The owners of the Sears Tower, pushing to fill its empty office space, have a possible strategy to boost the building’s financial performance: Build another tower on its 3-acre site.
One scenario for a possible companion to the nation’s tallest skyscraper now informally making its way around Chicago City Hall is a hotel and retail structure designed by Adrian Smith and Gordon Gill Architecture.
Smith, who recently formed the firm, which focuses on sustainable buildings, was a longtime principal at Skidmore Owings & Merrill, which originally designed the 110-story tower that opened in 1973.
A new building on the West Loop site is “a possibility, yes, but there is no definitive plan,” said Mark Spencer, a spokesman for the Sears Tower owners, a partnership of the New York-based firms the Chetrit Group and the Moinian Group, along with Skokie-based American Landmark Properties Ltd.
The Sears owners have met with city officials but have not yet made a formal submission for review, said one source close to the talks.
“They want to fast-track it to get the approvals in a year and then start construction,” the source added.
One reason for haste could be the high office vacancy rate. The iconic tower is now 20.9 percent vacant, better than about 27 percent vacant in mid-2006 but a huge jump from about 3 percent at the end of 2000, according to CoStar Realty Information, Inc.
The current iteration of the hotel design depicts a five-sided tower housing a hotel with at least 550 rooms and 50,000 square feet of retail, the source said.
Developing lodging and retail space adjacent to existing offices can make all the property uses more profitable, said David Rupert, the chief operations officer of Griffin Capital Corp. based in San Francisco. “It’s not unusual for owners of a property in a challenged market to consider a complimentary development,” Rupert said.
For owners, however, hotels don’t always assure profits. “In most markets, new hotel construction doesn’t provide a reasonable return fast enough to justify the construction cost that is now significant,” he said.
While it may be difficult to get a nice downtown Chicago hotel room during peak convention periods, there are many major projects proposed or in development, said Jeremy Glaser, an equity analyst for Morningstar Inc., a financial research firm.
“If they all come out of the ground there is a reasonable fear that overbuilding could hurt occupancy and room rates,” Glaser said.
But the Sears Tower’s West Loop neighborhood may still be able to absorb more hostelries, said Michael Sullivan, managing Director for HVS Capital Corp., a hotel investment banking firm based in Denver.
With an average daily room rate of $242 a night and occupancy of 81.5 percent year to date for West Loop hotels, “they’re doing very well and it’s our favorite part of downtown Chicago,” Sullivan said. “The Magnificent Mile makes us nervous because probably it already has an adequate supply but the West Loop has growth potential.”
As an investment, the Sears site has an advantage: The owners already control the land.
But “from a hotelier’s perspective it’s a curious location for a hotel of that size,” said Laurence Geller, chief executive of Strategic Hotels & Resorts Inc. and a potential competitor. “It isn’t in a tourist area like Michigan Avenue so it may or may not work.”
The Chicago Sun-Times reported on Friday that the owners are preparing a building proposal.
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