The hotel will have approximately 17,000 sf for meetings and events, including a 5,000-sf ballroom. Additionally, it will have a 9,000-sf restaurant, a lobby bar, wine room, fitness center, indoor pool and spa. The Getty's Group Inc., based here, is designing the hotel. A brand for the hotel has not been decided yet, with a decision expected later this year on either a brand or an independent operator. Possible brands include St. Regis, Waldorf-Astoria Collection, Taj, Jumeirah and Plaza, Loeb says. "Those are luxury brands that are not in Chicago that we think would be logical in that location," he says. It is also quite possible that it would be an independent hotel, he says. Construction on the hotel is expected to begin in the second or third quarter this year, and the hotel is expected to open in 2010, Weger says.

The recent designation as a City of Chicago Landmark and Class L status allows for reduced real estate taxes as the assessed value of the property is reduced by 50% per year for a 10-year period, says Jeffrey Patterson, president and CEO of Prime Group. Baird is projecting that the hotel will stabilize with around 10% earnings before interest, taxes, depreciation and amortization yield, or a 9% net operating income yield.

The venture may also have $10 million to $15 million of tax credits that could be sold on the open market, according to Loeb in a recent note about the company. "I think a hotel like that generally takes three years after opening to get full stabilization," Loeb says. With that yield, between $50 million and $70 million of value creation is possible, according to Loeb in the note.

The building is near the Chicago River, the Michigan Avenue Corridor and is adjacent to Hotel Sax Chicago, which is also owned by LaSalle Hotel Properties. Other hotels in the immediate area include Westin River North, Trump International Hotel and Tower and Renaissance Chicago Hotel in addition to the proposed Shangri-la Hotel. While there is a concentration in that area, the number of luxury rooms "is not a big number," Loeb says. "Los Angeles and New York [City], two larger cities, have a substantially larger proportion of luxury rooms." The area has a concentration because of the river views the location affords, its proximity to the Loop and River North business areas and the relative proximity to McCormick Place, he says.

Prime Group decided to sell the floors because "I think the economics ultimately were better for us than trying to hold 350,000 sf of low-rise office space and try to release it over time," Patterson tells GlobeSt.com. The remaining floors of the 1.5-million-sf-building, approximately 1.1 million sf, will remain office space and is currently 87% occupied, he says. The property has executive underground parking spaces and an adjacent 11-story parking garage with 902 parking spaces. The asking lease rate for the building is between $20 and $26 per sf, net, Patterson says. One of the major tenants in the building is Jenner & Block, which will vacate its space by moving to 383,000 sf at 353 N. Clark St. in April 2010.

Besides the renovation of part of the building for the hotel, the office portion of the building will also be renovated by Prime. The company has already recently completed the cleaning and restoration of the exterior plaza granite and the lobby's granite, travertine walls and mosaic ceiling. The building will also receive new signage, renovation of the lobby lighting, redevelopment of the elevator cabs and new heating ventilation and air conditioning, security and fire systems in addition to a green roof. When Jenner and Block vacates the top 10 floors of the building, the floors will be completed renovated, including the washrooms, creating a block with new space, he says. The estimated cost for the base building improvements is around $10 million, Patterson tells GlobeSt.com. Prime Group paid off an existing $195-million loan for the building with the proceeds from the sales of the floors and financing from ING and GE Capital, he says. The sale of the floors and conversion to a luxury hotel "is the big first step in repositioning the building and modernizing it," he says.