Suburban Chicago hotel market begins to stir

Hotel sales in the Chicago suburbs are expected to pick up this year after a long slog back from the downturn, Real Estate Alert reports. Some trades in the past several months show that investor interest has been revived, and that’s expected to prompt more owners to list their properties. Buyers are reportedly attracted by relatively high capitalization rates on hotels that have potential for revenue growth, as room rates are beginning to rise.

Adam McGaughy, a managing director at Jones Lang LaSalle, anticipates “a continued acceleration of larger hotels being taken to market” in the suburbs this year. Including downtown Chicago, where several large properties are on the market, the brokerage projects as much as $1 billion of Chicago-area hotels will trade in 2014.

The markets surrounding the city were among the hardest hit by the crash, as an oversupply of new rooms combined with cutbacks in travel to send occupancy rates, and revenue, plunging. Numerous hotels were seized by lenders, and several were shuttered.

Since then, demand for rooms has slowly come back into balance with supply. For example, in the O’Hare Airport submarket, the occupancy rate reached 73.8 percent for the first 10 months of last year, up from 55 percent at the market bottom, in 2009, according to research firm STR. Meanwhile, there is little construction in the suburban pipeline.

“The perception of the market is that demand continues to be strong, there is stability and new supply is in check,” said Rick Rogovin, VP of hotel investments at Dow Hotel Co.

Expectations are that more owners will list properties this year. Jones Lang soon will begin marketing the 556-room InterContinental O’Hare Hotel in Rosemont, which opened in 2008 and was seized by its lender in 2011.

After a record $386.9 million of hotel sales in 2007, suburban Chicago saw only a handful of trades over the next five years. Activity began to stir last year, with three deals totaling $127 million, according to Real Estate Alert’s Deal Database, which tracks transactions of $25 million and up.