CHICAGO-Two luxury hotels here, as well as a property in Miami, have exceeded Strategic Hotels & Resorts Inc.’s in their first year in the company’s portfolio. Indeed, improved hotel performance is causing Strategic Hotels & Resorts to rethink when to start construction of a 70-story tower at the InterContinental Chicago at 535 N. Michigan Ave.

Revenue per available room jumped 34% to $167.03 during the first three months of the year at the InterContinental Chicago at 505 N. Michigan Ave., compared to the first quarter of 2005, when it was under different ownership. Average occupancy jumped nearly 10 percentage points to 62.3%. Meanwhile, the company continues to seek city approval for a 70-story mixed-use building to replace the hotel’s north tower, but indicates it is hardly a short-term project.

“We think this makes sense, as the entitlements would be in effect for several years, it will continue to add flexibility and value to the property,” says executive vice president of asset management Richard J. Moreau during his company’s first-quarter conference call. “However, the economics are tougher to justify today as operating performance has accelerated and the value, based on some recent comparable sales of this property, has risen. So we would retain the entitlement, hold off on development of the tower for now as we evaluate construction costs, prices for this unique type of product, as well as the overall performance of the hotel.”

However, the company is bringing a concept that has proven extremely profitable at its Ritz-Carlton Half Moon Bay in California. Strategic Hotels & Resorts will begin building a 2,000-sf wine room fronting on Michigan Avenue this summer, more than three times the size of the model used at Half Moon Bay, Moreau says. Built for $250,000, the California wine cellar has generated revenue of $1,000 per sf, Moreau reports, with a 45% profit margin. “Our first-year return will exceed the investment,” Moreau says during his company’s earnings conference call Thursday.

Meanwhile, sales of hotel condominium units at the Fairmont Chicago are expected to begin during the next three months, Moreau adds. Also at 200 N. Columbus Dr., Strategic Hotels & Resorts is beginning construction on a spa and fitness center, as well as making upgrades to three floors of rooms, at a total cost of about $10 million, he says.

All three properties, the 691-room Fairmont Chicago as well as 792-room InterContinental Chicago and 641-room InterContinental Miami, all posted double-digit RevPAR growth in the first quarter.

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