf of the CMBS bondholders — that it planned to hand over the keys to the property to settle the case. But both agreed to try short sales to recover as much of the lender’s investment as possible.
The loan balance is less than $39 million, tied to CMBS loans, according to Bloomberg data, meaning CMBS investors would take a financial haircut on the sale of Beffert’s venture. The purchase price is also dramatically lower than the $60 million Olsion paid for the hotel in 2015.
The hotel performed well before the pandemic, generating net cash flow of about $3 million and servicing debt of less than $2.6 million, Bloomberg debt data show. But net cash flow during the pandemic fell to less than $1.3 million in the 12 months ending in June 2020. Olshan stopped making loan payments in August 2020, according to the foreclosure complaint, and the property was appraised at $34 million in February, Bloomberg CMBS data show.
Beffert did not respond to a request for comment. A spokeswoman for Olsan did not immediately comment on the transaction.
A source familiar with the deal said Beffert’s venture is planning a series of capital improvements to the property, which will provide about 20,000 square feet of meeting space. That includes the 5,848-square-foot Grand Orrington Ballroom, which suffered major damage from a roof leak during the pandemic and is now in “shell condition,” according to a marketing flier from Jones Lang LaSalle, which brokered the sale to Beffert Ventures. . The property also includes a 178-space, 65,000-square-foot parking garage.
In Itasca, Beffort Ventures is set to buy a property that was at the center of another COVID-induced legal battle last year between the hotel’s previous owner and its lender. Philadelphia-based GF Hotels & Resorts and lender Oceanview Commercial Mortgage Finance battled in court last summer over how to manage the Westin Hotel at 400 Park Blvd. In the suburbs.
GF and a joint venture of Marriott International temporarily closed the property at the start of the pandemic. (The Westin is a Marriott brand.) But when Marriott gave GF the green light to reopen to guests a year later, demand was so weak that GF decided it couldn’t make payments on its $31.3 million mortgage and took action. Surrender the property to Oceanview instead of going through the foreclosure process. But Oceanview filed a criminal lawsuit last summer anyway, asking a DuPage County judge to force GF and founder Kenneth Kochenour to repay a total of $33.2 million.
DuPage County records show the cases were dismissed in November. A source familiar with the matter said an affiliate of Oceanview later took control of the property and recently marketed it for sale, eventually reaching an agreement with Beffert Enterprises.