Suburban Hotels Attracting Investors

CHICAGO—Commercial real estate in the suburbs took big hits during the recession, but now that a recovery is underway many asset classes in the region are making a comeback. That includes hospitality, which has rebounded operationally and has also started to attract investors again, according to new research by Hospitality Real Estate Counselors.

In 2014, 26 hotels traded hands in the Chicago suburbs, a roughly 30% increase over the number of assets that traded in 2013, the lodging and gaming firm found. The total dollar value of properties sold in 2014 was more than $300 million, a roughly 25% increase over 2013. And 2015 is shaping up to be an even better year. So far, 21 hotels representing more than $225 million in value have sold in Chicago's suburbs.

“We get calls weekly in our office from investors who want to know if there are available properties in the Chicagoland area,” Jeffrey J. Preston, a Chicago-based vice president of HREC, tells GlobeSt.com. “I think Chicago being one of the country's major markets is attracting investors to all asset classes. It's the third largest market in the nation and it has become a great gateway city.”  

However, “buying downtown Chicago hotels is not for the faint-of-heart,” and the CBD typically attracts the most significant investors. “But regional buyers and others also want to be in the Chicago MSA and so they turn to the suburbs.”

“The economy is bouncing back,” he adds, and the demand drivers, especially in several key suburbs, are starting to chug along again, bolstering the local hotel markets as well. Zurich Insurance, for example, acquired a 40-acre chunk of Motorola Solutions' former campus in Schaumburg and has launched a 720,000 square-foot headquarters. And Sunstar Americas, Inc. bought nearly 80 acres in unincorporated Cook County for a 300,000 square foot North American headquarters. “Those are huge demand drivers and investors definitely respond.”

In 2014, the Chicago North and Lake County submarkets were among the top in terms of RevPAR growth with increases of 17.1% and 11.7% respectively, according to data from STR. But in the CBD, RevPAR growth was 5.1%. In fact, in 2014 the majority of Chicago's suburban submarkets outperformed the Chicago CBD's RevPAR.    

The Hyatt Lisle recently sold in an off-market transaction for $16 million. In addition, the Hyatt Place Schaumburg recently sold as part of a portfolio transaction while the Embassy Suites Chicago-Schaumburg/Woodfield was acquired by Indianapolis-based Hotel Capital. And several other suburban Chicago hotels are far along in the sales process that will add to the transaction volume.  

Since the summer of 2012, the HREC Chicago office has sold 11 hotels in the Chicago suburbs, representing about $65 million in transactions volume. Other suburban Chicago hotels HREC has under contract will add about $25 million in additional transaction volume.

The CBD, River North, and West Loop have each seen the influx of new supply, but developers have not launched many projects in the suburban Chicago markets. “People are starting to scratch around for development sites in the suburbs,” Preston says, but it could be some time before shovels start breaking any ground. “That's a great thing for existing hotels, and it will also ensure the suburban Chicago market remains attractive to investors.”