Balbec Seizes Schaumburg Hyatt via Deed-in-Lieu

Suburban Chicago’s hotel distress is still churning, with an asset next to Illinois’ largest mall serving as one of the latest examples after its surrender by T2 Capital Management and First Equity Group.

A joint venture of Wheaton-based T2 and Chicago-based First Equity gave up a big Hyatt in Schaumburg at 1800 East Golf Road, adjacent to Woodfield Mall, to its lender this spring.

Investment manager Balbec Capital, which has offices in New York, Atlanta and Scottsdale, Arizona, took over the 468-key, 543,000-square-foot Hyatt Regency at 1800 East Golf Road in Schaumburg through a deed-in-lieu of foreclosure executed in March and recorded in April, according to Cook County public records. T2 and Balbec did not respond to requests for comment Wednesday.

The T2-First Equity venture took out a $25 million mortgage against the property in 2015, public records show, with a firm called MidCap Financial serving as the lender. It’s unclear how Balbec came to be in control of the debt. The landlord also split off two parcels from the property and obtained a separate $13 million construction mortgage for them, and those are now occupied by the restaurants City House and Perry’s Steakhouse & Grille, records show. Those retail parcels don’t appear to be involved in Balbec’s hotel deal.

While the Woodfield Mall is healthy compared to other large regional retail assets, several of which have been through financially distressed sales since the pandemic began, many suburban Chicago hotels are anchored to commercial campuses dominated by a much less desirable asset class today: big, unattended offices. Some lodging properties in neighboring DuPage County next to corporate offices have caught the attention of credit ratings analysts as potential risks for the debt owed on them.

The Schaumburg hotel was originally built in 1981 but has undergone multiple rounds of renovations in the last several years.

An investment plan on First Equity Group’s website included putting capital into upgrading the hotel’s facilities, including updating the lobby to accommodate new self-service technology, adding new restaurant and bar concepts, and updating the property’s exterior and interior spaces. The firm also planned to re-tenant a restaurant on the site and to work with the village to identify development opportunities on the 15-acre property.

Chicago’s First Equity Group bought the hotel in 2015 at a price in the mid-$20 million range, which represented a big discount from its last trade, according to news reports at the time. The previous owner, Prudential Real Estate Investors, sold the property at a loss after paying $49 million for it in 2007 and another $32 million to renovate it.

The tourism industry is still recovering from the pandemic, with Illinois’ hotel room demand growing by about 21 percent in 2022 over the previous year but still falling approximately 7 percent short of the 2019 level, according to a June report from Tourism Economics.

As a state, Illinois posted record hotel tax revenues in fiscal 2023, which was likely due to a continued rise in average daily rate for Illinois hotels, which Tourism Economics said increased by almost 28 percent last year.