Tishman Realty strikes $500M deal to sell Chicago Sheraton to Marriott

New York-based landlord exercising option agreed to as part of 2017 lawsuit settlement in wake of Marriott’s merger with Starwood Hotels

Tishman Realty Using $300M Option to Sell Chicago Sheraton

From left: Marriott CEO Anthony Capuano and Tishman Realty’s Dan Tishman along with 301 East North Water Street (Getty, Google Maps, LoopNet, Marriott News Center)

Tishman Realty will sell the 1,218-room Sheraton Grand Chicago Riverwalk hotel — one of the city’s biggest lodging properties — for $500 million to Marriott this year, after the seller exercised an option for the deal under the terms of a 2017 legal settlement, according to an SEC filing.

New York-based Tishman’s decision to pull the trigger on its option to sell the property in the Streeterville neighborhood serves as an acknowledgement of its sliding value. The property, at 301 East North Water Street, was developed by Tishman, opening in 1992, but it was appraised at $516 million in 2017, according to credit ratings agency Morningstar.

A $300 million portion of the sale was agreed to between Tishman and Marriott in 2017 to settle a lawsuit Tishman brought against the hotel chain. The dispute stemmed from Marriott’s $13 billion takeover of Starwood Hotels, which owned the Sheraton brand at time of their 2016 merger. Tishman alleged that the deal would mean the Sheraton would be in direct competition with nearby Marriott properties and violate a contract.

Tishman had separated the ground from the building beneath 301 East North Water Street, and struck a ground lease between the two entities that owned the hotel and the land, according to credit ratings agency Morningstar.

Marriott is putting up $200 million to buy the underlying ground, as well as making good on its 2017 agreement with Tishman to buy the property’s leasehold for $300 million.

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The purchase price for the building “reflects a liability that we established on the balance sheets, frankly, years ago as part of the overall transaction,” Marriott CFO Leeny Oberg said on the firm’s Tuesday earnings call. “So it does obviously impact our available cash for the year.”

While wild swings aren’t unusual for the hotel market, the impacts of interest rate hikes have especially drained value from large assets, limiting the lodging sector’s recovery from the coronavirus crisis despite a resurgence of demand for hotel rooms to 91 percent of pre-pandemic levels in 2023, according to figures published last month by the city’s tourism arm Choose Chicago. Revenue per available room, a closely watched metric in the industry, hit nearly $149 last year, down 2 percent from 2019.

Tishman’s option served as an insurance policy against nosediving hotel values. Its dispute that led to the settlement was over Marriott’s merger with the Starwood venture. A settlement reached in 2017 allows Tishman to force Marriott to buy the Sheraton for $300 million, and in exchange Marriott does not have to abide by Starwood’s non-compete clause for the Sheraton property.

Tishman in 2017 took out a total of $255 million in debt against the property, with the underlying ground serving as collateral for a $140 million portion of the loan and the leasehold on the hotel building securing the remaining $115 million, according to Morningstar and public records.

“In 2024, we expect another year of solid growth and significant shareholder returns,” said Marriott President and CEO Anthony Capuano. The company’s growth will “enable us to return $4.1 billion to $4.3 billion to shareholders after factoring in $500 million to purchase the Sheraton Grand Chicago,” he added.