Q&A: Geller Capital’s Eamon Smith talks investment, Chicago outlook

Chicago-based Geller Capital Partners was founded by the inimitable Laurence Geller, a legend in the hospitality investment space, who established his company after leaving Strategic Hotels & Resorts in November of 2012.

In 2015, Geller Capital, along with a Chinese investor, acquired the 188-room Waldorf Astoria Chicago from Sam Zell for $113 million, or $600,000 per key. The group is now focused on the opening of the Conrad Chicago at 101 E. Erie St., just west of Michigan Avenue. In 2014, a venture led by Geller paid $34.2 million for the 20-story, 227,600-square-foot building, formerly the home of advertising agency DraftFCB. The hotel is expected to open imminently.

Highly involved with these project is Eamon Smith, managing director of acquisitions for Geller Capital Partners. He will be speaking at NATHIC Midwest, presented by Questex Hospitality Group, Nov. 16-17, at the InterContinental Chicago Magnificent Mile.

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Ahead of the conference, Smith sat down with HOTEL MANAGEMENT to discuss investment opportunities in the city and Chicago’s short- and long-term outlook.

1. What type of product is Geller Capital looking to invest in?

Smith: We target high-end hotels in top 25 MSA markets. By high-end, I mean full-service to luxury. The hotels in our portfolio right now are the Waldorf Astoria here in Chicago; the Marriott Georgetown in Washington, D.C.; and our under-development project, which is a 289-room Conrad on Michigan Avenue here in Chicago.

We target hotels typically not dissimilar to what our portfolio was at Strategic Hotels: city-center, high-end luxury hotels. Then, if the opportunity presents itself, resorts in select markets with high barriers to entry.

2. What are some Midwest markets that Geller is looking to invest in and why?

Smith: Obviously, Chicago. We will look at opportunities and be opportunistic in that regard. From a Midwest standpoint, Milwaukee is interesting and Minneapolis as well. Mostly it’s given the demand—lots of Fortune 500 companies. Established cities we can get into that have high barriers to entry is how we target it. Cities like Indianapolis are a little more difficult for us because they’re not that difficult to build hotels—in Kansas City and St. Louis, as well. We’re looking for cities that we like the supply-demand dynamics.

We’re looking at a deal right now in St. Louis, but it’s a redevelopment strategy more than an actual hotel acquisition. We’ll look at certain markets where we feel there’s an opportunity, but for pure acquisition and operating hotels, it's Chicago, Minneapolis and maybe Milwaukee.

3. What does Geller currently have in its pipeline?

Smith: We have a number of things in the pipeline, but nothing that I would want to bring up at this time.

Eamon Smith of Geller Capital Partners

4. Geller Capital Partners is based in Chicago. Can you give insight on the hotel industry in Chicago—is there any cause for concern or is it holding strong?

Smith: It’s holding pretty strong. 2017 looks better than 2016. Obviously there’s a lot of new supply in the pipeline that’s trickling in. We feel really good where our Conrad is from a location standpoint and the strength of brand being backed by the Hilton reservation system. 2016 is not going to be as strong as 2017, as the convention calendar is a lot stronger looking forward. But we’re hitting all-time-high demand numbers. On the other side of that, there is new supply coming into the city. Overall, the outlook for Chicago is good, but I do get concerned about the media and the highlight of violence and some of the pressures on average rates here as the city tries to take its pound of flesh from a rooms tax standpoint.

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5. Where do you think we are in the current cycle?

Smith: It's hard to generalize from a national standpoint. Individual markets are at different points in the cycle. New York, for example, has had a lot of supply and really hasn’t even reached its previous peak—the 2007/2008 peak—from an ADR and occupancy standpoint.

With regard to Chicago, there will be growth in the future, but not at the levels they were at in the past five years. It will be a function of the supply being absorbed, but long-term Chicago will be a market where there’s a lot of growth. Similar to what some of the smaller secondary and tertiary markets have seen—Nashville, for example. From a relative basis, it’s a lot cheaper than some of the coastal cities. For example, a $500 room rate in New York City is to be expected, but here in Chicago, there’s inverse sticker shock when folks are used to paying those prices to come and see the space they get and the relative value. A lot of it comes to marketing the city appropriately to the right groups and pushing through that invisible rate ceiling.

6. In May, Laurence Geller and Lou Raizin presented the idea of aerial gondolas running along the Chicago River to Navy Pier. Can you speak to plans on that? Is it something that they are working toward?

Smith: I’ve been involved in the project, and I’m very familiar. You look at the research and cities around the world that are global cities, whether it be London with the London Eye or Singapore with a similar-type gondola transit system…and some of those really unique tourism assets are extremely important in marketing the city.

The plans and the view from Lou and Laurence’s perspective, and I would share it, is that Chicago needs that. Navy Pier is not going to drive any significant incremental demand as it stands now. The burden of marketing Chicago has fallen largely on the hotels here; not on the city, in general.

Another disappointment was about the disagreement with the Lucas Museum that was supposed to come here. A great tourism asset, a billion dollars of investment that would have created a lot of jobs, and the city trips over itself.

A project like the skyline would be a wonderful addition to the city and really leverage the Chicago River and a city of high-rises and big shoulders. Being able to finance a project without a dime of city money, while bringing all the benefits that would come from increased tourism, and the multiplier effect on those dollars that would come into the city as it relates to restaurants, hotels, cabs, etc., can be a really special project.

Join Eamon Smith and others as they discuss investment, development, financing and more at NATHIC Midwest, Nov. 16-17, 2016, at the InterContinental Chicago Magnificent Mile. To learn more and register, visit www.nathic.com.

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