Thor Equities Refinances Chicago’s Palmer House Hotel for $365M

By Scott Baltic, Contributing Editor

Palmer House lobby

Chicago’s iconic, historic (dates to 1925) Palmer House Hilton luxury hotel has been refinanced by owner Thor Equities to the tune of $365 million, it was announced last week by Jones Lang LaSalle, which arranged the floating-rate financing package.

JP Morgan took the lead, JLL executive vice president Matt Comfort told Commercial Property Executive, and subordinate tranches were passed to four mezzanine lenders. “A component of this will be securitized, most likely,” he added.

Comfort and JLL senior vice president Keith Largay led the team on this transaction, along with managing director Dave Hendrickson and vice president John Nugent.

Another party who was privy to the transaction, but declined to be quoted publicly, told CPE that JP Morgan’s share was $175 million and that the four mezzanine lenders were Capital Trust Inc., Macquarie Group, Apollo Global Management and Och-Ziff Capital Management Group.

The 1,639-room, 24-story hotel occupies two-thirds of a block in Chicago’s Loop, between State Street and Wabash Avenue at Monroe Street, and features 57,000 square feet of street-level retail and a 177-space underground valet parking garage. The Palmer House is reportedly Chicago’s second-largest hotel, after the Hyatt Regency Chicago on East Wacker Drive.

“The strong cash flow of the Palmer House Hilton was integral to securing financing for the loan,” said Comfort.

“A loan this size has inherent complexities,” Largay added. “JLL ran a targeted process that created options for Thor and allowed us to achieve the best terms in the market.”

According to Crain’s Chicago Business, Thor Equities used the five-year loan package to retire roughly $363 million in loans taken out in 2006. The refinancing reportedly values the property at about $487 million.

After more than 60 years of owner operations by Hilton Hotels, the Palmer House was acquired by a Thor affiliate for $230 million in August 2005. The new owner completed a $131 million renovation in 2008, with refurbished guestrooms, public spaces and meeting spaces and other improvements.

Thor Equities specializes in premier retail and mixed-use assets in high-density areas in the United States, Latin America and Europe.

Third-quarter figures from Jones Lang LaSalle Hotels indicate that, in parallel with the overall Chicago hotel market, the downtown Chicago upper upscale/luxury segment is surging. As of the end of September, average occupancy was 86.2 percent, a 7.6 percent increase from 12 months earlier; ADR was $233.98, a 10.8 percent increase from 12 months ago; and RevPAR was $201.74, a 19.2 percent bump from this time last year.

Chicago hotel transactions are also up, according to JLL. The YTD total is $544.8 million, compared to $308.1 million at this point in 2011.

Also announced by JLL last week was the $103 million refinancing of two metro-Seattle multi-family properties, The Reserve and The Sanctuary, in Renton, Wash. The properties, which total 880 units, are owned by Fairfield Residential Apartments, L.L.C. Prudential Life Insurance Co. provided the seven-year, fixed-rate loans.