A company led by Beffort, which is backed by a high-net-worth family in the Oklahoma City area, paid just over $34 million for the nine-story property at 1710 Orrington Ave. in Evanston, the sources said. The purchase price of the Westin could not be determined.
The deals mark the most distressed hotel sales in the Chicago area since the start of the pandemic, a sign that some investors see a clear path to recovery for local inns. Hotel occupancy in the Chicago area has approached pre-pandemic levels in recent months due to booming demand for leisure travel and the return of large group gatherings. Room rates are now higher than they were in 2019.
Local hotels still face major challenges with higher labor costs, rising Cook County property taxes and business travel returning at a glacial pace, but Beffort’s deals show investors can still line up to acquire distressed properties if the discount is so severe.
The Evanston deal ends a consensual short sale in Orrington, meaning the owner, with the approval of his lender, sells the property for less than the value of the debt attached to it.
New York-based real estate firm Olshan Properties and its lender earlier this year hired the Chicago office of Jones Lang LaSalle to market the property, a move that came more than 10 months after Olshan was hit with a foreclosure lawsuit for allegedly defaulting on his $40. million loan The loan was packaged with other mortgages and sold to commercial investors in mortgage-backed securities, making most of the property’s financials public.
When the foreclosure complaint was filed, Olshan told special servicer Midland Loan Services, which oversees the mortgage on behalf of CMBS bondholders, that he planned to turn over the keys to the property to settle the matter. But the two agreed to try a short sale to recoup as much of the lender’s investment as possible.
The loan balance is just under $39 million, according to Bloomberg data related to the CMBS loan, meaning CMBS investors will be shorting out the sale to Beffort’s company. The purchase price is also dramatically less than the $60 million Olshan paid for the hotel in 2015.
The hotel was performing well before the pandemic, generating nearly $3 billion in net cash flow against less than $2.6 billion in debt service, Bloomberg lending data show. But net cash flow shrank during the pandemic to less than $1.3 million in the 12 months ending June 2020. Olshan defaulted on the loans in August 2020, according to the foreclosure complaint, and the property was appraised at $34 million in February, Bloomberg CMBS. show the data.
Beffort did not respond to a request for comment. An Olshan spokesman had no immediate comment on the transaction.
A source familiar with the deal said Beffort’s company plans a number of capital improvements to the property, which offers nearly 20,000 square feet of meeting space. That includes the 5,848-square-foot Grand Orrington Ballroom, which was heavily damaged by a roof leak during the pandemic and is now in “shell condition,” according to a marketing brochure from Jones Lang LaSalle, which brokered the sale to the company Beffort. . The property also includes a 178-space, 65,000-square-foot parking garage.
In Itasca, a Beffort company is poised 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 fought in court last summer over how to fix the distressed Westin hotel at 400 Park Blvd. in the suburbs
GF and a Marriott International company temporarily closed the property early in the pandemic. (Westin is a Marriott brand.) But when Marriott gave GF the green light to reopen to guests more than a year later, demand was so decimated that GF decided it couldn’t pay its 31.3 million dollars and took steps to turn the property over to Oceanview instead of going through a foreclosure process. But Oceanview filed a foreclosure suit anyway last summer, asking a DuPage County judge to force GF and founder Kenneth Kochenour to pay a total of $33.2 million.
DuPage County records show the cases were dismissed in November. A source familiar with the matter said an Oceanview subsidiary took control of the property and recently marketed it for sale, eventually reaching an agreement with the Beffort company.