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23-Jan-14 – A document filed with the United States Securities and Exchange Commission last year offers a rare peek into the financial details of the Amalfi, the 215-room River North hotel that will officially change its name to Kinzie Hotel on February 4. While there is nothing controversial about the deal, the document shows ownership of a successful boutique hotel can sometimes be within reach of mortals. All it takes is hard work, sacrifice, perhaps a few million dollars, and a mortgage. The investment being offered is a “mortgage-back security.” A pool of mortgages – in this case, 78 mortgages collectively worth more than $1.1 billion – is sold to investors, who then receive, ultimately, payments from the borrower. A prospectus was filed with the SEC on May 8, 2013. It shows that on March 13, 2013, two or three months after agreeing to buy the Amalfi, two people, a trust, and an LLC took out a mortgage. They borrowed $34.5 million and must pay it back by April 2018 plus interest – 4.28 percent per year. They used the money to purchase the hotel in January 2013 for $48.1 million, although the sale agreement was most likely reached in December 2012. The previous owner, Cornerstone Real Estate Advisors, LLC, paid $50 million for the Amalfi in 2007. The hotel struggled during the recession and missed payments on a $37 million mortgage. It was less of a struggle in 2010 after the loan was restructured.
Accessed from West Kinzie Street, the hotel is mainly on floors 2-6 of Dearborn Plaza, a 17-story, 382,000 square foot office building at Kinzie and Dearborn. The hotel reimburses Dearborn Plaza for some of the building’s operating expenses. The prospectus mentions “an extensive selection of dining and entertainment options” at nearby Marina City, specifically 10pin Bowling Lounge, Bin 36, Dick’s Last Resort, House of Blues, and Smith & Wollensky. Six nearby hotels are singled out as competitors, presumably due to their size and price range.
Loan in wife’s name The money was borrowed by an LLC started just to buy the Amalfi. Obligated to pay back the loan are Julie A. Dumon and the Julie A. Dumon Trust, Graham Hershman, and Bixby Bridge Fund I, LLC. Julie is the wife of Peter G. Dumon, the managing member of the LLC. He founded his real estate investment and development company, The Harp Group, in 1997 when he was 21 years old.
Dumon lost his first hotel, a Hawthorn Suites in Rosemont, during a slump in business that followed the September 11, 2001, terrorist attacks. After that, according to a 2013 article in Crain’s Chicago Business, he took out second and third mortgages on his home in Hinsdale and took a $15 per hour job as a security guard. Graham Hershman is chief operating officer of Portfolio Hotels and Resorts, the Chicago company that manages the Amalfi. About $2 million of the loan went for expenses related to re-branding. Hostmark Hospitality Group owns the name “Amalfi” and the hotel’s license agreement has expired. Completing the re-branding and other improvements were requirements of the loan. The hotel is also required to have insurance coverage for terrorism in an amount equal to the full replacement cost of the hotel plus projected net operating income and expenses for 18 months or however long it takes to rebuild the hotel. The deductible is $25,000. As Amalfi transitions to Kinzie, work has just started Dumon’s hotel will officially become the Kinzie Hotel on February 4. He calls the Kinzie “very Chicago-centric.” “Our design team, our managers, our ownership, [everything] down literally to the soap in the room, is from the Chicago area,” he said at a ribbon cutting ceremony on January 22. In addition to the colorful marketing, Dumon’s strategy appears to be hard work and patience. “We’re not making bets on a big recovery,” he told Crain’s in 2013, “We think it will be just kind of a slow grind.”
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