Wyndham O'Hare hotel to close
(Crain's) - The 467-room Wyndham O'Hare is shutting down, the latest sign of trouble in a brutal Rosemont hotel market that has been squeezed by a surge in supply and a dramatic drop in demand.
The hotel at 6810 N. Mannheim Road will close on or about Jan. 1, says Jack vanHartesvelt, executive vice-president and principal at Kennedy Associates Real Estate Counsel L.P., a Seattle-based pension fund adviser that owns the hotel through an investment fund.
About 150 people who work at the Wyndham will lose their jobs.
"This is like losing one of your kids," he says. "It's unbelievable."
The Wyndham is the second suburban hotel this week to say it's closing.
On Monday, the Sheraton Chicago Northwest and CoCo Key water park in Arlington Heights disclosed plans to close Dec. 28.
Though hotels are suffering everywhere due to a drop in business and leisure travel, the O'Hare market has been hit especially hard.
Revenue per available room (RevPAR) at hotels near O'Hare International Airport fell 35.7% in the first six months of the year compared with the year-earlier period, the third biggest drop among all 617 U.S. hotel submarkets, according to a report in the October issue of Lodging Magazine.
The only worse submarkets were the Las Vegas strip, with a 36.4% decline, and North Las Vegas, with a 36.5% drop, according to the report by Jan Freitag, vice-president of global research at Smith Travel Research, a Tennessee-based research firm. RevPAR, which accounts for occupancy and room rate, is a key measure of a hotel's performance.
Compounding the drop in demand is a jump in the supply of hotel rooms near O'Hare. A 251-room Aloft hotel opened near the airport in July 2008, and the 556-room InterContinental Chicago O'Hare opened about two months later.
The developer of InterContinental filed for Chapter 11 bankruptcy protection in August, and a lender filed a foreclosure suit in September against the 141-room Best Western in Rosemont.
Another hotel nearby, the 525-room Westin O'Hare, is also facing debt problems: A $101-million loan on the property was transferred to a so-called special servicer earlier this year because it was in danger of "imminent default" and was no longer generating enough cash to cover debt payments.
While the increase in supply and drop in business travel have hurt hotels in the area, convention attendance in Rosemont has also been weak.
And the expansion of O'Hare has resulted in fewer stranded travelers who need a place to sleep while they wait for their next flight out of town, says Robert Habeeb, president and chief operating officer of First Hospitality Group Inc., a Rosemont-based hotel operator.
"All those factors have aggregated to make this an ugly year at the airport," he says.
Mr. vanHartesvelt says he's never had to close a hotel in his 35 years in the industry. The Kennedy Associates fund bought the Wyndham for about $25 million in 2003.
"It was a really hard decision to make because we like Chicago and we love the hotel," he says. "But we have a fiduciary obligation to (our investors) and we felt we had no choice."
RevPAR at the hotel has fallen 38% this year compared with last year, and the property can't cover its debt payments anymore, Mr. vanHartesvelt says. A $16.5 million loan on the hotel came due on Oct. 31.
San Diego National Bank was the original lender, but the bank was shut down by the Federal Deposit Insurance Corporation in October and its loans were transferred to Minneapolis-based lender U.S. Bank N.A., which is likely to take over the hotel.
"We're in the midst of those conversations right now," Mr. vanHartesvelt says. "I can tell you that it's friendly. Nobody's yelling at each other."
Kennedy Associates had asked the bank to fund the hotel's operating deficits over the winter, deciding to shut the hotel down after the bank denied the request, he says.
A U.S. Bank spokesman declines to discuss the matter, saying only: "It's not our decision to close it down. It's theirs."
Closing a hotel is a "stunning development" because it normally causes a major decrease in the value of the property, says attorney David Neff, a partner at Perkins Coie LLP who co-chairs the firm's hotels and leisure practice. That, in turn, could limit what U.S. Bank recovers in a sale of the property.
The drop in value also could offer a great deal for a buyer. Hotel brokerage firm Molinaro Koger has been hired to sell the property, Mr. vanHartesvelt says.
"Somebody's going to buy it and make one heck of a deal," he says.
The news "shocked" William Biggerstaff, secretary-treasurer of Unite Here Local 450, which represents about 107 workers at the Wyndham. The hotel may have violated state and federal laws by not notifying its employees 60 days in advance of the closing, he says.
But Mr. vanHartesvelt says the laws include provisions that allow employers to give less notice under certain circumstances.
"We're very focused on this issue," he says. "The union doesn't have all the facts."
