The economic downturn spelt bad news for the luxury hotel industry. As economies continue to struggle under its impact, the Elysian Hotel in Chicago is the latest luxury hotel to bow to defeat. Billionaire financier Sam Zell is reported to be inking a deal with the two-year-old hotel and he plans to turn it into a Waldorf Astoria property. Reports claim that Zell will be paying $95 million for the 188-room luxury boutique hotel. Currently, the luxury Elysian Hotel is among the costliest in the Chicago sector. Prices for a one-night stay at the Elysian’s luxury suites begin from $525. But if the reports are correct, Zell will be paying many times that amount, about $505,000 per room, when he finalizes this deal. The per-room amount would make it a record of sorts in the Chicago hotel sector.
Even in the two years that it has been in business, the relatively new luxury hotel has won tremendous acclaim. Conde Nast Traveler magazine recently named it the best US hotel in a readers’ survey. With larger rooms than most of its rivals, the Elysian promised an even more luxurious experience than some of its competitors did. In a different economic climate, the strong reviews that the Elysian garnered would have kept it out of trouble. But being a child of the downturn (the Elysian Hotel opened in the height of the recession) had its disadvantages. Great reviews were not enough to keep it afloat. And now, Zell looks set to take away its identity and turn it into another Waldorf Astoria property.
Zell is known to be a vulture investor, but in recent times, he has taken a fancy to the hotel business. His plans for the Elysian are very much related to helping the beleaguered hotel make a turnaround. And to make that possible, he is planning to tie-up with Hilton Worldwide Inc., to run the acclaimed hotel as a Waldorf property. There are two obvious advantages to getting the Waldorf tag. First, the Elysian stands to benefit greatly from the brand name. Second, Hilton’s global distribution system in the business of luxury hotels would also bring in more guests to the Elysian. The luxury hotel might be losing its independent identity, but the profit possibilities look promising if Hilton enters the picture.
This would be an unfortunate turn of events for David Pisor, the developer of the Elysian. Pisor had big plans for the Elysian, including eventually expanding it into a chain of hotels. When equity partner Arcapita Inc. wanted to back out, Pisor could have purchased their share. Unfortunately, he could not find a partner. Bids were sought and Zell jumped into the fray.
According to reports, the Elysian was funded by a construction loan of $203 million from German lender Hypo Real Estate Group and by $60 million equity from Arcapita. The project was part of a 60-storey project featuring 51 luxury condos. Pisor has paid off much of the construction loan with proceeds from the condo sales. It is expected that Hypo will recover its money. The same cannot be guaranteed for Arcapita and other equity holders. As for the Elysian, one can only hope that the buyout by Zell will open doors to a more profitable future.
Via: Chicago Business