Chicago hotels brace for 2021 turmoil

Chicago is a great hotel town because it’s a great business meeting town.

The choices here for visitors are immense. In the days before COVID-19, you had your pick of history at the Palmer House, the old-money elegance of The Drake, the unapologetic luxury of the Peninsula, or the brash energy of newer and hipper lodging with the typical but wildly popular rooftop bar. Most are still open in a limited fashion.

With a downtown inventory of about 44,000 hotel rooms, Chicago offers incredible variety. Even the less preferred places have their uses. Want Michigan Avenue on a budget? Try the Congress Plaza Hotel. And you needn’t be a guest to get some benefits. Bill Kimpton, the late founder of the Kimpton Hotel & Restaurant Group, once recalled how as a young man working in Chicago he would duck into the dim lobby of the old Bismarck Hotel for a nap. Kimpton’s company eventually modernized the Bismarck and jazzed up the lobby.

It’s not weekend and holiday trippers or even drowsy locals who allow for all those choices. It’s business gatherings and conventions, a segment that’s been at a standstill since the start of the pandemic. It made for a lost year in the lodging trade for 2020, but this year may be worse for many owners.

With little cash coming in, many hotel owners are in default to creditors. Experts in the industry say bankers and other lenders to hotels are getting impatient as the pandemic stretches on. Beyond that, owners are faced with the prospect that meetings and conventions scheduled months from now will be canceled.

Industry consultant Ted Mandigo estimated 80% of owners he knows are in deep trouble, similar to the Palmer House, which has gone into foreclosure. “They’re all having conversations with lenders. These aren’t friendly conversations,” Mandigo said. He estimated that even with progress against COVID-19, hotels here will struggle to average 50% occupancy by late 2021 and maybe hit 60% in 2022, still lower than industry norms.

Preliminary data for December from travel research firm STR show just 15.7% of available downtown rooms were occupied, compared with 64.1% in December 2019. The revenue per available room last month ran an astonishingly low $18.04 per night. Hotels used to rake in more just from guests raiding the mini-bar.

For all of 2020 through November, STR said the downtown hotels had an occupancy rate of 28% versus 75% for the same stretch of 2019.

“A number of hotel and restaurant operators are hanging by the tip of their fingers, and they’ll lose their grip,” said Robert Habeeb, chief executive officer of Chicago-based Maverick Hotels & Restaurants, whose local properties include the new hotel at Navy Pier. The pandemic forced the Pier to close for the winter, and Habeeb said he still hopes to open the hotel around April 1.

Habeeb said his own firm is not in dire straits because it’s relatively young and without a debt overload. He’s also planning to open a hotel this spring in Chinatown.

He said the first quarter “will be a disaster.” Habeeb is hoping for good vaccine news and a pickup in leisure travel during the warmer weather. The big uncertainty, in his view, is the fourth quarter, when business travel usually predominates.

Regardless of where state mitigations stand, meeting planners are considering now whether they can have an event later this year. In the case of large conventions, “those stages and displays can take months to build,” said Michael Jacobson, CEO of the Illinois Hotel & Lodging Association.

“Everybody is praying and hoping for the acceleration of the vaccine rollout. Until that time comes, we’ll be in a world of hurt,” he said. But with lingering fears about travel or large crowds, Jacobson predicted it’ll be 2024 before Chicago hotels see business return to the pace of 2019.

What are the upshots of all this? More hard times for hotel workers, for one. Most have been sidelined since March, with many now counting on the enlarged and extended unemployment benefits Congress authorized at the end of 2020. Anyone in the construction trades tied to McCormick Place faces another lean year.

Also, Chicago could see some hotels close for good, although experts see most properties muddling through somehow, perhaps under new ownership. “The Palmer House will always be a hotel,” Habeeb said. “But it’s so huge that some parts of it could be redeveloped into something else.”

Blackstone Group and others in private equity are known to be gathering cash to buy hotels on the cheap.

In Jacobson’s view, there will be troublesome turbulence. While employees remain idle and small hotel owners are squeezed, investors with capital will profit as the industry recovers. “It comes down to the rich getting richer,” he said.

It sounds like a theme for our times.

Incoming traffic was slow Friday at the Hyatt Regency Chicago, 151 E. Wacker Drive, the city’s largest hotel.
Pat Nabong/Sun-Times

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