Chicago Moves Through Recession, Builds For Future

Chicago's first-quarter reopening of a renovated hotel and announcements that another hotel renovation and a new construction soon would begin illustrate that the Windy City's lodging community is moving beyond the present recession and building for the future.

Adding to the upbeat mood, managers at established deluxe and upscale hotels, the Four Seasons Chicago and the Omni Ambassador East Hotel, respectively, this month reported positive projections for the second quarter, particularly for individual business travel.

CIBC lodging analyst Paul Keung confirmed that Chicago hotels have been suffering from the economic turndown and the effects of Sept. 11. Along with other such U.S. gateway destinations as Boston, New York, San Francisco and Washington, D.C., revenue per available room, an important indicator of hotel profitability, has fallen significantly in Chicago compared with a year ago.

"Yet the rate of the decline, while still serious, has moderated," Keung said. In January, for example, Chicago RevPAR was down 17 percent over the prior year, compared with the precipitous drop of 40.9 percent in September. The 17 percent decline in January also compared favorably to the month's RevPAR drop in San Francisco (41 percent), Washington, D.C., (30.9 percent) and Boston (28.3 percent).

Given Chicago's prominence as a business center, many buyers continue to bring a significant number of room nights there this year, despite the cutbacks in travel budgets. Location remains a high priority with buyers gravitating toward properties on or within easy access to Michigan Avenue.

The Fitzpatrick Chicago is the downtown hotel that opened 100 rooms last month with 40 additional rooms and suites scheduled to open by the end of May. The property, which is a renovation of a former Summerfield Suites, is located off of Michigan Avenue on East Superior Street.

"January and February were very bad for Chicago hotels overall, but forward bookings for us are coming in strong now," said John Fitzpatrick, president and CEO of the Irish-themed Fitzpatrick Hotel Group, which also owns two properties in New York. "Also positive is that rates in the city have begun to climb in the past three or four weeks along with the occupancy numbers," he said, noting, however, that it "will be a long time till we get back to where we were."

The Fitzpatrick's rooms feature canopied beds and bright colors, "something slightly different for Chicago that business travelers are responding to favorably." Included as well are such amenities as cordless two-line telephones and dataports that business travelers have come to expect.

In January, the Boykin Lodging Co., which owns 33 hotels in 19 U.S. states, announced a renovation of the former 40-story Executive Plaza Hotel, which sits prominently on the Chicago River at East Wacker Drive. The new hotel has not yet been named, but other properties in the Cleveland-based Boykin's portfolio operate under Hilton, Marriott and Radisson flags, among others. "The renovation of the hotel coincides with the city's plans for restoring the area, including adding a new park directly in front of the hotel," said Boykin chairman Robert Boykin.

This summer, Baymont Inns & Suites, a midprice chain based in Milwaukee, is scheduled to begin construction on a 226-room property on the corner of Rush and Ontario streets. The opening is slated for fall 2003.

"Opening in downtown Chicago is part of our strategy of going into more urban markets," said Baymont president and COO Jim Abrahamson. "Across the brand, we've upgraded the room product to include working desks and other amenities suited for business travelers."

After a slow first quarter, business travel is returning to established hotels in the market. "The second quarter is more promising, though the lead time for reservations has shortened," said Lisa Bailey, director of marketing at the 343-room Four Seasons on Delaware Place. Where lead time was seven days to 21 days, it's now as short as three days to 10 days, she said.

"April occupancies are already higher than last April," said Norbert Vas, director of sales and marketing at the 285-room Omni Ambassador East on North State Parkway off Lakeshore Drive. Meanwhile, room rates, which many hotels had cut in recent months in an effort to boost demand, are rising. "Rates are catching up, though they're still below last year," he said.

In terms of group business, a litmus test of the strength of the market has been the upcoming National Restaurant Association meeting. "It's the first city-wide since Sept. 11 that is picking up the full room count it had booked," he said.

Since the effect of the recession was first felt almost a year ago, hotels have learned how to deal with it. "Take the short lead times, for example," Bailey said. "We have history now. We were prepared for it."

A challenge for hotels at Four Seasons' price point has been not to resort to eliminating staff or cut back in other ways due to the downturn. "We definitely haven't compromised our levels of service," she said.

As further evidence of their optimistic sense of the market, both Four Seasons and the Omni Ambassador East are in the midst of capital improvement: an upgraded spa at the Four Seasons and a new business center and guest elevators at the Omni.