Struggling Sonder Ditching Hotel in Chicago’s River North

Sonder is bailing on Ross Walker in Chicago.

A struggling short-term rentals firm, Sonder is backing out of its lease for the 60-room hotel at 613 North Wells Street, which is owned by Walker’s firm, Beverly Hills, California-based Hawkins Way Capital.

Sonder told The Real Deal it plans to vacate the property, known as the Found Hotel, after Hawkins Way sued the hotel operator accusing it of failing to pay nearly $200,000 in rent for missing monthly payments in January and February.

Along with back rent, the lawsuit seeks a judgement against Sonder for nearly $4 million, to account for the remaining term of Sonder’s five-year lease, running through 2028.

The contentious exit marks one of many lease renegotiations Sonder has taken up with landlords across the world as it works to consolidate its real estate costs while its stock price flounders — it’s down 98 percent since its February 2022 debut on the Nasdaq exchange and has had to perform financial gymnastics to avoid being delisted.

The firm has been engaged in a “portfolio optimization program” for more than a year in an effort to shed leases at “underperforming” properties. Its exit from the Chicago property fell under those efforts, although Hawkins Way hinted a year ago that it may take over the property’s operations itself.

Sonder last year entered a licensing agreement with Marriott to gain access to the hospitality giant’s distribution systems and global sales team, allowing Sonder properties to be booked on Marriott platforms and benefit from Marriott’s negotiated rates. At the same time, Sonder received a much-needed $126 million infusion from preferred equity investors and more debt from existing lenders, buying it wiggle room. Despite the integration, Sonder retains ownership of its brand and will pay fees to Marriott as part of the deal.

In addition to boutique hotels such as the Found, Sonder runs lodging operations in portions of apartment buildings, with the layouts of some units encompassing as many as four bedrooms in Chicago.

Even with the lawsuit moving forward, a Sonder representative said it “is working closely with its landlord to ensure a seamless exit” from the River North property. The firm wouldn’t say the reason the Wells Street property — formerly known as the Olympia Building — didn’t live up to its expectations, nor whether it is considering pulling out of other Chicago properties it operates. Sonder’s website lists eight other locations in the city.

Hawkins Way is now faced with revamping its 25,000-square-foot property’s operations just more than a year after fending off a lawsuit of its own, after a previous lender, Skokie-based Barnett Capital, tried to foreclose on the building’s $5 million mortgage. The landlord dodged a foreclosure sale early last year by refinancing with Iowa-based Symetra Life Insurance Company for $5.2 million to resolve the Barnett suit, property records show.

Found Chicago, acquired by Hawkins Way in 2016, features a restaurant, cafe and bar.