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Streeterville hotel loan sold at a COVID-19 discount

The sale at roughly 88 percent of the loan balance accounts for the uncertainty ahead in a downtown hotel market still reeling from the pandemic. But the price is also more than some industry experts predicted the debt would trade for when Chicago-based Guggenheim Investments put it on the market earlier this year—a small sign of investor confidence that the recovery for some hotels in the city will be strong, and may begin soon as more people get vaccinated.

The note sale is one of a small number of downtown hotel transactions over the past year, a slowdown illustrating how difficult it has been during the pandemic for investors to accurately value hotels with little clarity about future demand.

In an unusual wrinkle showing how some hotel owners and lenders see very different paths forward coming out of the crisis, Prime Finance bought the loan on a property that itself is being marketed for sale. Chicago-based hotel owner Arbor Lodging Partners, which bought the 352-room hotel on the Northwestern Memorial Hospital campus in 2018, recently hired brokerage Hodges Ward Elliott to unload the property even as Guggenheim was shopping its loan.

The asking price for the hotel is unclear, but sources familiar with the offering say Arbor is seeking more than it paid for the property. An Arbor venture bought it in a complex transaction that involved splitting the 40-story tower into three subdivisions, with Arbor saying at the time that it paid $36 million for the hotel portion. It has spent another $3.8 million renovating it, according to a marketing flyer for the hotel.

For Prime, which is affiliated with San Francisco-based real estate firm Prime Group, the Streeterville property adds to local hotel deals it made before the crisis. The lender provided a $37 million loan in early March 2020—just days before the pandemic began—to refinance the 250-room Virgin Hotels Chicago in the Loop. Prime also owns a $16.9 million loan that financed a California investor’s 2019 purchase of the 63-room Ivy Boutique Hotel at 233 E. Ontario St., according to Cook County property records.

Spokesmen for Prime Finance and Guggenheim Investments did not provide comments on the Huron Street deal.

Downtown hotel demand has been inching up as the weather improves and more people plan to travel after getting vaccinated. Occupancy at downtown hotels open during the week ending March 20 was about 28 percent, according to data from hotel research firm STR.

That’s still just a fraction of pre-pandemic levels but marks a slight improvement from last year. The average occupancy rate among open hotels downtown never rose higher than 27 percent for a single week between mid-March 2020 and the end of the year, according to STR.