News for the Hospitality Executive
|By Kathy Bergen, Chicago Tribune
Knight Ridder/Tribune Business News
Feb. 1, 2004 - Public displays of optimism have been few and far between in the hotel business since 2001.
But on Monday, unabashed hopefulness will have its day when Hostmark Hospitality Group rolls out a new brand of boutique hotel, the Amalfi, in River North.
The 215-room hotel named for the sun-dappled Amalfi Coast in southern Italy will open in the dead of winter, just as the hospitality industry is beginning to climb out of the deep freeze that set in more than two years ago.
In fact, the debut is merely the most visible sign of confidence at Hostmark, an independent hotel management firm based in Schaumburg that is well-regarded in the industry but virtually unknown to the general public.
The family-run company expects significantly heightened activity on several other fronts, too, as hotel owners seek help in turning around distressed properties or in scouting out cut-rate acquisitions.
"Our earnings have been flat for 18 to 20 months because of the state of the industry, but we're expecting a pop this year, a 5 to 10 percent increase in earnings," said C.A. "Bud" Cataldo, who heads the privately held company that is one of the largest of its kind in the nation, with an estimated $191 million in sales last year.
"I think we've weathered the bad part of the economic cycle and the next five years should see a growth pattern," said Cataldo, chairman and chief executive.
His upbeat voice is part of a growing chorus within the still-shaky industry.
Growth plans at his 30-year-old company speak volumes about where the battered hospitality industry may be headed this year and next if the economy continues to recover.
The creation of the Amalfi Hotel is emblematic in two respects.
It is a boutique-style hotel, part of a growing niche that held up better than some others during the downturn. And it is a retrofit, which means it could be brought to market more quickly and cheaply than a new property--a key factor in today's hotel marketplace.
"As long as room rates are at 1998 levels and the replacement costs for hotels are substantially above market value, the only way to enter with a new product is to do a retrofit, or to acquire a property and change the brand, or to upgrade an existing product," said hotel consultant Ted Mandigo.
"I can't see a new full-service hotel development occurring in downtown markets, unless it's subsidized by a government entity," Mandigo said.
Kinzie Street Hotel Investors LLC, a group that includes representatives of the Cataldo family, Jupiter Realty Corp. and the Joel Stone family, of Stone-Levy LLC, invested $6 million to remake the property, which had served as hotel housing for United Airlines flight crews.
The investor group rents the property, which occupies the first six floors of the 17-story Dearborn Plaza, 20 W. Kinzie St., from the Alter Group, which owns the building. And the Kinzie investor group picked Hostmark to operate the hotel.
Decorated in rich earth tones, with wave-motif wallpaper and carpeting, and with vintage-style photographs of the Amalfi Coast in each room, the property strives for an Italian flavor.
It will provide personalized, concierge-level service to each customer, said Robert J. Cataldo, president and chief operating officer of Hostmark, and Bud Cataldo's brother.
"This is for the guest who can't afford the Peninsula, the Ritz or the Four Seasons," said Bud Cataldo. "They want that feel, but they can't spend $300 to $400 a day to stay."
Rates will be in the neighborhood of $200, Robert Cataldo said.
Still, the Amalfi is "stepping into a very competitive market, and without a brand identity, it will take longer to build repeat business and gain an identity," said Mandigo, owner of TR Mandigo & Co. in Elmhurst.
While its arrival follows a relative lull in hotel openings, it will go head-to-head with a handful of downtown boutique hotels that sprouted during the past six years.
Among them are Hotel Burnham, Hotel Monaco Chicago and Hotel Allegro, which are Kimpton properties; W Chicago City Center and W Chicago Lakeshore, both Starwood properties; and House of Blues Hotel. The Hard Rock Hotel, another retrofit, opened this month.
As a niche, these sorts of properties performed better than the market as a whole last year. Occupancy averaged 68.2 percent, almost a percentage point better than the overall downtown market, while revenue per available room, a key measure of profitability, was $108.86 per day, more than $10 greater than the market average, according to Smith Travel Research.
The boutique hotels "provide a kind of unique experience, yet still are convenient to restaurants and office buildings," said Peter Gloodt, a Hinsdale-based hotel consultant and appraiser. "And none of them aimed for $300 average daily rates--they didn't outprice themselves."
While rival boutique hotels may not relish the prospect of greater competition, some see a potential upside.
"In the long term, a developing market can be beneficial, enabling the city to accommodate more travelers," said Edward Baten, general manager of W Chicago City Center.
"Anything that adds a little splash and makes people look away from the big gray boxes ... could bring us business down the road," said Chris Johnson, general manager of Hotel Burnham, which saw its best year in 2003, with an occupancy rate of over 80 percent.
The Cataldo family understands it faces a challenge in establishing a strong brand identity.
"That's the hardest part," said Robert Cataldo.
Still, the family estimates the hotel will reach profitability in its second year, and it hopes to export the brand to a half-dozen other cities within five years.
Meanwhile, Hostmark expects growth in particular segments of its business will boost revenue by at least 10 percent this year, to $210 million, pulling the company out of the stasis of the past few years and moving it within shouting distance of the $223 million chalked up in 2000.
The company manages 32 hotel properties, with a total of 10,000 rooms. It runs operations at franchises, including such brands as Holiday Inn, Hilton and Ramada, and at independents, such as Montauk Yacht Club in New York and Lake Lawn Resort in Delavan, Wis.
In the next year, Hostmark expects increasing numbers of hotel investors will be looking to buy struggling properties, and then seeking a management firm to refurbish and reposition the properties.
"We will be looking for acquisitions for clients, maybe 10 to 15 hotels in the next three to five years," said Cataldo. "And we would stay on as managers."
A sister real estate company, Hostmark Investors LP, also will be seeking acquisitions with joint venture partners, said Jerome Cataldo, executive vice president at Hostmark Hospitality and son of Bud Cataldo.
"Hostmark will not be alone with this strategy," said William Marks, an analyst with JMP Securities LLC, noting that the big hotel chains--the Hiltons, Starwoods and Marriotts of the world--also will be looking for good buys.
Still, it is a promising strategy at this point in the economic cycle, Mandigo said.
"The market is indeed inching back up, and they are positioning themselves to be ready to take advantage of that by buying in at the bottom or the front end of the uptick," he said. "They are in a good position."Photos for the Tribune by Erik Unger
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