After six years in special servicing, the retail component of the Palmer House Hilton  ($58mm – JPMBB 2015-C32 & CMBX9) located in downtown Chicago’s Loop District was liquidated at a 100% loss severity.  The buyer is the loan’s sponsor, Thor Equities, based in New York.  The 68,000 square foot space in minimally occupied.  The reported purchase price is ~$5 million that covered servicer advances and closing costs.

The retail space sits below Chicago’s second largest hotel, the Palmer House Hilton ($333 million – JPMCC 2018-PHH) that has been in special servicing since the pandemic and is currently in foreclosure; it is likewise owned by Thor Equities.  This historic hotel was rebuilt in 1873 and has 1,641 keys.  The special servicer has stopped making advances on the loan as it has deemed them “unrecoverable.”  Despite being mired in litigation, the hotel remains open with rooms available online for as little as $117/night.  

Despite advances being deemed unrecoverable by the servicer (noting that servicer advances have a senior priority in the CMBS waterfall), the $138 million AAA CMBS bonds are currently quoted on BBG at 63% of face value, suggesting an implied value per key of $53k.  The property was financed by Thor in 2018 with $427 million (CMBS + mezzanine) or $260k/key.

While the outlook is cloudy for the hotel, the ultimate owner will have a unique opportunity to re-envision this historic asset at a reset basis.  Possible repositionings have included partial conversions to a mix of residential, hotel and office.

Meanwhile, elevated interest rates (the 10Yr Treasury is now > 5%) will create persistent headwinds for assets requiring debt capital as a part of their business plan.