The dispute puts future ownership of the office property at risk and raises questions about the ongoing work on a 233-room hotel that Reschke is developing on five floors above the offices. Both are the types of properties stung by the COVID-19 pandemic, with businesses rethinking their office space needs and demand for downtown hotels nearly non-existent for the past 15 months.
Lenders Midland National Life Insurance did not claim in the lawsuit that von Reschke’s office company did not miss any loan payments, but claimed the company defaulted on the loan by mixing funds between the office property and the hotel project, rather than more than one $ half a million in utility bills paid and failure to seek approval from Midland to carry out construction on the office property, among other things. Midland is seeking an injunction for the Reschke Company to promptly repay the remainder of the $ 45.7 million loan that Reschke took out in 2016 and a $ 3.8 million prepayment penalty.
The loan is only secured by the office portion of the building, which includes a lobby on the first floor and floors 13-17, but the foreclosure lawsuit also names the Reschke company, which is developing the hotel on floors 18-22 of the building, as a defendant a company controlled by Estein USA, based in Orlando, Florida, which owns the JW Marriott Chicago. It is unclear why these companies are named in the lawsuit, although the lawsuit states that each company has an easement agreement with the office company for shared space in the building.
Tenants in the office part of the building include the human rights organization Heartland Alliance and several law firms.
Neither Reschke nor the spokesman for Estein or Midland could be reached for comment. Hyman, CEO of Chicago-based real estate brokerage and property management firm Millennium Properties, admitted he was appointed trustee for the property on LaSalle Street, but declined to comment.
Reschke’s venture has owned the 208 S. LaSalle offices since 2005 when his Prime Group paid $ 44 million for the entire Daniel Burnham-designed building and nearly $ 400 million to renovate and convert the first 12 floors into the 610 room JW issued Marriott, which opened in 2010.
Reschke put the upper floors of the building up for sale in 2012 for around 70 million US dollars, but refinanced the property in 2014 and planned to convert part of the upper floors into additional hotel rooms. That plan lay idle for several years until the developer signed a contract with Marriott International to develop a boutique hotel on the top floors of the building known as the Reserve – named after the Federal Reserve Bank building next door – and part from Marriott’s autograph collection.
Reschke received a Cook County Class L tax incentive earlier this year for the restoration of aspects of a Grade I listed building as part of the $ 73 million project and notified the Chicago Plan Commission in February that the hotel would be completed by the end of 2021.
That project and foreclosure lawsuit comes as the JW Marriott Hotel grapples with its own debt problems. The senior portion of a $ 203.5 million mortgage on the property was one of many hotel loans that were transferred to a special service provider last year amid the pandemic, a signal that the hotel’s owner was in with the debt May default or need to restructure its terms to avoid it. The $ 40 million portion of the loan was bundled with other mortgages and sold to holders of commercial mortgage-backed securities.
Estein has signed two aid agreements with specialist service provider Rialto Capital Management and has applied for a third, which is currently under review in connection with the loan, according to a Bloomberg report. A spokesman for Rialto could not be reached.
The hotel was valued at $ 236 million earlier this month, according to the Bloomberg report. That’s an increase from $ 210 million valued last August, but dramatically lower than the $ 370.4 million value a valuer gave the property in 2017 when Estein refinanced the hotel.
Reschke has already fought against foreclosure on LaSalle Street. A Prime Group company was hit by a $ 50 million foreclosure lawsuit in 2012 alleging it defaulted on a loan related to a 35-story building at 11 S. LaSalle St. It was advisable to convert the vintage building into a Residence Inn with 381 rooms, which finally opened in 2015. Reschke refinanced the hotel earlier this year with a new loan of $ 141 million.
Reschke also recently made headlines in the local hotel market with Spanish luxury hotel owner RIU Hotels & Resorts, who commissioned him to develop an almost $ 200 million hotel with 388 rooms on 150 E. Ontario St. in Streeterville.