|By Kathy Bergen, Chicago
TribuneMcClatchy-Tribune Regional News
Aug. 3, 2007 - After trumpeting the completion of the $882 million West Building addition Thursday, a top McCormick Place official disclosed preliminary plans for another jumbo expansion that could include a 1,500-room hotel located on the block directly north of the newly opened hall.
The Metropolitan Pier and Exposition Authority board on Tuesday is expected to consider exercising its eminent domain powers to condemn the block, clearing the way for a project that would more than double the convention center's on-site hotel offerings, Ted Tetzlaff, chairman of the board, said in an interview. Other elements could include more parking for McCormick Place, restaurants and other businesses.
This bold but risk-laden project would be in addition to the planned 600-room expansion of the Hyatt Regency McCormick Place, an 800-room property owned by the authority, which is known as McPier. The agency is expected to request development proposals for the Hyatt expansion shortly, with a contract likely to be awarded late this year or early next.
"Our big customers want big blocks of hotel rooms, some of which need to be at the convention facility," Tetzlaff said after ribbon-cutting ceremonies for the West Building. Even with another 1,500 rooms or more on the campus, Chicago still would lag many competitors in terms of on-site hotel availability, he said. Rosemont, for example, has 8,000 rooms near its convention hall, he said.
"We believe we're losing business because we can't house people overnight," he said in an earlier discussion of hotel needs.
A manager of one of Chicago's largest trade shows says she thinks the show is losing attendance due to tight hotel supply. "We use 16,000 rooms on peak, and we could use another 2,000 to 3,000," said Mary Pat Heftman, of the National Restaurant Association's annual show at McCormick Place.
Potential attendees who cannot find rooms "either don't come or they stay out by the airport," she said, "and I'm confident many are choosing not to come, which limits growth for the city."
The block in question is bounded by Cermak Road on the south, Prairie Avenue on the east, 21st Street on the north and Indiana Avenue on the west. Part of it is occupied by a bank branch, a parking garage and a brownstone home; part of it is vacant.
At least some of the parcel is owned by Maine-based developers Pam Gleichman and Karl Norberg, who last fall had proposed their own mixed use for the property, including 350 residential units, a 200-room hotel and a 475-spot parking garage, according to a posted notice of a zoning change request.
They did not respond to requests for comment.
Pulling off a hotel expansion at McCormick Place will be anything but a cakewalk, observers say. South Loop redevelopment is expanding southward rapidly, but the immediate McCormick Place area remains devoid of restaurants, night spots and retail.
"Without that, anyone there is basically serving the convention business," said Ted Mandigo, a hotel consultant based in Elmhurst. And that is a business with extreme peaks and valleys.
"If this project has entertainment, restaurants, food service, retail, something with residential, then they will have created a neighborhood, which will enable the property to serve more than one business source," he said.
McPier might be better off "doing infrastructure improvements in the transportation linkages between McCormick Place and the Loop," said hospitality industry observer Ace Lanahan, a vice president with Philipsborn Co.
Others note that on-campus hotels are becoming de rigueur for convention centers. "They are competing against other convention centers that have attached hotels," said Mark Eble, regional vice president for PKF Consulting.
And the existing Hyatt Regency, despite a feast-or-famine business cycle, is a cash cow for McPier, in part because public financing kept borrowing costs below what they would have been in the private market.
The hotel "averages $18 million to $20 million a year in operating income for us, which is very significant," McPier Chief Executive Juan Ochoa said.
"Convention centers typically don't make money, that's in all cities, but where we can and do make money is our hotel," said John Belcik, chief financial officer.
McPier projects that the Hyatt addition and a separate new hotel will swell annual operating income significantly. But the figure will depend on the ultimate scale of a new hotel and on the funding mechanism that is worked out. While the 1,500-room hotel idea is on the table, the authority also is considering a much smaller proposal, to build a new 400-room hotel on the existing campus.
The authority is asking the Illinois General Assembly for approval to restructure its debt stemming from previous expansions, including the West Building, because tourism taxes are falling short of debt service needs. The restructuring also would give McPier the ability to issue up to $350 million more in bonds backed by tourism taxes, which could be used to finance expansion of hotel facilities.
The Hyatt expansion is expected to cost roughly $145 million, which would leave close to $200 million for a second project.
If the legislature nixes the restructuring, McPier would have to borrow at higher rates in the private market and depend on hotel revenue to pay down debt, reducing operating income from the hotels.
By expanding on-site hotel offerings, the authority also risks taking business from downtown hotels. "I've have seen it happen in a number of cases," said Heywood Sanders, a professor of public administration at the University of Texas at San Antonio.
Belcik said the authority does hope to grab more market share, but that slice is more likely to come from hotels in outlying suburbs, which get overflow during conventions.
And, he said, "We're making it more convenient for our customers."
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