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Urban Hotels Make a Comeback

Urban Hotels Make a Comeback
Strategic Hotels' Laurence Geller thinks Chicago will fare just fine in the current bifurcated hotel market, where urban business hotels are gaining ground as others struggle. Smart marketing and cutbacks have kept his hotels "hanging on by their fingernails," and now they're starting to grow again, he told over 200 at Bisnow's Chicago Hotel Summit yesterday.
Laurence Gellar and Gene Leone
Laurence, interviewed at the Mid-America by Pircher Nichols' Gene Leone, said he came from England in 1976 to head the international branch of Holiday Inn, wearing a pink felt suit, hair down to his shoulders, and high-heeled boots (soon to be the standard uniform at Bisnow). He started Strategic Hotels in 1997 and took it public in 2004. Going public is an acquired taste, he said. He realized as the recession hit that he would have to start implementing certain policies that hotel chains didn't like—he cut each hotel's five- to seven-person executive committee by two, which saved $500k per hotel per year. Now, as room rates are rising again, he encourages hotel owners to stop marketing only to Baby Boomers and start reaching out to Gen Xers (using Gen Y technology like social media and mobile apps).
Superior Spaces JMini
Scott Greenberg
One company that's using social media to its advantage is ECD Corp. President Scott Greenberg tells us the company's Wit Hotel has been marketing to the younger crowd, gaining the Wit more than 25k "likes" on Facebook (but we can still beat them at Words With Friends). But online travel-booking sites like Expedia and Trip Advisor are taking a larger chunk of hotel operating costs than they used to. Scott said he's not a big hotel investor but the ones he does hold eventually yield 9% to 12% IRR.
Michael Coolidge
There's no such thing as a free breakfast, but travelers still love to think they're getting one, says Watermark Capital's Michael Coolidge. That's why select-service hotels are able to charge almost as much as full-service hotels but get more visitors. Michael anticipates that in secondary markets, this segment will be the next craze in hotel investment. For full-service hotels, he says owners can make more money by upselling or upbranding—having a high-class restaurant or spa or a big brand name will cause guests to pay more during their stay at a luxury hotel than at mid-level lodging.
John Rutledge
Oxford Capital Group's John Rutledge looked into his crystal ball, revealing that Chicago would have slow but steady growth over the next three to five years, with RevPAR rising by 7% to 9% per year. (When asked for a Bears prediction, his crystal ball exploded.) This means the market will reach its prior peak around 2015. And while he's heard some say that Chicago has already reached that point because the Elysian Hotel traded at $500k per key last month (a new high), he doesn't see it that way. The cost to build the hotel was close to $1M per key, so it traded at just 50% of replacement cost. While the hotel hasn't made money yet, John thinks it will make money as part of the Hilton system (once it becomes a Waldorf-Astoria on Feb. 1).
200 at Hotel Summit
Thanks to all of you who joined us. If you didn't make it, try our Data Center Boom event next week at the Westin River North.
Register here!
Barry Bloom
Boston University's Barry Bloom says Chicago may be more challenged than we thought over the next few quarters (oddly, winter isn't the best time to fill hotel rooms). The wealth of supply in some of the B submarkets like O'Hare and Oak Brook doesn't bode well for the downtown because it erodes base demand for rooms. The good news? He's seen lots of investors looking to buy distressed assets in Chicago like Hotel 71 or the Allerton, which could draw more visitors downtown if they were improved.
Roger Hill
"Whenever we've developed like drunken sailors, it's usually not ended up being a good thing for us," says Gettys' Roger Hill. (We shouldn't be operating boats in that state anyway.) Thankfully, supply has been kept under control on the CRE side during this recession, he said. The lack of development has meant that there's a variety of properties trading hands, including the Elysian Hotel, a new boutique in progress at 230 N Michigan, and the three-hotel building being developed at Grand and Clark, Roger says.
Urban Hotels Make a Comeback
Thanks a bunch to our sponsor, ConEdison Solutions! We snapped Tom Krol and Hajra Lakhany at their table yesterday morning. Tom says lots of hotel chains across the country have saved money on their electricity needs just by asking ConEd for help.