A Miami based commercial mortgage-backed securities trust, or CMBS, that holds the bonds tied to a mortgage on two properties owned by the landlord of West Suburban Hospital, has filed a $33.8 million lawsuit that seeks to take back properties in River Forest and in the Uptown neighborhood in Chicago.
The Real Deal Real Estate News reported Monday that Miami-based Rialto Capital Advisors, which is the special servicer for a $22 million loan to West Sub landlord Rathnaker Patlola, filed the lawsuit after attempts to work out a resolution with Patlola failed after repeated attempts to contact him failed.
According to the Real Deal, the foreclosure lawsuit was filed in Cook County Circuit Court on Friday. It seeks a $6.2 million “yield maintenance premium” and $1.4 million in default interest.
The Real Deal says the lawsuit would effectively bypass the ongoing legal tangle between Patlola and West Sub CEO Manoj Prasad. It does not target the one square block West Suburban Hospital property on Austin Boulevard, which is owned by Patlola but registered under a different corporate name.
A status hearing is scheduled Monday morning downtown in the Daley Center courthouse.
The Real Deal coverage suggests that Patlola is between a financial rock and a hard place. A key challenge facing Patlola, the newspaper found, was that with CMBS debt, “once a loan reaches special servicing it cannot be refinanced, which means equity cannot be taken out of the property to pay down debt.”
The lawsuit names the corporate entity for a 945-space parking garage in Chicago’s Uptown neighborhood — Clarendon Realty, LLC — and River Forest Realty LLC, the name under which the parcels that comprise the River Forest Campus — 7420 Central Ave., 420 William St. and 7411 W. Lake St. — are registered. All are controlled by Patlola as “sole member.”
The Uptown site is part of the shuttered Weiss Memorial Hospital campus which is also owned by Patlola.
According to The Real Deal, and confirmed through the Cook County Recorder of Deeds, the loan originated in October 2023, for $22 million. According to Cook County Recorder of Deeds records, Patlola’s River Forest Realty, LLC and Clarendon Realty LLC received a $22 million mortgage from Argentic Real Estate Fin 2 LLC.
In the latest filings with the Illinois Secretary of State, Patlola is listed as the President of Clarendon Realty, with an address in Princeton, New Jersey. River Forest Realty, LLC is managed by River Forest Realty Holdings, LLC, of which Patlola is listed as president.
Argentic, headquartered in New York City, with offices in Chicago and five other cities, manages commercial real estate lending and investment vehicles focused on providing fixed-rate and floating-rate debt financing solutions to property owners throughout the United States.
The mortgage note was signed by Patlola as “sole member.” The debt has since grown to $33.8 million and is accruing interest obligation at a rate of $8,560 per day, due to the Patlola controlled entities allegedly not paying property taxes on the real estate parcels beginning two years ago in mid-2024.
The Real Deal reported that that non-payment of real estate taxes forced PNC Bank-owned master servicer Midland Loan Services “to advance $3.4 million to protect the collateral.”
The Real Deal said Patlola told them he was “informing his attorneys of the foreclosure lawsuit and intends to resolve it amicably,” but declined to comment further.
As reported by The Real Deal and other media outlets, former West Sub owner Pipeline Health holds a subordinate mortgage note that is tied to Resilience Healthcare’s operations. The publication cites court records indicating that Patlola’s tenants, which “are affiliates of the Resilience Healthcare operator group run by Prasad,” defaulted on the $67 million note in December 2024. Pipeline then attempted to reclaim control of Resilience Healthcare’s books and records. When Resilience refused, that froze the “debt stack.”
A 2023 Real Deal article sheds light on Patlola’s financial situation. The mere fact that he needed to utilize a commercial mortgage-backed securities trust indicates he had limited financing options.
As The Real Deal says in its December 2023 article, and other real estate and legal websites confirm, CMBS borrowers “have to go through a lengthy process with their special servicers before the debt can be modified,” unlike with a conventional bank mortgage. In order for modifications to go through, “bondholders must approve the changes through a trust, a process that the newspaper said, “can take borrowers up to a year or more.”
The longer a loan sits in special servicing, The Real Deal article said, “the larger the fees and interest it ha(s) to pay…” The default interest, the paper said, goes to the special servicer, not the bond holders.