BY Hotel SPE-3 LLC: Chicago Hotel Group Files Chapter 11 Amid Lender Fight

BY Hotel SPE-3 LLC's chapter 11 petition puts a nine-debtor Chicago hotel group into Delaware court while senior lenders were seeking a receiver. The first-day filings ask to keep two South Loop hotels operating with lender cash collateral and a proposed $1 million junior DIP after management said the senior lenders were pursuing receiver relief.

In Su-Mei Yen's first-day declaration, management says the hotels opened roughly six months before COVID-19 disrupted travel, that yearly loan extensions became progressively more expensive, and that a receiver could jeopardize franchise arrangements and trigger property-improvement-plan spending. The same filing says the group operates 514 rooms across properties at 1101 South Wabash Avenue and 1100 South Michigan Avenue.

Outside coverage also reported asset and liability ranges of $100 million to $500 million on the petition date.

Debtor(s)	BY Hotel SPE-3 LLC (9 affiliated debtors; joint administration requested)
Court	U.S. Bankruptcy Court, District of Delaware
Case Number	26-10324
Petition Date	March 8, 2026
Judge	Hon. J. Kate Stickles
DIP Facility	Proposed $1.0 million junior facility from SBY DeKalb Inn, LTD at 10% simple fixed interest

Why the Chicago Hotel Group Filed Chapter 11

Yen says the debtors operate a Hilton property and a Best Western property at 1101 South Wabash Avenue and 1100 South Michigan Avenue, and says the hotels stayed open through the pandemic even as occupancy, room rates, and net operating income weakened. Outside the docket, 1101 South Wabash as a 29-story mixed-use development and a $90 million construction loan for a 281-room hotel project describe the South Loop property's development history.

Two Hilton hotels during construction were identified at 1101 South Wabash in 2018.

Yen says the distress followed a sequence of pandemic disruption and increasingly expensive lender extensions. She states that the hotels were still ramping when COVID-19 hit, that the debtors later faced higher pricing, fees, and paydown demands on annual extensions, and that they were paying more than 8% interest by the petition date. Outside reporting on Acore's $187 million foreclosure action and earlier lawsuits involving Su-Mei Yen's hotel holdings provides context for the lender dispute described in the first-day papers.

Yen says a change in control could jeopardize the Best Western's grandfathered franchise-fee structure, bring added management expense, and trigger property-improvement-plan work estimated at about $15,000 per room, or roughly $7.5 million. She also says the properties are non-union and that a control change could prompt union-organizing pressure.

Earlier Chicago hotel reporting also tied Su-Mei Yen and Hui-Hsien Bert Yen to plans to add 108 rooms to the Whitehall Hotel.

Debt Structure and First-Day Financing

The cash collateral motion and DIP motion describe a senior mortgage structure built around an August 30, 2019 loan agreement. Those motions say Wabash 11th LLC, 1101 Wabash Development LLC, and Pacific Tai, LLC borrowed $146,737,500 from Delpha CRE Funding LLC and other lenders, with Acore Capital Mortgage, LP acting as administrative agent. The same motions identify a separate mezzanine loan agreement from the same date with an original principal amount of $3,762,500, and say both layers were in default by the petition date.

The cash collateral motion proposes replacement liens and monthly adequate-protection interest payments of $153,272.28 to the senior agent for the benefit of the senior lenders while the debtors use lender cash collateral for payroll, utilities, insurance, property taxes, vendor obligations, and chapter 11 expenses. Ted Mandigo's declaration says the debtors entered the case with five bank accounts, including three operating accounts and two KeyBank lockbox accounts, and says available cash on hand was not enough to cover those near-term obligations without cash collateral and DIP financing.

The DIP motion seeks a single-draw $1 million junior secured facility from SBY DeKalb Inn, LTD and any other lenders that may join, with 10% simple fixed interest, junior liens on the hotel properties and their proceeds, and no prepayment fee. The motion also ties the facility to milestones, including a final DIP order by May 5, 2026, a plan and disclosure statement within 12 months of the petition date, and confirmation within 18 months.

First-Day Operating Motions

The joint administration motion says the debtors want one jointly administered case for nine affiliated entities and states that no trustee, examiner, or official committee had been appointed as of the petition date. That filing also identifies Lewis Brisbois Bisgaard & Smith LLP as proposed debtors' counsel, with Rafael X. Zahralddin-Aravena and Minyao Wang signing the motion.

The wages motion says the debtors employ about 106 workers, including about 4 corporate-support employees in Chicago and about 102 hotel employees across the two properties. It lists average gross payroll at about $295,000 per bi-weekly pay period, split roughly $195,000 for the Hilton property and $100,000 for the Best Western property, with March 6, 2026 identified as the last prepetition payroll date and March 20, 2026 as the next scheduled payroll date.

The insurance motion says annual premiums total about $1,569,992.18, with about $484,815.18 financed through Alliance Insurance Services, Inc. - Chicago. The motion says about $230,227.92 remained outstanding on that financing as of the petition date, with monthly installments of about $38,371.35 at an interest rate of about 6.15%.

The Stretto application says the debtors expected notice to go to thousands of entities, that they reviewed at least two other court-approved claims and noticing agents before selecting Stretto, and that they planned a later application to retain Stretto separately as administrative agent under section 327(a).

Immediate Next Steps

The deficiency notice requires an amended petition by March 23, 2026 to add the county for the debtor's address. The notice warns that failure to cure the defect will result in dismissal without further notice or hearing.

Beyond that threshold issue, the docket does not yet show substantive first-day orders, a sale motion, or plan documents. The filings that would clarify the case path are any interim or final orders on joint administration, cash collateral, DIP financing, wages, insurance, and the Stretto retention request, along with any amended petition, schedules and statement of financial affairs, and top-20 creditor filing.

Frequently Asked Questions

When did the case file? March 8, 2026 is the petition date for the Delaware chapter 11 cases.

What is the proposed DIP facility? The debtors asked for a $1 million junior secured facility from SBY DeKalb Inn, LTD at 10% simple fixed interest.

What is the next visible deadline? The current deadline on the docket is March 23, 2026, when the debtors must amend the petition to cure the deficiency notice.

For more case coverage, see ElevenFlo's bankruptcy blog.