Lollapalooza is back, and for downtown Chicago hotels it’s one of the best weekends of the year. The jolt of energy provided by Grant Park’s massive music festival is especially welcome this summer, more than two years after a crisis that sent revenues plummeting and sent some debt-ridden hotels into foreclosure.
It’s already been a great summer for the hotel industry. Tourists returned in large numbers when the weather improved and seem willing to pay high rates for their rooms, ultimately fattening the results of long-suffering hotels.
“There is no question that this has been a summer on par with 2019, and Lolla can take us to the top,” said Maverick Hotels and Restaurants CEO Robert Habeeb, owner of the 223-room Sable on Navy Pier. “We are collecting 60 to 70 rooms a day.”
Chicago officials said they expect about 100,000 people to descend on Grant Park daily for the four-day festival that begins Thursday to hear artists including Green Day, J. Cole, Dua Lipa and Metallica.
But the thousands of out-of-town visitors won’t help downtown hotels heal all the damage caused by the pandemic. Most still rely heavily on business travelers when tourist season ends in the fall, and with many offices still empty, no one knows when that type of travel will return.
“That’s a question every urban market in the country and around the world is asking,” said John Rutledge, chief executive of Oxford Capital Group, which manages a portfolio of downtown luxury hotels, including LondonHouse, The Godfrey and Le Meridien Essex.
If business travelers don’t return in large numbers, hotel lobbies may become quiet again and falling revenue could spell more trouble for hotels facing foreclosure. This month, Wells Fargo Bank took control of the 610-room JW Marriott Chicago hotel with a winning bid of nearly $251 million during a foreclosure auction. And a county judge ruled that Palmer House Hilton Chicago owner Thor Equities defaulted on its $333 million mortgage for the 1,641-room hotel at 17 E. Monroe St., setting up another foreclosure sale.
Other downtown homeowners are delinquent on loans, and more foreclosures could occur, though the properties will almost certainly continue as hotels, according to Stacey Nadolny, CEO of HVS, a Chicago-based industry consultancy.
“Some hotels are doing well, and some are still struggling, in part due to debt structures in place before COVID-19,” he said.
“We are closing the gap to 2019 on several of our Chicago assets,” Rutledge said. “Our experience is that Chicago is recovering very nicely, and we’re definitely seeing strong demand across the board in what I call luxury or lifestyle spaces.”
That’s not necessarily true for others, especially many low-cost hotels, where recoveries from the two-year crisis are “random,” he said.
But with music lovers crammed into so many venues, for now, business is booming.
“The good news is that things are looking up and the market is showing strong signs of recovery, and Lolla is usually one of the busiest weeks of the year,” Nadolny said.
Downtown hotels are off to a great start this summer, he added. Occupancy topped 78% in June, a big jump from last June, when lingering COVID-19 concerns kept most rooms vacant, but down from 88% in June 2019. And for the week ending July 16, occupancy reached 83.3%, the highest number level in three years.
“We are still behind in 2019, but we have come a long way,” Nadolny said.
Perhaps better news for downtown Chicago hotels is that guests are willing to pay more. The average daily rate in June was more than $285, up from $257 three years ago, according to Nadolny, citing data from STR, a data analysis firm.
Inflation played a role in raising room rates, as did rising wages and benefits for few hotel workersbut it’s also a sign of how badly people want to travel after COVID-19 vaccines and treatments allayed travel fears, according to Rutledge.
“If there is no demand, rates cannot be raised,” he said.
Convention travelers, another mainstay of the downtown hospitality business, are also showing signs of a comeback. More than 1.3 million people attended conventions and events at McCormick Place last year, according to Cynthia McCafferty, a spokeswoman for the Metropolitan Pier and Exposition Authority, the municipal corporation that owns Navy Pier and McCormick Place.
That’s relatively low, but MPEA officials forecast attendees will double over the next year to more than 2.6 million. Several June meetings came close to drawing pre-pandemic crowds, and the International Manufacturing Technology Show, a McCormick mainstay, estimates more than 100,000 attendees for its September event.
“These numbers reflect the normalization of travel,” McCafferty said.
Whether corporate travelers will begin to return in droves to meet with colleagues and clients, rather than stay home and conduct business online, remains a mystery.
“There is no question that Zoom is here to stay and will forever alter the landscape,” Rutledge said. “But we are seeing some promising early signs of business travel growth.”
He estimates that about 60% of business travelers returned this year, with many increasingly combining work and play, extending their stays to visit family, see sights or just relax. It’s a new way of traveling called “bleisure” and it could give hotels an extra boost.
“Overall, urban hotels should be able to reach 2019 levels by 2024,” he said.
Habeeb said he sees the same pattern.
“Our booking trends (for business travelers) look very comparable to 2019, maybe a little softer,” he said. “That’s encouraging, but we shouldn’t stand back and think we’re out of the woods.”
High energy costs remain an issue, and staffing shortages could cause delays at airports or ruin some nights at restaurants, hurting travel for corporate clients, he added.
But hotel foreclosures are a problem for owners, investors and lenders, not guests, Nadolny said. Buyers can come in and acquire properties cheaply, but they will almost certainly keep them as hotels.
“From a guest perspective, they may not see any change, not even in branding, and staff may not notice it either if the management company stays in place,” Nadolny said.
What guests will see, at least during Lollapalooza weekend, are high prices, with rooms averaging $300 a night and deluxe rooms costing more than $400.
“Guests should expect to pay a lot more than they did last summer,” he said. “That’s amazing for the hotel industry, but I hope people have already made room reservations.”