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Hard Rock Hotel Chicago, a Joint Venture Between the Rank
 Group and Sol Melia, Opening at an Unconventional
 Location, Stiff Competition
By Kathy Bergen, Chicago Tribune
Knight Ridder/Tribune Business News

Oct. 1, 2003 - After traveling a long and winding road for the past three years, Hard Rock Hotel Chicago will burst onto the scene by year-end, adding a high-energy boutique hotel to a sleepy stretch of North Michigan Avenue.

But the overhanging clouds are heavy: A higher than expected cost for development; a later than expected opening date; an unconventional location; and a cutthroat landscape as the economic environment remains weak.

"It's a very competitive market, with a lot of package plans and discounting, and if they are going to get attention, they will need to join that fray," said Ted Mandigo, owner of T.R. Mandigo, a hotel consulting firm in Elmhurst.

Kit Pappas, the general manager, professes to be undaunted.

"We've made a huge investment in the property, and we know it won't be paid off tomorrow," he said. "Chicago is a vibrant, strong, popular destination, and long-term, we will do very well."

The price tag for transforming the Carbide and Carbon Building, a 1929 Art Deco granite and terra cotta tower, into a sleek, modern hotel with upgraded furnishings and amenities is coming in at $106 million, or 23 percent more than the $86 million originally expected. It is aiming for a four-star rating, Pappas said.

The original investors kicked in another $20 million. Those investors include the Rank Group, the Great Britain-based owner of the Hard Rock brand; Mark IV Realty, a Chicago firm that was also a partner in the redevelopment of Marina City, anchored by a House of Blues Hotel; and Becker Ventures LLC, a Detroit investment firm chaired by former auto parts-maker Charles Becker.

"This extends the period of time before they will get venture-capital-type returns," Mandigo said.

Typically it takes three to five years for a high-quality hotel to break even, he said, adding that this project might come in at the long end.

The 40-story hotel at 230 N. Michigan Ave. will open in late December, several months later than initially anticipated, meaning the debut will occur in the dead of winter. Those are the weakest months for Chicago hoteliers, who are still struggling to climb back from the industry swoon that started in 2001.

Delays came about because it took longer than expected to get construction permits for overhauling the historic structure, Pappas said. The building's terra cotta facade, like many of its era downtown, needed a massive remake.

One potential problem stemming from the delayed start, observers say, is that opening room rates will need to be set at a level appropriate for slow winter months, and then will have to be raised later in the year.

"People will say, 'Oh, wait a minute,'" Mandigo said.

As yet, room rates have not been announced. The music-oriented hotel, which is expected to employ 230, will include 381 rooms and 13 suites. It's on a relatively quiet slice of Michigan Avenue, between the Chicago River and Randolph Street, and that's something of a question mark, too.

"That's never been a mainstream hotel location ... so it's yet to see how it will fare," said Brian Flanagan, president of Property Valuation Advisors, a Chicago-based real estate consultant.

Pappas contends the location is nothing short of spectacular.

"We are within a five-to-10-minute walk of every major corporation in Chicago," he said.

The hotel also is walking distance to shopping on North Michigan Avenue, to the walkway along the river, and to Millennium Park, Grant Park and the Art Institute of Chicago.

The property will be an eclectic mix of old and new. While preserving the historic character of the exterior and portions of the interior, including the Michigan Avenue entranceway, much of the interior was gutted and rebuilt.

The guest rooms, in subtle tones of gray with zebrawood furnishings, will offer 27-inch flat-screen televisions, CD/DVD entertainment systems, Nintendo game stations, high-speed Internet access and wireless technology.

The lobby music will include varying genres of rock 'n' roll, but most rock-star memorabilia will be reserved for the elevator foyers.

The complex also will include a China Bar & Grill, one of financier Jeffery Chodorow's splashy pan-Asian spots; a Hard Rock store; a ballroom; and 11 meeting rooms, each named for a legendary guitar brand and showcasing a primo guitar.

The hotel project represents a new direction for Hard Rock, which up to now has only licensed its brand name for use by hotels.

The Chicago hotel is the first project undertaken by a joint venture formed in July between Rank Group and Sol Melia Hotels & Resorts, a company based in Spain that owns or operates 350 hotels worldwide.

"This is the first time where Hard Rock will be part of the management and operations, with Sol Melia," Pappas said. "And it's a first in an urban location."

Sol Melia will provide a range of sales, systems and back-office functions.

For now, the interior look at the property is "watch-your-head construction zone," with 200 construction workers racing to get the hotel finished by year-end.

The project is bringing up the rear on a hotel-construction boom that started to taper off in the past year.

When the dust settles, it will find itself competing against a rich mix of boutique hotels downtown, from the House of Blues to the W hotels to the Monaco, Burnham and Allegro.

"We face formidable competitors," Pappas said. "But with what we offer ... I'm confident we'll perform well here."

"We have some natural advantages," he said. "We have a built-in brand, which will assist in the ramping-up time."

-----To see more of the Chicago Tribune, or to subscribe to the newspaper, go to http://www.chicago.tribune.com/

(c) 2003, Chicago Tribune. Distributed by Knight Ridder/Tribune Business News. RANKY, RNK, SOL,

 
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