Dec. 31, 2006 - Behind the scaffolding and the sheets of plywood that obscure the facade of the former Lenox Suites Hotel at Rush and Ontario Streets in Chicago, some 260 construction workers are engaged in a $56 million gut rehab.

When the 16-story blond brick structure reopens in late February or early March as a high-end boutique hotel with a stylish lounge called J Bar, a steakhouse by celebrity chef David Burke and a swanky gym, it will be known as the James Chicago.

Not familiar with the name?

It is one of a burgeoning number of new brands being rolled out in Chicago and across the nation as the hospitality industry moves solidly into expansion mode.

"At this stage in the cycle, it's very common for new brands to be introduced," said Patrick Ford, president of Lodging Econometrics in Portsmouth, N.H. "Traditionally, they get created after a recovery has gone on long enough to be a confirmed trend."

Chicago has been later to the recovery party than the major metro areas on either coast, but 2006 has the potential to be a banner year, particularly for downtown properties. In the suburbs, the climb to full recovery is expected to be longer.

Due to a rebound in business travel and a strong convention lineup, downtown hotel occupancy rates should increase by 2 percent, while room rates should climb 7 percent, according to estimates by Ted Mandigo, an Elmhurst-based hotel consultant.

"This should bring us back almost to the point where we would've been if we hadn't had a recession," Mandigo said.

Through November, the 2005 downtown occupancy rate was a healthy 71.6 percent, up 3.3 percent over the year-ago period, and the average daily room rate was $157.98, up 8.4 percent, according to Smith Travel Research.

The upswing in the hotel sector feeds other travel-related industries.

"If the hotels are filled, people need to eat in restaurants," said Grant DePorter, managing partner at Harry Caray's Restaurant and chairman of the Illinois Restaurant Association. "It's one of those years when everything is in alignment."

Of course, there are potential snags. Hotel worker contracts expire in 2006, nationwide competition for convention business remains fierce, and the hospitality industry is vulnerable to a range of potential shocks, from terrorism to weather disasters.

But because a recovery is well under way, an eclectic array of new brands and brand extensions is bubbling up, many making high-design, high-tech plays for affluent 30- and 40-somethings.

At the very upscale end, a number of properties are being repositioned under new brands. They include the Lenox Suites as the James; the former Le Meridien as a Conrad, a Hilton brand known overseas but just gaining a name domestically; and Hotel 71 as a Solis, a brand launched this fall by a New York company headed by Ritz-Carlton veteran Horst Schulze.

In the midpriced range, the newcomers are piling up as well. Global Hyatt Corp. is rolling out Hyatt Place, a high-tech remake of the AmeriSuites brand it acquired in late 2004. The first test hotel is under construction in Lombard. Within five years, Hyatt hopes to have 400 open or in development.

Starwood Hotels & Resorts Worldwide Inc. this fall unveiled Aloft as a budget-minded, loft-like alternative to its stylish W Hotels. At the same time, NYLO Hotels, a newcomer led by alums from Starwood and Cendant, announced its own loft-style product. Neither brand has announced plans in this market, though observers expect they will.

Meanwhile, InterContinental Hotels Group, which introduced the Indigo boutique brand in 2004, this month began operating its second location in this market, in Palatine.

The list goes on, creating a lot of noise, which will make it difficult for new brands to make themselves seen and heard.

Use of flashy color, plasma-screen televisions, high-quality linens and the like have become standard fare, said Scott Steilen, principal at Warnick & Co., a hotel advisory firm.

Particularly in the middle market, newcomers "will fight for share," Steilen said. "It's harder to distinguish yourself on service. It's a more price-point-driven market."

Brands rolled out by major hotel companies should have an edge, given that they have existing sales and marketing machines, said Ace Lanahan, vice president with Philipsborn Co., a Chicago mortgage banking firm. And because of their size, the chains often have lower fixed costs, Lanahan said.

"Unless a new brand can acquire critical mass quickly ... it will become for sale," he said. "It will take a year or two or three to see who emerges as the strong players."

The founding partners of James Hotels challenge the notion that the big chains have an edge, at least in the realm of boutique hotels.

"They will not understand the complexity of a successful boutique hotel," said Stephen Hanson, president of B.R. Guest, a well-regarded New York restaurant company that opened Blue Water Grill in Chicago this year.

Hanson and Danny Errico, founder of Equinox Fitness Clubs, launched the brand in 2004 with a sleek and sexy resort in Scottsdale, Arizona's historic Old Town.

Since then, they brought in Brad Wilson, a founder of Starwood's W Hotels Worldwide, and have retooled the brand to fit into a business-oriented urban market, with Chicago being the first. They plan to follow with hotels in New York, Los Angeles and Miami, aiming for five to 10 properties by 2011.

"Our advantage is that we're coming in before the others," said Wilson, who takes pride in the small touches, such as dimmer switches in the guest rooms and the designer bath products.

"This is the fun part," he said, holding a bottle of amber Etienne Aigner shampoo up against chocolate brown tiles to show how well the colors work together.

Though a brand shakeout may be coming down the road, the parade of new names is just beginning, and after a long drought it's a welcome sight to the tourism industry.

With the economic recovery, organizers of major trade shows are finding room supplies to be tight, said Bill Utter, acting chief executive of the Chicago Convention and Tourism Bureau.

"And we always want to be competitive with other major destinations on room capacity," Utter said.

[email protected]

-----

Copyright (c) 2005, Chicago Tribune

Distributed by Knight Ridder/Tribune Business News. For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail [email protected]. Unknown:STH, NYSE:NWY, Unknown:HGH, NYSE:HOT, NYSE:CD, NYSE:IHG, Bombay:526558, XETRA:AIG,