A venture of Lionstone Development is selling a historic Loop hotel, hoping to recoup the nine-figure sum it poured into converting the building from an office as Chicago’s hospitality sector hit an upswing last year as Covid restrictions began to ease.
The Miami-based firm, in partnership with Virgin Hotels, has hired JLL brokers Adam McGaughy and John Nugent to market the 26-story, 25-room Virgin Hotel at 203 North Wabash Avenue, Crain’s reported. No formal asking price has been revealed, but the Lionstone venture spent more than $117 million redeveloping the Old Dearborn Bank Building.
Originally built in 1918, the property debuted as the first-ever Virgin Hotel in 2015 after billionaire Virgin Group founder Sir Richard Branson launched the brand in 2010. The building received a landmark designation from the city in 2013.
The hotel industry came back strong in 2022 with people eager to travel following years of lockdowns. Hotels began hosting large events again, and room rates soared above pre-pandemic levels.
Yet, higher costs of labor and other expenses have made profit margins slim at best. More recently, increased interest rates and fears of a recession caused the hospitality sector to regress nationwide. As of March, hotel sales were down 25 percent year-over-year to $40 billion across the country, the outlet reported, citing data from research firm MSCI Real Assets.
The 203 North Wabash site is near another landmark building, the Hampton Inn Chicago Downtown at 68 East Wacker Place, which was converted to a hotel and recently went up for sale. It’s expected to draw bids of around $280,000 per room. If the more luxurious Virgin Hotel sells for $300,000 per room, it would amount to about $75 million — far less than what the Lionstone venture invested in the property.
The property has some things going for it, though. The venture took out a $37 million loan — a relatively small amount — on the building just before the pandemic hit and it isn’t set to mature until March 2024. In addition, the building’s landmark status allows it to be taxed at 10 percent of its assessed value, rather than the current standard for commercial properties of 25 percent.
JLL is emphasizing the hotel industry’s recovery last year, while mentioning the site’s close proximity to attractions like Michigan Avenue, the Chicago Riverwalk and other major tourist hotspots. The brokerage also mentioned opportunities to add event space on the lower floors and a retractable roof to the hotel’s rooftop restaurant to make it a year-round destination.
Other downtown Chicago hotels that recently hit the market include the Blackstone Hotel, which is likely to draw bids between $55 million and $60 million, as well as the Ambassador Chicago hotel in Gold Coast, which is expected to sell for less than $40 million.
— Quinn Donoghue
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