Westin Book Cadillac facing foreclosure amid lengthening pandemic
More than a decade after its opening helped lead the revitalization of downtown Detroit, The Westin Book Cadillac is heading into foreclosure.
John J. Ferchill of Cadillac Funding Associates LLC, has been delinquent on a $77 million commercial mortgage-backed securities loan since May, according to commercial real estate research firm Trepp LLC.
"We are negotiating with the lender,” Ferchill wrote in an email to The Detroit News Tuesday. He did not elaborate.
Cleveland-based Ferchill cited the COVID-19 pandemic and “the state's ‘draconian COVID rules’” for a decline in revenue and occupancy, according to Crain’s Detroit Business, which first reported the hotel’s financial situation.
It reported Ferchill saying that the loan’s special servicer, CWC Capital Asset Management LLC, also was unwilling to work with him. Jack Kay, a spokesman for CWC Capital Asset Management LLC, said Tuesday that they were unable to comment regarding the loan.
The struggle at the Westin Book Cadillac comes as the COVID-19 pandemic and restrictions during the past year have sent both the restaurant and hotel industries in Michigan and in many parts of the country into a downward spiral.
“This is a flagship hotel in the city of Detroit, and I think the frustrating reality is we’re only a couple months away it feels like at this point from demand coming back in very large numbers,” said Justin Winslow, president of the Michigan Restaurant and Lodging Association. “To get this close to what feels like a finish line and to not be able to see it through is unfortunately, and to me, an avoidable outcome for the Book Cadillac.”
The potential foreclosure of the Westin Book Cadillac comes as Detroit experienced a boom in downtown hotels before the pandemic and state-ordered limits sharply reduced occupancy rates — and revenue. They include the Shinola Hotel on Woodward, the Element Detroit in the old Metropolitan Building on John R and the Detroit Foundation Hotel on Larned St.
What the Westin Book Cadillac's troubles may augur for the city's other newer downtown hotels is uncertain. That's because it depends on how quickly travel and tourism rebound as COVID vaccination rates increase and the state eases pandemic restrictions.
According to Trepp, the Westin Book Cadillac was valued at $136 million in late 2019, but as of December, one of the property’s two loans showed a value of $74.6 million, slightly below the loan balance. The loan was split in two in early 2020, one that closed in late February 2020 and the other in late March 2020. The property fell into delinquent status shortly after that with paid to date of May 2020.
Winslow said the inflexible nature of commercial mortgage-backed securities loans makes financial distress difficult to resolve without going into foreclosure. He said that at the federal level he’d like to see more flexible financing for those with CMBS loans.
“This was a hotel that was very profitable many years in a row and can be again once the general public feels the immediate threat is gone,” Winslow said. “I think that with (the) vaccine that is a short-term horizon before that willingness comes.”
The plight of hotels in Michigan had taken a taken a backseat to restaurants, Winslow said, which had numerous closures in the past year. According to a winter survey conducted by the American Hotel and Lodging Association, 52% of its hotel owners said they were at a real threat of foreclosure.
“What you saw were struggling hotels who had a lot of flexibility in terms of their debt financing,” he said. “We’re reaching the end of that flexibility.”
Gov. Gretchen Whitmer vetoed legislation last week that Winslow said could have helped the hospitality industry through property tax relief.
“That is not something I put exclusively or only at the governor’s feet because I think this is a process that requires the legislature to engage in honest negotiation to get something to the finish line that can actual help the industry,” he said. “But vetoing legislation that would have had $300 million in property tax relief would have been direct relief to hotels and restaurants.”
The 453-key Westin Book Cadillac Hotel reopened in 2008 after a $200 million renovation. Built in 1924, it had been closed for almost 25 years.