Radisson Hotel O'Hare

Situation Analysis: 467 Unit first class, full service hotel with approximately 30,000 square feet of function space, located in the Chicago suburb of Rosemont, adjacent to O’Hare International Airport. The property was an older hotel, the first phase of which was originally built in 1962. Further, it was in a sub par location in a market that had been hit harder than almost any market in the country after the terrorist attacks of 9/11: the O’Hare International Airport market. Needless to say, performance was way down. Further, the hotel had become a non-performing asset for the lender, Fremont Investment and Loan, who had asked us to value the property and potentially provide disposition services. The bigger issue beyond how the market would receive a property of this nature, at this time, was the fact that Fremont did not own the asset. They had not yet foreclosed, and against our advice, chose not to. This forced us to work directly with a buyer who was completely at odds with our objectives because there was a hidden agenda.

Action plan: The market was analyzed and a marketing plan developed to maximize the sales price we would achieve. Alternative brands were researched along with their associated cost (e.g. Renaissance, Wyndham) and decisions made with respect to how we were going to position this asset in the eyes of the buying community. That decision? Upside. Pure and simple. Despite all the problems of the past and present (including location) this was O’Hare International Airport, the biggest airport in the world, and it was expanding. The hotel was under managed and under branded, and it was just a matter of time before top line revenue returned. Further, where would you be able to take down almost 500 rooms in a world class market like this for about $50,000 per key?

Key Issues: Friction between the seller/borrower (technically our client), the lender (the party calling the shots) with the broker being caught in the middle. Essentially, the borrower felt that if we (the broker) could not achieve our strike price, that they could then renegotiate their existing loan, cram it down, and restructure it to about $23 million from its current $33 million. Bear in mind that the borrower had an additional $17 million of their cash in the deal in the form of renovations which occurred before the 9/11 meltdown, so they were none to happy to see us succeed.

Additionally, in addition to all the problems, the Radisson PIP came in somewhere around $5 million, which was significantly higher than projected. This also kept downward pressure on pricing.

Outcome: In the end, several offers were entertained and presented to help establish market value. We ended up at a very reasonable price of $26 million based on a trailing 12 NOI of under $2 million, or a 7.3 capitalization rate. Further, we were able to keep the borrower from short circuiting the transaction (as much as they tried) by being diplomatic, strong when needed, and above all, persistent. The lender was also convinced based on the impeccable record keeping and information trail generated by HREC IA that this number was not going to improve any time soon. We found that “needle in a haystack” buyer – a union pension fund advisor who wanted to be in a union town like Chicago at the world’s busiest airport.