"All Alan Greenspan needs to do is check with hotel companies to see how the economy is doing," says John Lyons, head of development for the Hyatt Corp. If so, Greenspan would declare the local economy here strong in 2000, with warning signs based on the industry's performance in January. Lyons says January 2001 "is shaping up to be worse than January 2000," when Y2K fears left many rooms vacant. "It indicates how quickly the hotel industry feels any reaction in the economy."

However, occupancy in the Chicago market stood at 70.6% at the end of 2000, up 1.4% from the previous year, according to figures provided by Brian D. Flanagan, president of Property Valuation Advisors Inc. Increased demand has pushed the average room rate in the market to $116.42, but the rising tide has raised some boats higher than others.

Lyons expects the average daily rate at his company's new Park Hyatt to be $350 this year. The 192-room hotel takes up the first 20 floors of a 67-story building that is topped by condominiums. The average room rate in the Central Business District rose 6.2% in 2000, higher than any submarket, to $154.89. Meanwhile, occupancy at luxury hotels was 74.7%, higher than any other category.

However, some smaller hoteliers are going on defense with signs of a slowing national economy. Defensive measures, Lyons says, include renovations to give their properties a competitive edge. However, it also means hiring more sales people, notes Su Yen, president of SB Management Group.

Starting with a 60-unit hotel in DeKalb, IL, Yen and her husband have built a hotel portfolio that includes Holiday Inns and Best Westerns, as well as the boutique Whitehall Hotel off North Michigan Avenue. Smaller operators like herself have a strategy that often runs counter to big firms such as Hyatt.

For instance, Yen and her counterparts are more apt to sit tight during a downturn while corporations will strive to buy and sell properties in efforts to appease their stockholders. A downturn also means she may be able to hire better qualified personnel downsized by larger hotel corporations that make layoffs decisions based on seniority rather than performance.

A downturn also is a buying opportunity for Yen, says her financier, Aries Capital Inc. president Neil D. Freeman. "She's bought (hotels) when people were giving them away because they didn't see the vision," Freeman says.

Lyons sees "more equilibrium" in the market than before previous downturns. "The market has done a much better job of managing (supply) in this cycle," he says. There also are signs the current slowdown may be short-lived. Flanagan notes the Chicago Convention and Tourism Bureau, which books one-third of the rooms Downtown and tracks vacancy rates, indicates bookings are "looking good into 2003 right now."

Instant Insights /

Hotel Sector Shows Signs of Strength Downtown, Submarkets Despite Economic Slowdown

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