Distressed Chicago Hotel Sells for Under $17M

A hotel near the Magnificent Mile has traded for less than the previous owners’ debt, years after it fell into financial distress due to the pandemic.

Florida-based investor Peter Patel of Formation Capital bought the 174-key Holiday Inn Express at 640 North Wabash Avenue for $16.4 million, CoStar reported. That’s about $94,425 per key.

The previous owners, a joint venture of Oxford Hotels & Resorts and Gettys Group, owed nearly $21 million on a CMBS loan that matured in January. Special servicer LNR Partners took control of the property in December 2022.

Oxford and Gettys were hit with two foreclosure suits totaling $70 million in late 2020, regarding the Holiday Inn and the 228-room Hotel Felix in River North. They sold Hotel Felix to an investor in 2022 for about $29 million, also less than the loan balance.

The distressed hotels shed light on the impact of the pandemic, which caused hotel revenues to plummet amid dwindling leisure travel. In the third quarter of 2021, the downtown hotel occupancy rate fell to 53 percent, down 30 percent from two years prior. At that same time, revenue was on pace to be $2.1 billion lower than in 2019.

“We had refinanced two small properties here years ago and pulled our money out,” Oxford’s John Rutledge previously told The Real Deal regarding the Hotel Felix and Holiday Inn, which was previously known as Hotel Cass. “We had record revenues and record profits at the Hotel Felix and Hotel Cass from 2013 through 2018 or 2019. But real estate taxes quadrupled, amortization kicked in on the CMBS debt, and then Covid hit.”

Special servicers for the loans denied Oxford’s proposal to have the city use the hotels to host first responders during the pandemic, as the hotel developer did at its other Chicago lodging assets.

The lodging industry started to bounce back last year, though, as the city’s occupancy rate reached 80.4 percent halfway through 2023, the highest level since pre-Covid days. Hotel revenue through the first half of 2023 was a record high of $1.12 billion, marking a 24 percent jump from the same period in 2022.

Previously known as the Hotel Cass, the Holiday Inn Express reopened in May 2023 after temporary shutdowns and subsequent foreclosure proceedings. The sale includes the retention of the Holiday Inn Express brand and a long-term license agreement with IHG.

This story has been updated to add a statement from Rutledge.

—Quinn Donoghue