Chicago Goes Chic

REVIEWS

The Wit

Dana

Elysian

Hotel Felix

The last year was a tough one for the Windy City. Not only did it lose out on its bid to host the 2016 Olympics, despite President Obama throwing his weight behind the campaign, but the city’s hotel market also took a battering.
Taking a view on the Chicago market as a whole, Smith Travel Research reported an occupancy fall of 11.9% in October 2009 compared to the previous year, while ADR declined 14.6% and revPAR 25%. Commenting on the results, Jan Freitag, Vice President of Global Development at STR, says: “The rate decline has been unprecedented with the luxury end of the market being hit particularly badly.”
Year-end forecasts for 2009 by PKF Hospitality Research concluded that Chicago hotels would experience a revPAR decrease of 23.4%, worse than the projected national decline of 18.5%. “Chicago is one of the big four convention destinations in the US,” says PKF Consulting Vice President Mark Eble. “So when business travel dips and meetings are down even more, this is a city that bears the brunt of it. Chicago suffers from cost-infrastructures issues relating to taxes and labour unions that reduce its value [in a troubled economy].”
Having monitored the Chicago market over a 30-year period, Eble says one of the peculiar circumstances of this recession is the uptake in room supply that has coincided with a downturn in demand. This is borne out by the debut of several high-profile hotel projects in the past two years, including the Elysian, TheWit, Hotel Felix, Dana Hotel and Spa and Trump Tower. Management of all these properties have conceded they have been forced to open with lower rates than projected but aggressive marketing campaigns produced some healthy occupancy figures in autumn 2009 despite the economic climate.
According to the CCTB, Chicago’s central business district currently has 32,000 hotel rooms, with an additional 1,100 coming online before the end of 2010. These additional keys will come partly from Kimpton’s fourth hotel in the city and a new Marriott property. Expected to open in March, the art-themed Hotel Palomar will be located in the River North neighbourhood, offering 261 guest rooms designed by San Francisco-based Orlando Diaz-Azcuy. Following in June, JW Marriott Chicago will feature 609 guest rooms set within a historic Burnham building. Interior design and architecture is being completed by Lucien Lagrange Architects.
Chicago-based hospitality consultant Ted Mandigo, who has over 35 years experience, notes: “Beyond the Palomar and JW Marriott, most other projects have been cancelled in the near term. The only current activity is the recent acquisition by Canyon Capital of the partially renovated Hotel 71 where there are plans to re-enter the market later this year. But there are several shovel-ready projects that could get cranked up pretty quickly with a recovery. These include the Aqua Tower development, which has 20 storeys of vacant hotel space formerly held by Strategic Hotels & Resorts.”
While recovery remains out of reach, however, ground-up construction will continue to prove prohibitive for most developers, who can only take heed of such abandoned projects as Shangri-La Hotels at the unfinished Waterview Tower and the Staybridge Suites project, which remains partially completed. Outlining the local challenges, Neighborhood Development Corporation Principal Eugene Kornota says: “Unless you hold enormous equity, it’s almost impossible to embark on new construction because the cost of raw materials has not come down and there are fixed labour rates.”
So when can Chicago’s hoteliers expect a change in fortunes? Mandigo observes that the city’s downtown market has shifted from a dominance of convention activity and business travel to a stronger focus on tourism, as highlighted by a double-digit jump in leisure travel, albeit at discounted rates, through summer and autumn 2009. This could be one of the factors that helps to drive recovery, as he outlines: “The Chicago market is historically resilient and has had compound annual growth in room nights sold of 4% over the past 12 years. Assuming we get our convention centre image straightened out, I would expect recovery to this level by 2012. This will come with an increase in the leisure segment and a slight fall in the convention market.” PKF’s projections indicate that Chicago revPAR is expected to grow 5.5% this year but, for Eble, the beginning of 2011 represents a turning point. “I think there will be a much rosier view once 2011 arrives, with 2011-2013 proving to be strong years.”