Developer puts Deerfield hotel up for sale
A Chicago developer that revamped a full-service hotel in north suburban Deerfield before the COVID-19 pandemic rocked the hospitality sector has put the property up for sale, a test of investor appetite for big suburban hotels as travel demand recovers.
A venture of Phoenix Development Partners has hired brokerage Berkadia Hotels & Hospitality to sell the 300-room Hyatt Regency Deerfield at 1750 Lake Cook Road, according to a marketing flyer. There is no asking price listed for the property overlooking the intersection of Interstates 94 and 294, which the Phoenix venture bought in 2018 for $31.5 million.
Phoenix spent an additional $14 million renovating all the hotel's rooms, according to the flyer, a project it completed in 2019. But the payoff from that investment was upended after just six months, with the onset of the public health crisis bringing travel and big group events to a prolonged halt. Now Phoenix is looking to cash out, framing the hotel as an opportunity for a buyer to capitalize on the revamped rooms as effects of the pandemic subside.
The listing will show how investors feel about the health of the north suburban hospitality market, an area that has historically benefited from business travelers tied to a long list of nearby corporate headquarters. The Hyatt Regency Deerfield is next to the Walgreens Boots Alliance headquarters and across the I-294 tollway from the campuses of Horizon Therapeutics and Baxter International, the types of demand generators that Phoenix cited as key reasons for buying the property in 2018.
But corporate travel and group business demand have come back at a much slower rate than leisure travel over the past year, extending the pain for hotels like the Hyatt Regency Deerfield.
Among hotels in Lake County, revenue per available room averaged $63 year to date through August, according to hospitality data & analytics firm STR. That metric, which accounts for both occupancy and room rates, was up 44% from the same period last year, but still below the $72 year-to-date average through August 2019.
Phoenix CEO John Mangel said the ownership venture could opt to hold on to the property, "but we want to take the temperature of the market," he said.
Mangel did not provide any expectations on pricing for a potential sale. Multiple investors familiar with the hotel said they expected bids to come in close to the $32 million that the Phoenix venture paid for it, but far less than its total investment in the property.
The hotel generated $929,063 in net operating income in 2019 before the pandemic crushed demand, the flyer said.
The Deerfield offering follows two of the biggest suburban hotel sales since the start of the pandemic. A venture led by Oklahoma-based real estate investor Mark Beffort paid $30 million earlier this month for the 408-room Westin Chicago Northwest in Itasca, according to DuPage County property records, while a Beffort entity also paid about $34 million late last month for the 269-room Hilton Orrington hotel in Evanston.
Those deals illustrated the decimation of value for full-service, suburban hotels, though both sales resolved pending foreclosure lawsuits and both properties need heavy investment to make them competitive.
Phoenix financed its 2018 acquisition with an $18.9 million loan from New York-based Ares Commercial Real Estate. An Ares-led venture also owned the property before selling it to the Phoenix venture. An Ares spokesman declined to comment on the listing.
In addition to playing up Phoenix's renovation work, the Berkadia flyer highlights the Hyatt Regency's location in Lake County, meaning it's not subject to the property tax increases hitting many Cook County hotel owners in the wake of reassessment hikes by Cook County Assessor Fritz Kaegi.
Berkadia also noted that a buyer could bring in new management for the property, as the hotel's current agreement with Arlington, Texas-based Aimbridge Hospitality runs through April 2023.
Phoenix has also planted its flag in the downtown hotel market, where it recently converted a 117-year-old former office building across the street from Willis Tower into a 350-room, dual-brand Hilton complex.