Hotel Online  Special Report


Unite Here Alleges the Developer of Chicago's
Shangri-La Hotel Violating Securties Law
By Alby Gallun, November. 13, 2006

Marketing tactics at some downtown condominium-hotel projects have caught the eye of state regulators, who are investigating allegations that developers violated securities laws by touting the investment potential of their rooms.

The projects under scrutiny include the proposed Shangri-La Hotel, being constructed at 111 W. Wacker Drive, which includes 222 condo-hotel units and 233 residential condos. The Illinois Securities Department is acting on a recent complaint by Unite Here Local 1, which represents downtown hotel workers, says Steven Donald, a researcher with the local.

"We've looked at a number of these offerings," says department Director Tanya Solov, declining to confirm individual investigations. "We haven't taken any action, but we do have open inquiries."

Condo-hotels, which allow investors to own a room and earn income by renting it out when they're not there, have become a hot real estate concept here and around the country.

Yet developers can run afoul of securities laws if they emphasize potential investment returns on hotel units to prospective buyers without complying with the registration and disclosure requirements of state and federal regulations. Unite Here alleges that Teng & Associates Inc., the Chicago-based developer of the Shangri-La, crossed the line by providing potential buyers with marketing materials for Shangri-La Hotels and projections of monthly rental income for its condo-hotel rooms.

"It was overpromotion of the profit potential of the hotel," Mr. Donald says.

If the Securities Department agrees, buyers who have signed contracts for units at the hotel would have the right to back out, legal experts say.

Teng President and CEO Ivan J. Dvorak declines to discuss the union's allegations, saying he hasn't had time to review them. He calls the securities complaint "harassment" by the union.

The union wants to organize workers at the Shangri-La, and Mr. Donald says Teng has taken an "anti-union posture" by refusing to discuss labor issues. Mr. Dvorak says he's not anti-union but believes such issues should be addressed by the hotel operator, Hong Kong-based Shangri-La Hotels & Resorts.

©2006 by Crain Communications Inc.


Steven Donald
Research Analyst
55 W. Van Buren, Suite 400
Chicago, IL 60605
tel: (312) 663-4373

Also See: Ground Broken for 90-Story Waterview Tower and the Five-Star Shangri-La Hotel, Chicago; High Rise Set to Become Fifth Tallest Building in Chicago / January 2006
Shangri-La Hotels Selected as Operator for 200-room Condominium Hotel Within the 90-story Waterview Tower Development in Chicago / October 2005

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