Hotel Itasca owner and lender fight over COVID shutdown

Days after Governor JB Pritzker announced a statewide stay-at-home order in March due to the coronavirus pandemic, GF and a company from Marriott International agreed to temporarily close the property. By the time Marriott gave the go-ahead to reopen to guests in May, demand was so badly undermined that GF decided he couldn’t make payments on his $31.3 million mortgage and took steps to sell the 408-room property to Oceanview.

But rather than take control of the building, Oceanview filed a foreclosure suit against GF in early June. The temporary closure, he argued, violated the terms of his loan and personally required GF management to pay it all back, plus interest.

The battle comes as many hotel owners face crushing financial distress, with some choosing to close for the foreseeable future or trying to strike new deals with lenders to accommodate the worst crisis modern hotels have ever seen. known.

At issue in the dispute is whether a COVID-forced closure triggered a “bad boy” clause that determines whether the company that owns the hotel or the people behind that company are obligated to repay a loan in the event of default. Such clauses usually come into play for things like property fraud, non-payment of taxes, or other wrongdoing. But Oceanview alleged in a lawsuit in June that the temporary closure triggered the clause because GF “altered” its franchise agreement with Marriott without Oceanview’s consent. With its foreclosure suit pending, the lender charged GF with breach of contract and asked a DuPage County judge to force GF and founder Kenneth Kochenaur to repay a total of $33.2 million.

GF hit back with its own lawsuit last week, dismissing Oceanview’s allegations and pointing to language in its agreement with Marriott that the closure should not be considered a change to GF’s franchise agreement, the complaint says. . GF argued that Marriott initiated the temporary closure and must comply or potentially lose the Westin flag. The closure therefore “had the effect of protecting (Oceanview’s) warranty by ensuring that the franchise agreement for the hotel would remain intact during a health crisis of global proportions,” the complaint states.

GF also accused Oceanview and its management of fabricating facts related to its allegations “in a clear attempt to reduce their anticipated losses resulting from the COVID-19 pandemic.” GF’s 10-count complaint includes allegations of fraud, intentional infliction of emotional distress, and negligence, among others.

An attorney for Oceanview declined to comment and a spokesperson for GF could not be reached.

Lawsuits involving hotel ownership are surging six months into a global pandemic and with little visibility on when travel and tourism will rebound.

In a highly publicized case, the owner of the Palmer HouseHilton in the Loop was hit with a $338 million foreclosure lawsuit last month after allegedly missing mortgage payments since April.

A GF company paid $27 million for the Westin Chicago Northwest in 2015, according to DuPage County property records. He then took out a $31.3 million loan from Lancaster, Pa.-based Susquehanna Bank before refinancing with the Oceanview loan, records show.

GF operates more than 100 individual hotel entities representing more than 16,000 rooms, according to its website.

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