What The Elysian Sale Means
|For starters, it's one of the first sales of a Chicago five-star hotel, so it's a current price marker rather than an indicator of the future, said panelists at the Bisnow Hotel Summit at the Mid-America Club last week.
|Walton Street Capital's Justin Leonard said the Elysian traded at $500k per key, just above the estimated $400k per key reported for the James Hotel sale four years ago. But since we don't know how much of that $500k per key came from the operator, Hilton (which will change the hotel into a Waldorf-Astoria), it's hard to gauge whether the sale is a move forward for the Chicago market. Most hotels around the country are trading at 30% to 50% discount to replacement cost, Justin said, which means a lot of potential sellers aren't going to put their hotels on the market in the near future. (If you want to own a hotel soon, you may have better luck converting your dining room into a penthouse.)
|Hyatt's David Tarr agreed that Hilton was an enabler in the Elysian transaction, allowing the hotel to sell for a higher price than it would have otherwise. Average performance for hotels in the downtown luxury set, which includes the Elysian, is about $320-$340 average daily rate, with 60% - 70% occupancy on a rolling 12-month basis. David said that REITs had a lot of control in the market in the first half of 2011, driving up prices for hotel investors, but they pulled out as the stock market faltered, causing a lot of potential sellers to pull their assets off the market.
|Chicago is a good market for four- and five-star hotels, as well as branded three-stars, but there really hasn't been much unique or different here yet, said Aries Capital chairman & CEO Neil Freeman. Lately, he's been using historic or new market tax credits to develop or redevelop hotels, like the refurbished Waldorf-Astoria in New Orleans. These make sense because they can finance up to 30% of the project. Neil's favorite market in the US right now is New York, where many chains are building additional locations to supplement their Midtown flagships.
|New York is also a hotspot for LW Hospitality CEO Dan Lesser. He says there's no other city in the world with a major convention center without a big hotel near it. He predicted that the New York hotel stock would grow from 70,000 to 90,000 rooms within the next five years, with lots of growth occurring close to the Javits Center. Across the country, there are a lot of 30 to 50-year-old hotels that have become obsolete and will need to be renovated into newer hotels, offices, or apartments.
|Our sponsor Aries Capital is arranging financing on apartments and developing hotels. Aries' Eric Jones (left) just closed a 30-year , $2.3M loan for a 40-unit apartment complex in San Bernadino County, Calif. His colleague Andrew Wilson (right) is finding an operator for the hotel he's developing at the 17-story Chicago Motor Club near Wacker and Wabash, which Aries bought at auction earlier this year. He'll show off the historic home of the original AAA at a party on Jan. 19. They're joined by Miller Jennings Partners' Melissa Jennings and Andrea Miller and Aries' Jeff Bucaro.
|CBRE's Neil Pendleton and Fred Brandstrader flank Cini-Little's Armand Iaia and ECS Midwest's Peter Domenico. Armand is working on food service and laundry for a new hotel development at Grand and Clark in River North. The building will house three hotels (Aloft, Hyatt, and Courtyard by Marriott), each with its own lobby but sharing a laundry facility. (That used to be called a Brady Bunch.) ECS is working on the construction of the new Langham Hotel at 333 N Wabash. Peter said the project's design changed a little when the hotel switched operators last year but is still scheduled to open in 2013.
|VOA's Mark Pratt, right with colleague Michael Toolis and Green Redevelopment's Shawn Temple, just finished up redesigning and renovating the ballrooms at the Westin on Michigan Ave and is excited to go back to Brazil where he's developing select-service hotels in Rio de Janiero. VOA was one of the first to build hotels in Brazil, with the JW Marriott in Rio 17 years ago. There are still just 35,000 hotel rooms in the whole country, Mark tells us. When he's not working, you can find Mark in a churrascaria (portuguese for Brazilian steakhouse).