The April 19 national deadline to open vaccination eligibility to all U.S. residents 18 years and older can’t come soon enough for Chicago hoteliers and those employed by the hospitality business. For more than a year, Chicago hotels have had to weather an unrelenting storm that has seen room bookings and earnings plummet.
However, some hotels have fared better than others. But the storm is expected to continue well into 2021, and possibly even longer.
A recent report from DBRS Morningstar offers a comprehensive perspective at local Chicago hotel debt and delinquency. The key takeaway? The city’s hotels are “out of ‘The Loop’ for a quick recovery,” the report’s title declares ominously.
By the end of 2020, Chicago hotel occupancy stood at a meager 27% — a major contrast from the 57% occupancy during December 2019, helping contribute to a loan delinquency rate that is outpacing the national average.
And by the new year, the damage had been done. According to the report, 13 Chicago hotel loans were delinquent by February 2021, with an additional 11 loans being transferred to the special servicer. The balance of the delinquent loans amounts to a whopping $891.3 million while those transferred to the special servicer stood at an additional $836.3 million. Only 29% of Chicago area hotel loans were performing.
This drastic shift comes after a steady period of beating year-over-year tourism records and a downtown Chicago hotel boom which saw the adaptive reuse of numerous vintage office high-rises.
But Chicago is also a major convention destination, and cancelations at McCormick Place during 2020 led to the loss of hundreds of thousands of hotel room bookings. However, the DBRS Morningstar report indicates that currently scheduled conferences and events at McCormick Place for 2021 could provide a much-needed 880,000 nights booked at Chicago hotels through the end of the year.
The hotel in the biggest trouble is one of Chicago’s largest and most celebrated: the Palmer House Hilton. According to the report, the hotel faces an outstanding debt balance of $328.9 million, which is being specially serviced.
Last year, the hotel’s owner, Thor Equities, was sued by debt-holder Wells Fargo Bank for $337 million in outstanding debt. Coincidentally, an appraisal of the hotel conducted last year concluded the value to be at $305,000 — an amount well below the outstanding debt owed on the property.
Other hotels with outstanding debt at, or higher than, $100 million include the InterContinental Hotel Chicago with a balance of $128.9 million, the Sheraton Grand Chicago which owes $115 million, and the Marriott Chicago River North Hotel, which has a debt of $99.5 million.
Outstanding commercial mortgage-backed securities on Chicago-area hotels amounts to a staggering $1.37 billion over 19 loans.
DBRS Morningstar does not anticipate that the Chicago metro region’s hotel woes will end anytime soon, as the recovery is expected to extend into — and perhaps, beyond — 2022. Numerous factors, including depressed levels of tourism and business travel, Chicago’s seasonality and cold winters, combined with general economic hardship among consumers and a burgeoning workforce that continues to work remotely, means that the region’s hotels could be in for even more trouble in 2021.
