CHICAGO-Strategic Hotels & Resorts Inc. plans to buyout its joint venture partner on the InterContinental Chicago. The local REIT will acquire the 49% interest currently owned by the Government of Singapore Investment Corporation.
Strategic Hotels will fund the acquisition with roughly 10.8 million shares of common stock at an agreed upon issuance price of $6.50 per share and $11.8 million of cash consideration plus closing adjustments for working capital. The transaction values the hotel at $288.3 million, or $364,000 per key, according to a statement from the REIT.
The 792-room InterContinental Chicago is located in the Magnificent Mile shopping district. The luxury hotel consists of two towers – a 42-story historic tower and a 26-story main tower – and features 42,000 square feet of function space including six historic ballrooms and 30 meeting rooms. It also features an ENO wine tasting room and a Starbucks franchise on Michigan Avenue. A new Michael Jordan-themed steakhouse is scheduled to open later this year in the hotel.
“The InterContinental Chicago is the certainly the highest profile trade in the Chicago area in at least three years,” says Adam McGaughy, an executive vice president with Jones Lang LaSalle Hotels. “Anytime there’s a trade in the high $300,000 per key range, it’s notable. And there aren’t assets like this in terms of size and brand positioning on Michigan Avenue.”
McGaughy tells GlobeSt.com that most hotels that are of similar quality and irreplaceable locations are not usually owned it partnership structures. “The deal isn’t anything that the market expected, but it makes sense that Strategic Hotels would want to buy out its partner,” he says. “I think it saw an opportunity to acquire at a basis that is very attractive.”
In the last 10 months, in addition to the InterContinental Chicago, the W City Center traded for $350,000 a key and the Westin River North sold for $390,000 a key, McGaughy notes. “If you take a look at the two other big trades, [the price Strategic Hotels paid] seems like a pretty fair trade,” he notes. “It lines up appropriately with the other trades.”
McGaughy says Strategic Hotels’ acquisition provides another useful metric for hotel pricing in the local market. “We don’t have a lot of trades, and while we know we have not 100% rebounded, it’s difficult to ascertain what the pricing needs to be,” he says. “It helps to know how the REITs are valuing properties.”
Strategic Hotels says the acquisition price implies a 14.1 times multiple on forecasted 2011 EBITDA and an 11.0 times multiple on peak (2007) EBITDA.
“With this transaction, we are able to preserve our ownership in this vital asset on attractive terms, while singularly benefitting from the tremendous upside inherent in the hotel's luxury lodging and current and future dining offerings,” says Laurence Geller, CEO of Strategic Hotels. The REIT currently has ownership interests in 17 properties with a total of 7,762 rooms.
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
