Senior financing was provided by Heller Financial in the form of a $22.9-million first mortgage. Columbus, OH-based RockBridge Capital, Inc. provided a $6.5-million mezzanine loan. Coupled together, the four-year loan carries a 12% base rate with cash flow and residual value participation. That leaves about 11% for Davidson Hotels' equity.

Davidson Hotels has been operating the property since 1997 through a joint venture with Prudential, which recently was directed by a pension fund to reduce its hotel exposure. "They're not selling because they want to," says James T. Merkel, vice president of RockBridge.

The deal was in the works before the Sept. 11 terrorist attacks on the US, Merkel says. Business at the hotel was down about 10% before the attacks, he notes, but is off nearly 20% on a 12-month trailing basis afterward. While other lenders may have taken a pass on such numbers, other aspects of the deal were appealing, Merkel says.

"Cash flows have been impacted on a short-term basis here," Merkel tells GlobeSt.com. "The conversion from a Sheraton to a Marriott Renaissance will enable the property to capture its share of the market and capture the ADR gap it has been experiencing…We've got a terrific opportunity on our hands."

Finding it took beating the bushes, Merkel adds, and not being dissuaded by the macroeconomic forces that were sending chills through the hotel sector before Sept. 11. "The dynamics of the Chicago market, you have to look at it with a rifle, not a blanket," Merkel says. "It's the type of deal where you have to look at the long-term dynamics."

Those dynamics include a location in the affluent North Shore suburbs of Chicago. While it may lack the tourist attractions found in the Central Business District, the North Shore includes several large corporate headquarters. Also, Davidson Hotels has a track record for renovations and turn-arounds, having repositioned more than 20 hotels over the last seven years, pouring more than $100 million into the properties during renovations.

"It is easy to be distracted by short-term events and lose sight of the long-term value creation opportunities that are presenting themselves in this environment," Merkel says. "This deal is a perfect example: good basis, strong brand, proven management and meaningful equity."

Renovation is expected to begin in April and completion is scheduled for August.