CHICAGO— The sale of two high-profile hotels in Chicago this spring— the 1,192-room Marriott Downtown Magnificent Mile and the 367-room House of Blues— are the latest in a string of transactions in the past year that has marked the Windy City as one of the country’s hottest hotel markets for upscale, upper upscale, and deluxe properties. Adding to the buzz, a number of high-visibility new construction hotel projects are either already under construction or have recently broken ground. Reversing The Trend Meanwhile, the current Chicago real estate success story is even more remarkable because the city in 2003 to 2004 experienced a sharp decline in the number of city-wide conventions that are any major destination’s bread-and-butter. Consequently, occupancy, ADR, and RevPAR growth stalled during that period, making buyers less eager to pay top dollar for lodging assets. But the situation might also have made sellers a bit more willing to compromise on price. Starting in mid-2005, however, the pace of city-wide bookings, which has always been cyclical, began to pick up and the performance metrics improved accordingly. In addition to the Marriott Downtown and House of Blues, the 1,639-room Palmer House Hilton, the 751-room Westin Michigan Avenue, the 311-room Le Méridien Chicago, the 165-room Hotel Cass, and the 143-room Fitzpatrick Chicago, among others, have all traded hands in the past 10 months. To acquire the Marriott Downtown property, Bethesda, MD-based DiamondRock Hospitality Co. paid $295 million plus approximately another $11 million in property taxes and other adjustments. The sellers were Chicago 540, LLC, a joint venture between Chicago-based LaSalle Hotel Partners and affiliates of the Carlyle Group, a Washington, DC-based private equity firm. Given that the hotel has 60,000-square feet of meeting space, DiamondRock’s timing is serendipitous with the rebound in the city’s convention fortunes. “We believe 2006 is stacking up as a potentially record convention year and 2007 should also be a strong year,” said president/COO John Williams. While LaSalle Hotel Partners has been a seller, it’s also been active as a buyer in its hometown, acquiring the House of Blues from HOB Entertainment for $114.5 million as well as the Westin Michigan Avenue from JER Partners for $214.7 million. Part of the House of Blues’ appeal is that the hotel comes with extensive retail and parking facilities that are components in the same Marina City mixed-use complex. In comments to LaSalle’s shareholders, chairman/CEO Jon Bortz pointed to the almost 900 parking spaces, in particular, as a smart investment in a downtown where parking is scarce. Ironically, the deal doesn’t include ownership rights to the music club for which the hotel is named. Those rights were retained by HOB Entertainment. Like the Marriott, House of Blues, and the Westin, the Palmer House and Hotel Cass are expected to retain their names under the new ownership. Hilton Hotels Corp., in fact, will retain the management contract on the 132-year old Palmer House, which was acquired last November by Thor Equities, LLC, for $230 million. Hilton actually was the owner of the property and was selling as part of a larger asset sale program. Hilton had owned the hotel since 1945. The Hotel Cass is another historic hotel that had been in the hands of a single owner—in this case the local Nyberg family— for about the same amount of time. An affiliate of the Oxford Capital Group, LLC, acquired the property for an undisclosed price and plans to position it as upper-upscale, lifestyle hotel. By contrast, the Le Méridien and the Fitzpatrick are being re-branded by their new owners. Upon acquiring the Le Méridien last November for a reported $90 million, Chicago-based Lodging Capital Partners (LCP), LLC, quickly awarded the management contract to Hilton Hotels Corp.’s and re-branded the hotel a Conrad. According to LCP principal Steve Kisielica, the firm is especially interested in acquiring luxury properties in high-barrier-to-entry markets. Chicago qualified and, after a significant investment in renovations and implementation of Conrad’s deluxe service standards, so will the former Le Méridien. The Fitzpatrick was acquired by New York-based Denihan Hospitality Group for a reported $28.6 million from Fitzpatrick U.S. Hotels, whose parent company is based in Dublin, Ireland. Denihan, which had been eager to expand outside New York, renamed the hotel the Affinia Chicago after one of its New York brands. Strong Performance Smith Travel Research analyst Duane Vinson confirmed that during the first quarter of 2006 Chicago hotels performed strongly, in fact outperforming the average for the country’s Top 25 markets. “RevPAR growth, for example, was up 20.8% for the quarter, compared to the same period a year ago. By comparison, RevPAR growth for the Top 25 was up 11.4%. To some degree though it’s an easy comparison since the convention business was only just beginning to rebound a year ago,” Vinson said. Topping the list of new construction projects are two mixed-use developments: the 92-story, 286-room Trump International Hotel & Tower, Chicago, overlooking the Chicago River, and the 90-story, 222-room Shangri-La Hotel Chicago, being built a few blocks away. When they open in 2009, the two towers will be the second and fifth tallest buildings in the city, respectively.