There is no asking price for the nine-story property on the southeast corner of Franklin and Madison streets, but a source familiar with the offer said the building could bring in offers of more than 48 million dollars, or at least $200,000 per room.
The listing comes as the downtown hotel market struggles to recover from a pandemic malaise, given Chicago’s heavy reliance on business travel and convention and trade show-related visitors who, until present, do not attract the same crowds as before the crisis. Average downtown hotel occupancy last year was 43%, up dramatically from 27% in 2020 but still well below the 2019 average of 74%, according to the data company and of hotel analysis STR.
However, the pain was not the same for all hotels. Unlike large, full-service properties that rely heavily on group activities and events, limited-service and selective brands like La Quinta at the lower end of the hotel chain have performed better, often attracting travelers from hobbies which rebounded faster than the corporate side. Investors noted that 74% of hotel sales nationwide last month were for limited-service properties, compared to a monthly average of around 33% between 2015 and 2019, according to data from research firm Real. Capital Analytics.
Highgate and Cerberus, which took over the Loop Hotel with their recent $1.5 billion acquisition of real estate investment fund CorePoint Lodging, hope to find a buyer looking to bet on the strength of the limited service and the post-pandemic return of the Loop. Hodges markets the hotel as an opportunity to install new management and possibly rebrand it through an option to terminate La Quinta affiliation.
The hotel generated free cash flow of just over $912,000 in 2021, according to Bloomberg data tied to a loan covering CorePoint’s portfolio. The loan was bundled with other loans and sold to commercial mortgage-backed securities investors. This is a substantial improvement from the $1.8 million in net cash losses in 2020, but well below the $3.2 million generated in 2019, according to loan data.
It is unclear how much capital CorePoint had invested in the property during its tenure of ownership. The building itself dates back to 1958 when it was built as the headquarters of the Jewish Federation of Metropolitan Chicago. It served that purpose until 2006, when the federation moved out and the property was sold to La Quinta, which converted it into its downtown flagship and opened the hotel in 2009.
Spokespersons for the vendors could not be reached.
La Quinta is a block south of a Hyatt Place hotel in the Loop that sold in 2016 for nearly $74 million, or nearly $360,000 per room. Another promising deal came last year at the Residence Inn on LaSalle Street in the Loop, where Chicago developer Michael Reschke completed a major refinancing despite the pandemic hampering demand.
But some downtown hotels have sold cheaply in recent months, especially those owned by REITs. Sunstone Hotel Investors, based in Irvine, Calif., recently sold Embassy Suites Chicago Downtown and Hilton Garden Inn Magnificent Mile in River North for a combined total of approximately $178,000 per room. This deal followed the sale of the Hyatt Centric Chicago Magnificent Mile in Streeterville for $167,000 per room. Sunstone executives recently cast Chicago in a harsh light, noting on a conference call with analysts that the market “has been hampered by oversupply and an inability to generate meaningful rate and profitability growth.”
A factor at play for all downtown hotels is that property taxes are expected to rise on downtown commercial properties after being reassessed by Cook County Assessor Fritz Kaegi last year. Investors won’t experience the full financial pain of these reassessments until the next batch of property tax bills are released.
Ryan Lindgren of Hodges Ward Elliott’s Chicago office markets the hotel on behalf of Highgate and Cerberus.