New Chicago Hotels Bring Excess Capacity, Bargains

While long-term prospects for Chicago's hotel operators are difficult to predict, the advantages to business travelers now seeking top quality rooms at moderate rates are crystal clear.

According to several industry observers, reduced room demand and a spate of new properties—particularly in the luxury segment—have made Chicago as much a bargain as it is likely to be.

Ted Mandigo, a veteran area hotel consultant, said deals must be achieved via negotiation, not by adhering to published rates. He is confident that those willing to bargain "should do surprisingly well."

According to the 2003 Zagat Guide to top U. S. hotels, the best of the best are well represented in Chicago. In fact, it is home to three of the book's top four choices: the Peninsula, Four Seasons and Ritz-Carlton.

The Peninsula, which opened in June 2001, is one of the entries that recently added some 1,400 upscale rooms to Chicago's inventory. "Planned with rosy glasses, in the time immediately preceding the extraordinary year 2000," Mandigo said, "these properties reflect an optimism that's not very evident right now."

Mandigo said downtown Chicago average daily rates are down about 6 percent from last year, which he attributed to reduced business and leisure travel due to everything that has been going on in the world, as well as Internet offers battering average rates.

"Hotels in Chicago and elsewhere are feeling real competition from rates on the Web, particularly those offered by third-party sites," he said. "That, in turn, is particularly hurting convention hotels, which are seeing increasing numbers of association attendees acquiring their space not from pre-booked blocks arranged by associations but directly from the Internet."

He continued, "Many hotels report that association blocks are seeing slippages of 8 percent to 10 percent off the number of rooms they guaranteed. Clearly this hurts the hotel since the benefits it offers a group—in terms of meeting space, food and other amenities—are based upon the assured sale at an assured price of a certain volume of rooms."

Brian Flanagan, president of Property Valuation Advisors, a commercial real estate appraisal and consulting firm, said, "Despite the double whammy of recession and terrorist attacks, we are now seeing a return to historic travel patterns. People are realizing they must return to business and attend conventions. Advanced hotel bookings for next year are very strong, and I wouldn't be surprised to see Chicago enjoying the numbers it did in 2000, sometime in 2003."

Anticipating better days ahead, and cognizant of the need to better compete against new upscale properties, a number of older favorites have invested heavily in upgrades. Among them was the 800-room Hotel InterContinental on North Michigan Avenue. The property spent $70 million during 2001 overhauling its exterior, lobby, guest rooms, elevators, heating and air conditioning systems and meeting spaces.

These moves were critical, said Steve Marx, president of Hotel Source Inc. Longstanding properties such as this "changed to become something new, or they've played on their history, enabling them to compete that way. Whatever path they chose, they recognized the need to stay competitive against the newer properties."

This proved to be extremely vital for the InterContinental, which saw three hotels with a total of 903 rooms—a Homewood Suites, Hilton Garden Inn and Le Meridien—open within its immediate area between June 1999 and May 2001.

Another noteworthy renovation was recently completed at Chicago's 254-room Essex Inn on Michigan Avenue. The $12 million effort produced updated guest rooms, a new business center and fitness center and a new rooftop garden featuring a 48,000-gallon pool in an enclosure that permits, according to the hotel, "year-round swimming in a tropical environment."

Also, the 450-room Hotel 71 just has completed a $20 million makeover that management said will enhance its appeal to business travelers. Once known as the Executive Plaza Hotel, the property at 71 East Wacker Drive features ergonomic desk chairs, free high-speed Internet access, eight boardroom suites, 10,000 square feet of meeting and event spaces and a central business location on the south side of the Chicago River.

Bill Utter, vice president of marketing for the Chicago Convention and Tourism Bureau, said his optimism about Chicago's rebound and renewed prosperity has been enhanced due to the "extraordinary diversification of our hotel product during the past few years." Utter emphasized that the broad-based influx of everything from boutique upscale properties and renovated historic sites to an infusion of moderately priced new entries as well as world-class luxury standouts means the city has greatly spread its appeal.

"This is a big improvement over the years when the city was almost completely dominated by large convention hotels," he said. "Now we have everything a traveler, whatever his or her budget, might want."