Chicago hoteliers turning to old beauty for new space

Historic buildings under renovation for leisure travelers

10/3/2013

CHICAGO — After a drought in construction dating to the 2008 financial crisis, downtown Chicago is awash in new hotel projects.

No fewer than a dozen new hotels representing about 2,700 rooms have recently opened or are under construction, and more projects seem to be announced on a weekly basis.

These include four-star and five-star properties by international names such as Langham and Loews, as well as numerous smaller lifestyle hotels by a range of independent operators. The boom, say developers and analysts, is driven by strengthening fundamentals of the market.

Adam McGaughy, managing director of the Midwest hotel business of Jones Lang LaSalle, a large real estate services firm in Chicago, said, “The city exceeded its 2007 occupancy peak of 74.4 percent last year and there’s lots of room for average daily-rate growth. When that happens, new supply starts to become part of the conversation.”

Chicago is the country’s fourth-largest hotel market behind Las Vegas, New York, and Orlando, Fla., with a downtown of about 37,000 rooms. In the past, the industry has depended on the city’s lakefront McCormick Place convention complex to spur growth.

What makes this boom different is it’s being driven by smaller lifestyle hotels that appeal to leisure and international travelers.

Ben Weprin, president of locally based A.J. Capital Partners, who has three such projects under construction, said:

“Conventions are not our primary focus. We aim for a younger demographic that likes to go out to restaurants and bars. We try to create a town-square atmosphere in our properties.”

According to TR Mandigo & Co., a hotel consulting firm, leisure travel accounts for about 15 percent of the downtown hotel market. That is an increase from 10 percent in the early 2000s, and more increases are anticipated because of an aggressive city marketing program instituted by Mayor Rahm Emanuel.

“The mayor has made tourism a priority,” said Donald Welsh, chief executive of Choose Chicago, the city’s tourism and convention bureau.

Over 18 months, he added, the city has opened 10 international tourism offices in countries including China, Japan, Brazil, and Britain, and it is running 30-second TV ads promoting Chicago as a vacation destination in cities throughout the Midwest.

Many of the new hotels are in areas that, until recently, were not considered tourist zones, the most notable of which is a five-block stretch of Michigan Avenue just south of the Chicago River where four projects are under way.

John Rutledge, chief executive of locally based Oxford Capital Partners and a leading downtown hotel developer, pointed to the attractive features of the neighborhood that lend themselves to hotels. For one, he said, old classic buildings there can be adapted to intimate hotel spaces. Another asset is its proximity to popular areas: the Loop business district, Millennium Park, Navy Pier, and the North Michigan Avenue shopping district.

Mr. Rutledge recently paid $53 million for the London Guarantee Building, a lavishly ornamented 1920s-era office building in the district, where he plans to build a hotel with more than 400 rooms. The 22-story structure sits on the site of Fort Dearborn — the site of Chicago’s birth in 1803. The Guarantee Building, near the historic Wrigley Building, also served as the home studio for many years of the late, legendary radio broadcaster Paul Harvey.

Mr. Weprin of A.J. Capital also has a project in this area, a 250-room hotel carved out of the landmark Chicago Athletic Association Building on Michigan Avenue. The Athletic Association dates to 1893 and has a Venetian Gothic facade and an extravagant interior of cast-iron staircases, vaulted ceilings, elaborate tile floors, and 15 working fireplaces.

“People get an amazed look on their faces when they go into that building,” said John Pritzker, Mr. Weprin’s partner in the project. “They can’t believe something like that still exists.”

The hotel, which will have 250 rooms and be operated by Geolo Capital’s Commune Hotels and Resorts division, will cost $125 million and be finished in late 2014. It has not been named yet.