24 jun 09 | Crain's
Sears Tower owners propose 5-star hotel
by Todd J. Behme
Amidst the sharpest downturn in the local hotel market since the 2001 terrorist attacks, Sears Tower's ownership group announced high-flying plans Wednesday to build a five-star hotel next to the 110-story skyscraper.
The 50-story, 500-room hotel would be at the corner of Wacker Drive and Jackson Boulevard on a site that is currently a plaza for the 3.8-million square foot structure. At a cost of up to $225 million, the hotel would be designed by Adrian Smith [with design partner Gordon Gill], whose recent projects include Trump International Hotel & Tower.
The hotel would set new standards for environmentally friendly construction, John Huston, executive vice-president of American Landmark Properties Ltd., one of Sears Tower's owners, said at a press conference Wednesday morning.
The owners, who also include New York investors Joseph Chetrit and Joseph Moinian, are also planning a "green" renovation of Sears Tower, 233 S. Wacker Drive, including replacing the building's windows, that would cost at least $350 million, Mr. Huston said.
Financing is not in place for either proposal, Mr. Huston said. This summer, the building will be renamed after London-based insurance broker Willis Group Holdings Ltd.
The proposal comes as the Chicago market is suffering through a deep slump, and construction financing for major projects has dried up. Even in a thriving economy, the Sears Tower hotel plan would face fierce challenges.
Although Wacker Drive is a prestigious business address, the site is "woefully inadequate" for a five-star hotel because of the distance from trendy restaurants and nightlife attractions, says Brian Flanagan, president of Property Valuation Advisors, a Chicago-based appraisal and hotel consulting firm.
Moreover, with 500 rooms the proposed hotel is much too large -- under 300 rooms is more typical, Mr. Flanagan says.
J. Paul Beitler, president of Chicago-based Beitler Real Estate Corp., who once planned a hotel at 301 S. Wacker Drive, also doubted that a five-star hotel would be successful at that location because of unproven demand for amenities such as ballrooms and meeting rooms.
A business hotel with a casual lobby environment would do well, says Mr. Beitler, based on studies done for the 301 S. Wacker plan.
During the press conference, Mr. Huston said demand already exists for a hotel there but acknowledged that Sears Tower's owners are looking past the current recession.
"We're building a hotel for a market three to five years from now."
In a press release, the owners say, "The hotel will fill a critical need in the West Loop and provide a much-welcomed facility for existing building tenants."
A hotel company and brand for the proposed hotel have not been selected.
An application for a zoning change has already been filed with the city, Mr. Huston added.
Sears Tower's owners are looking at a variety of sources to fund the so-called "sustainability" he said, declining to specifically say if they will seek a tax-increment financing subsidy.
"We are talking to the city of Chicago about various programs," he said.
The owners do not anticipate bringing new equity partners into the Sears Tower, Mr. Huston said.
Asked whether the sustainability renovation would go ahead even if the hotel does not, Mr. Huston said the owners want to do both.
The renovation, being designed by Chicago-based Adrian Smith + Gordon Gill Architecture, would save 150,000 barrels of oil a year, according to the news release.
The owners do not plan to paint the building silver, an idea that Mr. Huston admitted the ownership group considered earlier this year.
Mr. Huston also took the opportunity to defend an agreement to rename the building after Willis, which has said there was "no additional cost" to getting the name.
He said Sears Tower's owners did receive consideration from Willis in exchange for the naming rights, but declined to disclose details.