3-Jan-11 – An uncooperative economy inspired LaSalle Hotel Properties to find better things to do with its money than renovate 375,000 square feet on 12 floors at 330 North Wabash, explained the company’s CEO on Monday.

When LaSalle, a real estate investment trust based in Bethesda, Maryland, bought the space for $46 million in March 2008, it was during a time when acquisitions were hard to find. The plan was to spend at least another $100 million turning the former office space into a “super luxury” hotel. As the economy became more discouraging in 2010, LaSalle decided to market the property for sale.

On December 29, Langham Hotels, a luxury hotel chain based in Hong Kong, closed on the sale and announced the next day it would re-launch development of a luxury hotel at the riverfront building designed by Mies van der Rohe.

“To finish the project, depending on how you want to build it, is 100 to 110, 120 million dollars more of capital,” says Michael Barnello. “You’re going to see a small return for the first two years while you’re ramping up. We can take that money [and] put it into assets that are already up and running immediately and get a [return] that is immediately better for us. As a REIT that means a whole lot more to us.”

Spending $100 million to build a hotel was “the last thing we want to do,” says Barnello (left), whose company, “like everybody else in the world, was worried about survival.” The renovation at 330 North Wabash, he says, “can be better done by somebody else who wants to put their own brand into the project and has different plans for it.” Although the property sold for $58.8 million, after costs of the sale are figured, LaSalle estimates it will lose $8 million on the deal. LaSalle reportedly spent $3 million on some pre-development of the property, such as getting a model room ready.

“We took a little bit of a loss, it’s a bummer, but the reality is it’s a better thing for us to do, to put our money elsewhere, than stay with that project.”

147 years to acquire 25 hotels

The Langham Chicago Hotel is expected to open in the summer of 2012 with 330 rooms. It will be the company’s third location in the U.S. They have one hotel in Boston and another in Pasadena, California. Langham has 25 hotels worldwide, including one in London that opened in 1865.

The hotel will occupy floors two through 13 of the 52-story building, and portions of the first floor and riverfront plaza. Guestrooms will be among the largest in Chicago, with nine-and-a-half foot ceilings and floor-to-ceiling windows.

Barnello recalls Langham was “great to work with.” He declined to elaborate but said other prospective buyers looked at the property.

John Rutledge, president and CEO of Oxford Capital Group, the investment firm in Chicago that brokered the deal, said in December they were “approached by many of the leading luxury hotel brands.”

LaSalle still optimistic about Chicago

LaSalle has been expanding its empire recently, selling one resort last year but acquiring five hotels in 2010. Besides Marina City’s Hotel Sax, LaSalle owns the 751-room Westin Michigan Avenue and 33 other luxury hotels.

The experience with 330 North Wabash has not soured LaSalle on Chicago, which Barnello describes as “a great market.”

“We’d buy more properties in Chicago. We’re still looking, when properties come up for sale.”

He predicts Langham will do well with the property. “I think what [Langham] is seeing is that Chicago is starting to come back and if they act quickly on it then they’re going to be able to redevelop it and open it pretty quick and get the tail winds of how Chicago is getting better and better every day and be able to capitalize on it.”