There are deals made in heaven and deals made in Chicago. The one that saved the Morton Hotel was a little bit of both.
When it opened on Printer`s Row four years ago, the Morton Hotel struck a note of optimism for the entire South Loop. Tucked into two converted 19th Century printing plants at 500 S. Dearborn St., the hotel hung a complimentary Pierre Cardin bathrobe in each of its 155 rooms and suites.
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The hotel catered to the well-heeled business crowd that needed to be close to the LaSalle Street financial district.
Success appeared to be assured. The hotel`s creator and managing general partner was Paul Stepan, a politically connected Lincoln Park lawyer-turned-financier, heir to a chemical company fortune and chief of Mayor Richard Daley`s political fundraising since 1979.
Stepan raised $9 million for the hotel`s startup costs by inviting about 100 Chicago-area residents to contribute $10,000 to $400,000 each. Some of the Morton Hotel investors were among the city`s elite: high-powered business and professional leaders from Lincoln Park and the North Shore.
The roll included lawyer Richard Devine, now president of the Chicago Park District`s Board of Commissioners and lawyer Michael A. Pope, who like Devine is a former law partner of County Board President Richard Phelan. Stepan`s wife, Ann, 43rd Ward committeewoman and now a state representative, is a partner.
The limited partner with the largest single investment is Ben R. Stein, a businessman who served prison time in 1969 for labor racketeering.
But things did not go as well as expected. Business at the hotel was fair on weekdays, when the Morton drew business guests.
During the weekends, bookings plummeted. By last month, court documents and property records show, the hotel was saddled with nearly $14 million in debts, including three unpaid bank loans.
The architect and electrician who worked on renovation of the two stone buildings that make up the Morton slapped liens on the property to try to collect their fees. A hotel franchising corporation and one of the banks sued in federal court. And the group owed $568,608 in unpaid 1988 and 1990 property taxes, county records show.
Things got so bad, according to recent court pleadings, that Stepan regarded his interest in the partnership as worthless.
But the venture recently received a second chance, thanks to a loan from a county government retirement fund that helped bail out the politically connected hotel partners. In May, the Cook County Employees and Officials Annuity and Benefit Fund, which manages the retirement accounts of about 25,000 county workers, lent the hotel group $5 million.
County fund officials said that clout had nothing to do with the group`s ability to get the loan.
”There was absolutely no influence on us,” said the fund`s legal adviser, Robert Molaro. Molaro, Democratic committeeman of the 12th Ward, also sits on the Democratic Central Committee with Ann Stepan.
”Just because there are people who have political connections, they should not be barred from being able to shop the product around if it`s a good product,” Molaro added. ”I think this will be a home run for the county.”
Fund president William Doyle, chief administrative officer of Cook County, said he had no idea that the hotel`s investors included political figures when the pension board lent them money.
Paul Stepan said that if anything, his political connections ”made it more difficult to get them to look at this.”
”There is nothing unusual about the way this was done,” added Stepan, who said the company was reviewed by outside financial experts before the county decided to invest.
The $1.6 billion county pension fund, one of the state`s top-ranked in funding and performance, is managed by seven trustees, including the county treasurer and comptroller, four county employees elected by their co-workers and one retired county worker.
Doyle said County Board President Phelan did not contact the fund`s officers about the loan on behalf of hotel investors, two of whom are his former law partners.
”We act on our own,” said Doyle.
A spokesperson for Phelan said he did not know Stepan was applying for the loan.
”This is a special case where we thought we could make some extra money,” said fund trustee Ed Rosewell, the county treasurer. Like Molaro and Ann Stepan, Rosewell is on the Democratic Central Committee. He is the 46th Ward committeeman.
Molaro said that only 7 percent of the fund`s $1.6 billion in assets is invested directly in ”riskier-type” ventures such as business loans. The loan to the Morton group, he said, ”is the only one I know of that has any type of political connection.”
The $5 million loan was enough money for Stepan`s group to erase all its debts but one-an $11 million rehab loan to an Indiana bank. But pension fund officials provided the Morton investors another boost. In exchange for getting the Indiana bank to extend the due date of its loan to the hotel by 30 months, the pension fund agreed to give the bank first claim on the Morton property should the venture fail, county property records show.
The bank agreed and postponed repayment on the $11 million loan until 1993.
The county fund`s loan to the group is not due until 1996 with 15 percent interest. At that point the pension fund becomes part-owner of the Morton, taking 40 percent stake in the hotel, according to Molaro.
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”Never is our $5 million going in jeopardy,” Molaro said.
The loan has provided another critical benefit to the investors. As a result of the hotel`s improved financial condition, the Morton has become a member of the Hyatt Corp. hotel chain. Recently renamed Hyatt on Printer`s Row, the hotel is now part of Hyatt`s reservation system, which is expected to raise occupancy at least 10 percent, according to Hyatt regional vice president Don DePorter, who is an investor in the hotel.
DePorter said that the Hyatt has no ownership stake in the hotel, but that it has a 30-year management contract to run it. About $1 million of the county fund`s loan will be spent to refurbish the lobby and install new telephone and computer systems, DePorter said.
”It had better be a moneymaker. That`s why we`re in business,” he added.
Stepan, who once served on Hyatt`s executive committee, said having Hyatt manage the hotel was ”something I sought religiously for many years.”
He added that the investors` political associations have nothing to do with their recent good fortune.
”This is a first-class deal,” Stepan said. ”It is a great Chicago story.”