Foreign capital is a major factor in Chicago's ongoing hotel boom. And two panelists at Bisnow's Hospitality Boom? Chicago Hotel and Investment panel Dec. 10 at Trump Hotel are leading the way.
ECD Co and SMASH Hotels president Scott Greenberg (center, with Clark Hill's Don Schindler and Hotel Appraisers & Advisers' Hans Detlefsen) has found success lining up EB-5 investors for the Marriott Autograph in Streeterville. He set up GoUSA EB-5 Regional Center to access that funding pool, which can be difficult to do. It's helped Scott build direct relationships with Chinese and other foreign sources of capital, which he believes will be a key source of funding in the future.
That easy access to lenders (foreign and domestic) is the biggest difference Scott sees in this hotel cycle. The growth of the hotel industry in recent years, a stronger economy, Chicago’s rising tourism numbers and higher RevPAR have investors flocking to the hotel sector looking for marquee projects. Scott says when ECD built the Wit hotel (pictured) in 2008, he leveraged 80% through banks. Not anymore: for his upcoming Streeterville Marriott, he got enough equity to only take on 60% to 65%. But Scott's worried that the abundance of capital could lead to too much development; he says there’s a risk of oversaturation in the downtown hotel market with all the projects in the pipeline. He believes the city’s growth can keep it at bay, but if a project is overleveraged, developers will find the road difficult if there's a downturn.
Geller Investments founder Laurence Geller says developers need to view foreign investors as the rings of the planet Saturn. You have to time when they align in order to court them. Much of that timing will depend on the strength of the economy at a given moment. Laurence considers his Chinese partners, Wanxiang America Real Estate, more like institutional partners who invest in projects around the world. Wanxiang also opens Laurence up to the Chinese travel market.
Laurence's Chicago’s hotel market has segmented itself in interesting ways. There’s the luxury market in the Loop. East of Michigan Avenue are the big-box meeting hotels. Streeterville’s hotels are boutique-focused, with limited service and driven by price sensitivity. Then there are the projects along the Chicago River, highlighted by Trump Hotel, the Langham, Westin, Renaissance and Oxford Capital’s upcoming Londonhouse. Laurence says if you segregate yourself in any of these markets, you can compete with yourself and bust through any rate barrier. Example: his Waldorf Astoria Chicago is up against the Peninsula and Four Seasons. Laurence believes the city’s economy will continue to flourish, depending on what happens with the ongoing budget stalemate in Springfield, but that Chicago’s hotel sector will be undersupplied by 2018. To learn more, please attend Bisnow's Hospitality Boom! Chicago Hotel and Investment event at the Trump Hotel, Thursday, Dec. 10, at 7am. Register here.
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