A JPMorgan Chase & Co. unit finds itself embroiled in a complex legal dispute over an unpaid $333 million loan tied to the Hilton Palmer House, one of Chicago’s most storied hotels. Bondholders, represented by Wells Fargo as trustee, have taken legal action against JPMorgan in New York, alleging the bank withheld crucial information regarding the hotel's ownership structure.
Complex Ownership Structure Unveiled
The Hilton Palmer House, owned by New York-based Thor Equities since 2005, has a history that includes performances by Judy Garland and Ella Fitzgerald. In 2018, JPMorgan issued a $333 million loan to Thor Palmer Hotel & Shops, with the hotel used as collateral. The loan was then securitized into a commercial mortgage-backed security, JPMCC 2018-PHHH, which attracted investors like BlackRock Inc. and MetLife Inc.
The Covid-19 pandemic's impact on the hotel industry led Thor Equities to default on the loan in 2020. Wells Fargo, acting on behalf of the bondholders, initiated foreclosure proceedings in Illinois’ Cook County. As the legal battle in Cook County continues, bondholders have filed a separate suit in New York, aiming to safeguard their interests.
Legal Hurdles and Ownership Disputes
Central to the dispute is the hotel's subdivision into three separate parcels by Thor Equities in the 2000s. The bondholders contend that JPMorgan failed to disclose this complex ownership structure during the loan's arrangement. The hotel's ownership fragmentation complicates the bondholders' efforts to repossess the property following the default.
The Cook County litigation has yet to resolve, but the bondholders fear a potential unfavorable ruling. They argue that if the Cook County court sides with Thor Equities' interpretation of various agreements, JPMorgan would be in breach of its representations and warranties.
Implications for Commercial Mortgage Bonds
This legal entanglement highlights the intricate details that govern the operation of large buildings and underscores the challenges within the commercial mortgage bond market. The bondholders' case against JPMorgan could set a precedent for the level of transparency required from banks when arranging such deals.
JPMorgan has declined to comment on the ongoing litigation. Meanwhile, Thor Equities, also sued by Wells Fargo in New York, has not responded to requests for comment. The outcome of these lawsuits will likely have significant implications for investors and the broader commercial real estate market.
As the legal proceedings unfold, the spotlight remains on the historic Hilton Palmer House. The 1,641-room hotel, known for its rich history and cultural significance, continues to operate, hosting events such as a fundraiser for President Joe Biden in May. The resolution of this legal battle will determine the future ownership and operation of this iconic Chicago landmark.
Source: Bloomberg