|By Robert Channick, Chicago
TribuneMcClatchy-Tribune Regional News
August 19, 2009 - Peter Dumon called it "business as usual" Tuesday for the InterContinental Chicago O'Hare hotel, a day after his firm took the struggling property into Chapter 11.
Launched with high expectations less than a year ago, the newest luxury hotel at O'Hare is the latest victim of a crushing economic downturn that has devastated occupancy rates, forcing hotels to cut deals to lure customers.
Opened last September as the financial markets crumbled, the $180 million InterContinental went into bankruptcy Monday in a bid to rework mountains of debt.
Plagued by tepid occupancy and sagging room rates, the posh 556-room, 12-story hotel was unable to meet its debt service from the outset, said Dumon, president of the Harp Group, the Oak Brook-based company that developed the property.
"It was absolutely necessary to request loan modification from our lenders," Dumon said Tuesday. "Unfortunately, we had a very hard time even communicating with them."
The company, which owns eight hotels in Illinois, California and Ohio, also filed Chapter 11 bankruptcy for the Radisson Hotel at Los Angeles International Airport, which it acquired in 2007. With about $278 million in combined debt -- $158 million on the O'Hare property and $120 million on the Los Angeles property -- Harp is seeking a reorganization plan to continue operation of both hotels.
The hotels were financed by San Diego National Bank, a unit of Oak Park-based financial-services firm FBOP Corp., and Amalgamated Bank, a New York-based lender owned by hotel workers union Unite Here. Negotiations to refinance the debt began in October and broke down this spring, according to Dumon.
Deborah Nisson, a spokeswoman for Amalgamated Bank, and Kristy Gregg, a spokeswoman for San Diego National Bank, both declined to comment Tuesday.
While the hotel industry has been rocked by the recession, the O'Hare market has been particularly hard-hit, according to Elmhurst-based hotel consultant Ted Mandigo. He said that year-over-year airport hotel occupancy is down from 68.2 percent to 52.6 percent through June, while average room rates have declined from about $120 to $99 during the same period.
The InterContinental has been running at just over 50 percent occupancy, according to Dumon.
"They're struggling with everyone in that airport market area, offering discounts, cutting rates, packaging anything to stay alive during the recessionary period," Mandigo said.
Mandigo said that many hotel owners across the country are in negotiations with lenders, hoping to rework financing that has become unsustainable during the recession. He said that most banks would rather adjust the terms -- perhaps seeking lost revenue on the back end of the loan -- than take the keys to the property through foreclosure.
"Today, they're not getting checks," he said. "If they pick up the keys, then they've got to start writing checks."
When negotiations break down, filing bankruptcy is a way to get the lender back to the table, Mandigo said.
"Bankruptcy filing is just something that gets the attention of the banks and it pushes them to be more creative in the solution," he said. "It puts pressure on the lender."
Dumon agreed that the company is still seeking new terms from its lenders, adjusted to reflect "more realistic values" than the current debt does.
"It's a beautiful hotel in what historically has been an outstanding market," he said. "We expect when the economy recovers, that will be true again."
"Our goal is to restructure the debt and the equity on each asset so that we can continue to own them on a long-term basis," he said. "We certainly understand that that obligates us to bring new equity to the table, and we're prepared to do that."
In addition to two of its own developments, the Harp Group acquired six properties for about $350 million between 2005 and 2007, including the Ambassador East in Chicago. Dumon said the bankruptcy filing does not affect the other properties, but he acknowledged that the prices of all hotels purchased during that time frame now seem too high, given the current environment.
"If you had a crystal ball and a rear-view mirror, nobody would have bought anything," he said.
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