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Hotel Results Stalling Tower Tear-Down

CHICAGO-Replacing the north tower at the InterContinental Chicago is moving to the back burner as new owner Strategic Hotels & Resorts Inc. sees strong performance at the 792-room asset at 505 N. Michigan Ave. However, the company is bringing a concept that has proven extremely profitable at its Ritz-Carlton Half Moon Bay in California.

By Mark Ruda | Updated on May 04, 2006

CHICAGO-Two luxury hotels here, as well as a property in Miami, have exceeded Strategic Hotels & Resorts Inc.’s in their first year in the company’s portfolio. Indeed, improved hotel performance is causing Strategic Hotels & Resorts to rethink when to start construction of a 70-story tower at the InterContinental Chicago at 535 N. Michigan Ave.

Revenue per available room jumped 34% to $167.03 during the first three months of the year at the InterContinental Chicago at 505 N. Michigan Ave., compared to the first quarter of 2005, when it was under different ownership. Average occupancy jumped nearly 10 percentage points to 62.3%. Meanwhile, the company continues to seek city approval for a 70-story mixed-use building to replace the hotel’s north tower, but indicates it is hardly a short-term project.

“We think this makes sense, as the entitlements would be in effect for several years, it will continue to add flexibility and value to the property,” says executive vice president of asset management Richard J. Moreau during his company’s first-quarter conference call. “However, the economics are tougher to justify today as operating performance has accelerated and the value, based on some recent comparable sales of this property, has risen. So we would retain the entitlement, hold off on development of the tower for now as we evaluate construction costs, prices for this unique type of product, as well as the overall performance of the hotel.”

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