The financing, which includes both senior and mezzanine loans, was used to pay off a $68 million construction loan and an undisclosed amount of preferred equity from Goldman Sachs that backed Prime Group’s nearly $140 million redevelopment of the historic building into the 381-room hotel that opened in 2015, Reschke said.
The previous loan was taken out in 2013 and matured last year, forcing Prime Group to refinance in the midst of a crisis that has stunned the hospitality industry and made it especially difficult for lenders to accurately value hotels.
Reschke declined to share details about the lenders or the new loan, which has not been recorded in Cook County property records. But his firm becomes one of the only downtown hotel owners to refinance a property in the 11 months since the pandemic put a brick on travel demand.
With the occupancy rate at downtown hotels so low that many owners have suspended operations during the pandemic, finding a lender to bet on a downtown hotel’s future with fresh debt is no small victory.
“It’s a testament to how strong of an asset it is and its performance since it opened,” said Reschke, who said he is confident the local hotel market will reach “near full recovery” within the next 15 months. “We beat our projection every year for five years. With that historical operating track record, you can make a good case for (getting a new loan).”
While few hotel owners have been able to refinance their properties during the crisis, many have found lenders willing to work with them to defer loan payments or modify their loan agreements in hopes that demand will come back with a vengeance when the pandemic subsides.
That’s one reason industry experts cite to explain why a massive wave of foreclosures and hotel owners surrendering properties to their lenders has yet to flood the market with distressed assets.
With little clarity about what the pandemic will do to long-term business travel demand, investors, lenders and hotel owners aren’t sure how to properly value hotels today, making it especially difficult to determine how much debt one should have tied to it. But Reschke said it’s easier for some types of properties more than others.
“I think the people that are having problems today are maybe the hotels that are average performers or even weak performers,” he said. “Assets that really were stellar pre-COVID are still desirable investment vehicles for institutions.”
Reschke has an eventful history with the landmark 38-story LaSalle Street property, which his firm bought for $19 million in 2006 when it was an outdated, half-empty office building. He was working on a plan in 2009 to convert it into a high-end boutique hotel with a brand tied to Marriott International, but was set back by the Great Recession. After pivoting to try to turn the property into a Residence Inn, the Reschke venture was hit with a $50 million foreclosure lawsuit in 2012 for allegedly missing loan payments.
Reschke resolved that dispute when he landed the $68 million construction loan to redevelop the property, a deal that included Goldman Sachs providing equity financing for the project.
Reschke said his firm’s equity in the hotel has not changed with the new financing.