Hotel planned in Aqua tower
Strategic Hotels to spend $100 million
By Susan Diesenhouse
Tribune staff reporter
Published September 29, 2006
Strategic Hotels & Resorts Inc. will invest about $100 million for a new, luxury all-suites hotel downtown near Millennium Park, with views of Lake Michigan.
On Wednesday, Strategic agreed to pay $82.4 million for the first 15 floors of the $475 million Aqua residential tower to be built by Magellan Development LLC at its sprawling mixed-use project called Lakeshore East.
The Chicago-based hotelier plans to invest another $20 million to outfit the interior of spacious suites ranging from 550 to 900 square feet.
The hotel will be next to, and linked by underground passages to, the Fairmont Hotel, 200 N. Columbus Dr., which the hospitality real estate investment trust purchased last year. The new facility, which is to included a ballroom and outdoor terrace, will be part of the Fairmont complex but have its own identity.
"This is a stunning deal for us," said Laurence Geller, president and chief executive of Strategic. "Essentially, we bought 213 residential units from Magellan."
Strategic will purchase the space after Magellan completes construction of Aqua. Once furnished, the total cost of the suites for Strategic will be about $400 per square foot, said Geller, whose company has spent about $3 billion in the past 18 months buying and developing North American hotel properties.
James Loewenberg, co-chairman of Magellan, said, "This is the exciting first step in developing hotel rooms on our 28-acre site."
Lakeshore East plans call for 16 buildings set around a sunken park that has a new roadway leading to Millennium Park. It may have up to 4,500 residential units, 1,200 hotel rooms and 2 million square feet of offices.
Construction on the 82-story Aqua is set to start this fall and be ready for occupancy in three years. In addition to the hotel rooms, it will have 285 condominium units, 483 rental apartments, 45,000 square feet of retail and 40,000 square feet of offices, Loewenberg said.
The new hotel accommodations will be welcome since few have been built downtown in recent years, said Brian Flanagan, president of Property Valuation Advisors Inc., an appraisal and consulting firm with expertise in the hospitality industry.
Downtown Chicago's existing 30,057 rooms have experienced improving financial performance since 2002. At the end of that year, the overall occupancy rate was 66.2 percent. This year through August it was 75.1 percent.
The average revenue per unit at year-end 2002 was $102.90, compared with $137.06 this year, an improvement of about 35 percent.
While the vast majority of existing accommodations are north of the Chicago River, that is changing.
"Hotel developers in the know believe that this area south of the river is a strong submarket," Flanagan said.
This week the city approved the site plan for the Mandarin Oriental Tower, Chicago, which Palladian Development LLC will build just north of Millennium Park. It is also set for completion in 2009.
Meanwhile, the large suites that Strategic is planning reflect a national trend of offering larger units, said Michael Sullivan, a managing director at HVS Capital Corp., the investment banking arm of HVS International of New York.
Compared with older hotel suites in the 500-square-foot range, larger ones generate much more income, he said.
"Strategic's new project will pivot off the Fairmont and add a premium of 30 to 35 percent," Sullivan said.
"It will make us a lot of money," Strategic's Geller said. "I wish it was there today."
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