Sterling Bay is looking to unload a Gold Coast property it spruced up as one of its first tries at hotel ownership, potentially closing the book on a project whose payoff was largely thwarted by the pandemic.
A joint venture led by the developer and partners Geolo Capital and Wanxiang America Real Estate Group has hired the Chicago office of Jones Lang LaSalle to sell the Talbott Hotel at 20 E. Delaware Place, according to a marketing flyer for the property.
There is no asking price for the 178-room inn, which the owners bought in October 2015 for $51 million in a deal that included celebrity investors John Cusack and Chris Chelios, among others. But the offering will serve as a valuable test of buyer appetite for downtown hotels as leisure travel picks up and restrictions tied to the public health crisis wane.
The owners in 2017 spent $16.4 million renovating all the guest rooms—adding 29 of them—as well as the lobby, restaurants, fitness center and other spaces, according to the JLL flyer. But what followed was a bumpy road after Hyatt Hotels in 2018 announced the acquisition of Talbott management company Two Roads Hospitality, bringing Two Roads' Joie de Vivre boutique hotel brand under the Hyatt umbrella. Shortly after that, the Talbott switched management companies again to Atlanta-based Davidson Hospitality's Pivot Hotels & Resorts brand. Such rapid shifts can impact staffing and room rate strategy, making it difficult for hotels to gain long-term traction with guests and clients.
Then came COVID, leaving almost all downtown hotels starving for business and facing what could be a long recovery to pre-pandemic levels of demand.
It's against that backdrop that the owners will find out what the market thinks the 16-story property is worth. The Sterling Bay-led venture refinanced the hotel in 2019 with a $45.9 million loan, according to Cook County property records, meaning the owners would have to sell the property for at least $260,000 per room to cover their debt.
Hotel sources familiar with the property say that would have been an easy feat before the pandemic, but the uncertainty surrounding the rates downtown hotels will command for the next several years make clearing that bar less certain today.
"Despite the upgrades, the hotel has consistently underperformed in recent years relative to both historical pre-renovation levels and with respect to its competitive peers," JLL said in the flyer, noting that an index of Talbott's average revenue per available room—a metric that accounts for a hotel's occupancy and room rate—was 89 percent during the two years after the renovation, compared with 97 percent during the two years before it.
"With the comprehensive improvements, the property should be performing well-above historical averages," JLL wrote.
The Talbott has historically gotten 80 percent of its bookings from leisure travelers, according to the flyer, a tourist segment that's expected to bounce back more quickly from the pandemic than corporate travel or visitation tied to meetings and events. The brokerage also contends the bottom line will grow with better "expense management" coming out of the pandemic.
The Talbott is also being marketed as an opportunity to rebrand the property and also bring in a new management company to replace Pivot. The hotel's lease with restaurant operator Prime by Butler can also be terminated without penalty in October if a buyer wanted to bring in a new food and beverage provider, according to the flyer.
A Sterling Bay spokeswoman declined to comment. Spokesmen for Geolo Capital and Wanxiang couldn't be reached.
Downtown hotels have been seeing gains in recent weeks as the weather has improved and COVID restrictions have been relaxed. Occupancy at downtown hotels that were open during the last week of May was 42 percent, the highest for any single week since the pandemic began, according to hospitality data and analytics company STR. That's still well below a typical pre-pandemic May occupancy rate above 80 percent but a big step up from the first year of the pandemic, when occupancy never rose higher than 27 percent for a single week.
That improvement should continue with Chicago and Illinois expected to remove all COVID-19 mitigation restrictions on June 11 and events returning to the McCormick Place convention center later this month.
Best known for redeveloping and owning prominent office buildings in Chicago, Sterling Bay made one of its first plays in the hotel space with the Talbott. It subsequently developed the Ace Hotel in the Fulton Market District and Hyatt House Chicago in the West Loop and is now developing a 47-story tower on Michigan Avenue that includes a 280-room citizenM hotel.
JLL hotel brokers Adam McGaughy and John Nugent are marketing the Talbott on behalf of the joint venture owners.
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Chicago Gold Coast hotel for sale by Sterling Bay - Crain's Chicago Business
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