Olshan indicated to the mortgage’s special servicer in December that it “will not be funding operating and debt service shortfalls moving forward, and will be temporarily closing the hotel while working toward cooperative transition of the asset to the lender,” according to a Bloomberg report tied to the loan.
The foreclosure complaint and Olshan’s intention to hand over the keys to the property highlight the financial carnage the coronavirus has inflicted on hotel owners. With travel demand almost non-existent for almost a year and little clarity about when that business will return, many hotel investors have missed loan payments or worked with their lenders to defer payments and modify loan terms to try to buy time until the post-pandemic recovery.
Some banks have been flexible, betting that demand will come back strong as more COVID restrictions are lifted. But trustees for CMBS loans have less wiggle room, given that they oversee loans for many properties that are tied together.
Olshan worked out a deal early in the pandemic with a master servicer overseeing the loan, modifying the terms to allow the owner to make lower mortgage payments from May through July, Bloomberg loan data show. The hotel even turned to renting rooms to Northwestern University undergraduate students in the fall to generate some business when there was little to go around.
But it wasn’t enough. Including the $38.9 million balance on the original $40 million loan and other fees and charges since August, Olshan owes $49.6 million, according to the foreclosure complaint.
It’s unclear what the hotel is worth amid the fog of COVID, but it is almost certainly far less than the $60 million Olshan paid for the property in 2015. The hotel’s net cash flow during the 12 months ended June 30 was less than $1.3 million, or less than half of its debt service liability over that period, Bloomberg data show.
An Olshan spokesman couldn’t be reached and a spokesman for the Chicago office of law firm Bryan Cave Leighton Paisner, which represents Deutsche Bank, declined to comment.
The complaint asks a Cook County judge to appoint a receiver for the hotel and to order a sale of the property by public auction.