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Sax owner sees long-term value at 330 North Wabash LaSalle ends year with $18 million loss
LaSalle Hotel Properties purchased 12 floors in the neighboring building in 2008, intending to turn them into a super-luxury hotel. A fast-track development schedule slowed to a normal development schedule and then was temporarily suspended last April. “Clearly it’s on hold right now,” says Michael Barnello, “We believe in the long term value of that project. We love the location. We love what the project’s going to be. It just doesn’t make sense to do it right now. But that doesn’t mean we’ve lost enthusiasm for the project.” LaSalle paid $46 million for floors 2-13 of the 52-story building, and had planned to spend another $100-200 million renovating before the hotel opened in 2011. In a conference call with investors Friday morning, Barnello, who was named CEO last September, said demand at the company’s 31 upscale hotels was up in December for the first time since July 2008, and the trend has continued in January and February. But supply is up, too, he says, and average daily rates are weak, sending the company’s revenue-per-room in 2009 down 17 percent from the year before to just $120.80. Occupancy was 70 percent, down about four percent. For the year, LaSalle, based in Bethesda, Maryland, reported a net loss to common shareholders of $18.8 million. The previous year, they made $10.6 million. The problem is still with group sales. Corporations in particular, says Barnello, have dramatically reduced the number and size of their meetings, number of employees attending meetings, and length of stays. Chicago still a weak market Washington, D.C. has been a good market for LaSalle. Chicago has been a disappointment. Poor convention business and widespread discounting has made Chicago one of LaSalle’s weakest markets. Occupancy at LaSalles’s two hotels in Chicago was up almost one percent but rates were down. Hotel Sax and The Westin Michigan Avenue were among seven hotels Barnello called his company’s weakest properties in the fourth quarter of 2009. He described “struggles” Chicago has had, with union issues and trade shows pulling out. “Some of these things actually happened after 9/11. There were some problems with a number of the unions [and] Mayor Daley had to get involved again. They ultimately did get worked out and Chicago got much stronger again.” “We’re optimistic that between Daley’s intentions and the fact that Chicago wants to right this problem, that they will be strong again,” said Barnello in response to a question from the investment firm Raymond James. “But we do see it as a struggle in the short term and certainly the publicity they’ve had has not [helped] things.” Barnello notes a more diversified demand in Chicago. “We do have corporate demand in Chicago…and we do have strong leisure demand. There are more components there. It’s a more diversified market.” Over the course of 2010, Barnello expects to see a gradual pick-up in all forms of hotel demand – leisure, transient, corporate, and ultimately, group. The industry, he predicts, will regain some of its loss from 2009 and demand will grow three to five percent this year. “We believe 2010 will be a gradual recovery year, in which occupancy climbs slowly, ultimately allowing some pricing power, most likely toward the end of the year.” With supply growth low over the next three to five years, that could “set the stage for a strong and long recovery as demand returns with economic growth.”
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