2 Trump Hotel Unit Owners Face Foreclosure

(Crain’s) — Donald Trump’s ritzy new downtown hotel is attracting guests no property owner wants to see: foreclosure lawyers.

In another bad sign for the New York developer, lenders have filed foreclosure suits on two condominium-hotel units in his 92-story Chicago skyscraper, which has been clobbered by the condo bust and the worst hotel market in decades.

The investors who bought the two units from the developer last year are trying to sell them at steep discounts through so-called short sales, or for less than the debt owed on the units. One hotel room is on the market for less than half of what it sold for in March 2008.

Foreclosures and short sales have become routine in the current real estate market, and two lawsuits don’t represent a trend. But they rarely happen so quickly at high-end projects like the Trump International Hotel & Tower, which just opened last year.

The cases also raise questions about how low condo-hotel prices in the riverside project can go. And one broker with listings in the building expects more foreclosure suits in the future.

“No question about it,” says Andrew Glatz, president of Chicago-based brokerage Crown Heights Realty. “There will be a flood of them.”

Mr. Glatz is trying to sell a condo-hotel unit on the 20th floor for $379,000, less than the $493,589 loan balance on the unit. The owner bought the room from a Trump affiliate for $664,000 in February 2008. Wells Fargo Bank N.A. last month filed to foreclose on the unit.

Wells Fargo has also sued to foreclose on a unit on the 24th floor with an original mortgage of $712,000. The unit is on the market for $389,900, 56% less than the $895,000 Trump sold it for in March 2008. Wells Fargo would have to approve both sales if the investors can’t repay the loans in full but want to be released from the mortgages.

Mr. Trump says the two suits and potential short sales say nothing about the project at 401 N. Wabash Ave., which includes 486 residential condos and 339 hotel units. The development is “doing very nicely,” he says, and foreclosure suits in new condo developments are “common all over the place,” not just in his building.

Still, Mr. Trump ran into major loan problems of his own last year, when he and a lending syndicate led by Deutsche Bank Trust Co. Americas sued each other over a past-due $640-million construction loan. The two sides signed a truce in March, and Jason Greenblatt, general counsel and executive vice-president of the Trump Organization, says he expects to reach a more formal settlement in the coming weeks.

That would be good news for the project, which has struggled with slow sales amid the depressed condo market. Sales of residential condos are stuck at 365 units, or 75% of the total, and haven’t really budged in three years, according to Appraisal Research Counselors, a Chicago-based consulting firm that tracks the downtown condo market.

Investors can also buy hotel suites in the building, like they would a residential condo, with the option to occupy the units or have them rented out. But condo-hotel sales stalled out a few years ago and are currently stuck at 191 units, according to Appraisal Research. Though a hot concept during the boom, the condo-hotel has been a tough sell during the bust. Skeptics say hotel units are a bad investment structured in a way to benefit the hotel developer, not the owners.

In a lawsuit filed in September, a Trump condo-hotel investor alleged that the company formed to develop the project broke earlier promises over the hotel units, deciding, for instance, to keep profits from the hotel’s ballroom and meeting space after stating earlier that the money would go to the hotel unit owners. Mr. Greenblatt says he can’t comment on the complaint because hasn’t seen it.
A group of four condo-hotel investors filed a virtually identical suit against the project in 2008 that “was resolved to everyone’s satisfaction,” says Shelly Kulwin, an attorney for the investors in both suits. Terms of the settlement are confidential, he says.

The market for hotel units is especially thin these days because many lenders, leery of the risks, won’t finance purchases of them. And the hotel market is in a deep slump, driving down occupancies and room rates at many hotels. Declining room revenues would make it tough for many owners to cover the mortgage payment, property taxes and assessments.

Unless an investor can buy a unit at a steep discount, owning a hotel suite “absolutely doesn’t make sense in today’s market,” says Mr. Glatz, the broker. “Right now, people have to feed them on a monthly basis and they’re losing money.”
While acknowledging the difficult hotel market, Mr. Trump says his hotel is doing well and has managed to keep its occupancy high. He declines to disclose the hotel’s occupancy or average daily room rates, but Mr. Glatz says the hotel has slashed rates to fill rooms.

Where the hotel market goes from here will be a key factor determining the future value of the Trump condo-hotel suites. But some units in the building could be poised for a big fall based on estimated values of comparable properties; the recent sale of a minority stake in the Peninsula Chicago, one of the city’s most expensive hotels, valued the property at $460,177 a unit, well below the $1-million-plus Trump received for some of his hotel units.

Distress could play a role, too. While two short sales aren’t likely to depress values of other units in the building, a higher number could, says Gail Lissner, vice-president of Appraisal Research, the consulting firm.

“I think it’s all about the quantity,” she says.
By Alby Gallun, Nov. 18, 2009

The condo hotels are a separate company from the residential units which continue to sell well. Maybe Trump should buy them back and just run this as a hotel like Elysian is doing? The hotel is beautiful and is has a high occupancy - and having a hotel instead of hotel condos would solve the problem of difficult financing for those beautiful residential homes at Trump!