|By Thomas A. Corfman, Chicago Tribune|
Knight Ridder/Tribune Business News
Feb. 28, 2005 - The InterContinental Chicago, one of the Magnificent Mile's best-known hotels, is being sold for top dollar amid signs of a significant rebound in business travel to the city.
Chicago-based Strategic Hotel Capital Inc. is expected to announce Monday that it has a contract to buy a controlling interest in the classic Art Deco structure at 505 N. Michigan Ave., the firm's chief executive Laurence Geller, said Sunday.
The transaction values the historic 807-room upscale hotel at more than $170 million, or in excess of $210,000 a room, making it one of the richest deals for a Chicago hotel in recent memory.
Strategic Hotel's plans for the InterContinental also include a retail redevelopment that would add stores to its ground level. "We are very comfortable that there are things to do with the asset, improvements we can do, that will just make us more money," Geller said.
Occupancy rates that are improving because of an improving economy are helping drive demand for premier hotels in Chicago and throughout the nation, lodging experts say.
"The uptick is coming in hotels, and the buyers are looking to take advantage of the upside," said hotel consultant Ted Mandigo, president of T.R. Mandigo & Co. of Elmhurst, which is not involved in the deal.
The InterContinental would be the second hotel on North Michigan Avenue to change owners this year. The Westin Michigan Avenue, 909 N. Michigan Ave, was sold last month to JER Partners of McLean, Va., for $137 million, or roughly $180,000 per room.
Two other prominent downtown hotels are also on the market: the Chicago Fairmont Hotel, 200 N. Columbus Drive, near Millennium Park, and the Palmer House Hilton in the Loop.
With its purchase of the InterContinental, Strategic Hotel Capital picks up a property with a rich history in Chicago. Built in 1929 as the Medinah Athletic Club, its ornate swimming pool is considered one of the city's architectural gems.
The building was used by the Shriners until 1934, when the club went bankrupt.
It reopened as a hotel and went through a succession of owners over the years. In 1961 Sheraton Hotels added a 26-story north tower that differs greatly in design from the original 42-story structure. In 2002 the hotel underwent an $80 million renovation that included a new four-story rotunda entranceway.
London-based InterContinental Hotels Group PLC has owned the property since 1988. But last year, the hotel giant began selling off the bulk of its ownership portfolio to return cash to shareholders and refocus the company on franchising and hotel management.
Also included in the deal for the Chicago hotel is a 641-room hotel overlooking Miami's Biscayne Bay. Strategic would pay about $263.5 million for an 85 percent interest in both properties.
The Chicago InterContinental is estimated to cost more, on a per-room basis, than the Florida property, but the company declined to detail the value of each hotel.
As a part of the deal, InterContinental is retaining a 15 percent stake and will continue to manage the hotels.
Strategic, which had an initial public offering of stock last year, has ownership interest in 15 hotels totaling nearly 6,200 rooms, including Marriott hotels in Lincolnshire and Schaumburg.
In downtown Chicago, the annual average hotel occupancy rate edged up to 70.6 percent in 2004, compared with to 70.1 percent in 2003. Downtown room rates last year averaged nearly $155 a night, virtually unchanged compared with 2003, and substantially less than rates at InterContinental, where single rooms range from $179 to $209 a night.
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