Chicago Sees Boom In Upscale, Deluxe Properties

When the 556-room W Hotel Chicago Lakeshore opened in October, it capped a busy year for new upscale and deluxe hotel development in the Windy City. In fact, the Lakeshore property was the second W to open in the city in recent months—the 390-room W Hotel Chicago City Center debuted in June. Along with this design-conscious Starwood Hotels & Resorts Worldwide brand, recent high-end Chicago hotel openings include the 339-room Peninsula Hotel Chicago and the 311-room Le Meridien, both of which opened their doors this summer, and the 455-suite Embassy Suites Hotel Chicago Downtown Lakefront, which debuted in September.

Given the strength of the market 18 months to 24 months ago, when these new builds or major renovation projects got underway, hotel marketing executives hardly could have imagined that occupancies and room revenues would drop so precipitously by opening day. Yet, they remain confident that the weak national economy and setbacks following Sept. 11 are behind them and that business travel is on the rebound.

For buyers, the number of new upscale and deluxe hotels is encouraging because it increases their negotiating leverage. Particularly when citywide occupancies and room revenues already are depressed, new hotels are much more likely to offer favorable rates in order to build visibility.

Chicago's lodging industry performance for September, usually a peak month for business travel, confirmed the severity of the situation. Occupancy rates were down 28.2 percent over the prior year, while room revenues were down 35.4 percent. At the same time, such other U.S. gateway cities as Boston, Los Angeles and San Francisco experienced similar declines.

Considering the reduced parameters, some of the new hotels are performing well. "The W Lakeshore opened to a full house and its initial market share is strong," said Peter Zudyk, complex director of sales and marketing for both Chicago Ws. "As Ws have opened around the country, the brand has created a certain positive buzz. Consequently, there was a lot of expectation when we opened not one, but two new properties in quick succession."

As for saturating the market, Zudyk said that Chicago was a deep enough market to support two Ws. "Each property is located in a distinct part of the city," he said. "While each is edgy in a way consistent with all the Ws, each is also distinct from the other."

Chicago as a business travel market also is distinct from other gateway cities.

"New York and Los Angeles, for example, tend to draw nationally, while a lot of Chicago business travel is regional," said Peter Finamore, general manager of the Peninsula Chicago. "As a result, we're seeing a lot of business from St. Louis, Milwaukee and as far north as Detroit, which is helping until the overall market improves."

In light of the soft economy, hotels are eager to reinforce their value proposition. "As always, two-room suites deliver added value for business travelers because they can use the second room to work or meet clients," said Steve Jung, general manager of the Embassy Suites Chicago, the second largest Embassy Suites in the system.

Other upscale and deluxe hotels, meanwhile, remain under construction. Ireland-based Fitzpatrick Hotels is in the midst of converting an all-suite property on East Superior Street into its first U.S. property outside of New York, while the 415-room Sofitel Chicago Water Tower is scheduled to open next summer.

For their part, hoteliers at established properties remain upbeat.

"Business travel volume is out there, you just need to be creative to get it," said Norbert Vas, director of sales and marketing at the 285-room Omni Ambassador East Hotel.