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Part 2: Repositioning Le Méridien Chicago [owner]

The exterior of the shuttered Renaissance Chicago Oak Brook Hotel was the same beige color as many of the buildings around it.
The exterior of the shuttered Renaissance Chicago Oak Brook Hotel was the same beige color as many of the buildings around it.

Editor’s note: Expanding upon the Design feature in the January-February issue of HOTELS Magazine, this is the second of a three-part multimedia web series about the newly-opened Le Méridien Chicago – Oakbrook Center. Here, owner RockBridge explains the concepts and strategies for this project. In part one, we examined the evolution of Starwood’s Le Méridien Hotels & Resorts brand. Part three covers Wischermann Partners’ third-party management perspective and execution challenges.

Owner: Making the deal work

“I think it might have been the ugliest hotel I ever saw prior to renovation,” said RockBridge President and CEO Jim Merkel. But what attracted Rockbridge to buy what was the closed Renaissance Chicago Oak Brook was not the property’s physical beauty. Instead, the property’s “bones” were what attracted him to what is now RockBridge’s new Le Méridien Chicago – Oakbrook Center.

Although the hotel, located in Oak Brook, Illinois, shuttered in April 2011, Merkel could tell that it still had what it needed to be successful, and in October 2012 moved ahead with a US$25 million total investment to buy a ground lease from General Growth Properties, Chicago, and redevelop the property into the 172-room Le Méridien Chicago – Oakbrook Center. The purchase was done with all cash.

“What we love to do is take properties that have fallen out of favor, that haven’t the capital dollars or the capital reinvestment that they truly need,” Merkel told HOTELS. “This property fit all those categories. The bones were here.”


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Past is prologue

The Oak Brook deal is one of a string of similar deals by RockBridge. The Columbus, Ohio-based company partnered with its affiliate RB Hotel Development and chose the Le Méridien brand based on its vision for the property as a unique 4-star experience as well as its relationship with the brand’s parent company, Starwood Hotels & Resorts Worldwide, Stamford, Connecticut, and the company RockBridge chose to manage the hotel, Wischermann Partners, Minnetonka, Minnesota.

They’d done it before — in February 2013, after a US$20 million renovation, RockBridge opened the 275-room Le Méridien Atlanta Perimeter under a management deal with Wischermann.

“Our experience is that when we invest the dollars thoughtfully on the design and product, then Starwood delivers,” Merkel said. “Our job is to deliver a product that can sell and Paul [Wischermann] and the Wischermann team do a great job of that.”

RockBridge signed a 10-year management deal with Wischermann with a 20% return on investment expected. The deal took about two years to complete, and since then Wischermann has signed additional management contracts for Le Méridien-branded hotels in the U.S.

To drive a premium rate, Wischermann GMs place special focus on guest satisfaction ratings. “First of all, you need a great product, a great physical asset, then you bring it to life with your associates,” said Paul Wischermann, president and founder of Wischermann Partners. “There is no secret sauce to running high guest satisfaction scores — it starts with every employee. It’s a people business. You can connect with customers if you have to have the right team together.”

Big decisions

After choosing the brand and management team, Merkel said pivotal points in the Oak Brook development included deciding to expand the lobby by enclosing the driveway on the hotel’s first floor as well as upgrading the bathrooms. RockBridge typically takes a hands-on approach to its developments to safeguard its investments.

“One of the one of the biggest things we try to deliver in our hotels is great lobby experiences that feel good and that are social,” Merkel said. “The lobby space in this hotel was really non-existent. It was really small. We were able to expand that here and create a really great environment with a lot of natural light.”

Another significant cost was re-doing the guestroom bathrooms, which Merkel said were not consistent with a 4-star product. “Any time in the past that we’ve renovated 90% of a building and we leave out that one thing, you’re always worried that in the end it’s not cohesive as an experience for the guest,” Merkel said. “We have learned that sometimes you have to spend more money to take less risk, not necessarily the least amount of money you can and still be able to put a brand on. It is counter-intuitive, but we made a number of decisions that were long-term decisions to make the property like new, and I think they’ll pay off in the long run.”

Beyond Oak Brook

This string of deals between RockBridge, Wischermann Partners and Starwood in the North American market could continue. RockBridge said market conditions there are still very good for the type of deals its after.

“We are in the business of investing in hotels and redeveloping hotels and taking 2-star to 3-star products and making them 4-star plus products and creating value in the process,” Merkel said. “We see today a really good market for investment opportunities where the fundamentals are still continuing to hit all-time records and there’s a lot of property out there that needs reinvestment.”


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Given how past experience continues to bond the companies, Starwood said it hopes the deals continue to blossom, both with RockBridge and other owners.

“If you can achieve one of these types of deals, it can become deal nirvana, I think, from Starwood’s perspective,” said Simon Turner, president, global development, Starwood Hotels & Resorts Worldwide. “You create the model, from an operating, design and contractual perspective, and then both parties see it as working so well that you can essentially mint that and roll onto the next one. We’ve seen that with HEI [Hotels & Resorts] and we’ve seen it with Rockbridge. Once you have got that relationship based around one hotel, it’s so much easier to do the next one.”

Turner added that at the end of the day every hotel branding deal comes down to trust, what the owners are willing to invest and what the brand is willing to be flexible with.


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Working with owners

Meanwhile, Starwood said it continues to utilize owners as an important part of its brand ideation process, especially since many Le Méridien owners also have other brands. “We have ideation sessions with owners,” said Brian Povinelli, senior vice president, global brand leader for Starwood’s Westin and Le Méridien brands. “They help in invent the ideas we have, and getting their perspective is important for helping us differentiate our brands.”

Development Services Group, Memphis, has a diverse portfolio of hotel properties across North America and works with Hilton Worldwide, Marriott International and Starwood brands for its hotel properties. Gary Prosterman, Development Services Group CEO, said that although Starwood gave his company no performance guarantees, its flexibility with brand standards in addition to strength of the brand for adaptive reuse led him to choose Le Méridien for hotels in Philadelphia and Tampa, Florida, and two other hotels in the company’s development pipeline are set to become Le Méridiens.

Gary Prosterman, CEO, Development Services Group
Gary Prosterman, CEO, Development Services Group

 

 

 

 

 

 

 

 

 

 

 

 

 

“We explored all available brands for that particular market, and it was apparent to me that the Le Méridien brand was the right fit for an adaptive reuse project in a historic building,” Prosterman told HOTELS. “It has worked very well to juxtapose the classic architecture of a historic building with chic design and deliver high-touch service.”

For both developments, Development Services Group had to obtain a number of waivers from the architectural and design brand standards mainly because the buildings involved are listed on the National Register of Historic Places.

“Some of the bigger challenges between brands and owners reside in the area of operating supplies equipment and operational requirements that we owners sometimes think are unnecessary or ‘over the top,’” Prosterman said. “Starwood was very protective of certain areas, but we worked out reasonable compromise.”

Owners outside of North America report that Le Méridien’s differentiation from its competing brands helps boost its performance. Daito Asia Development, Kuala Lumpur, opened the Le Méridien Kuala Lumpur 10 years ago and plans to use the brand for future expansion.

“The unique characteristics of Le Méridien makes our hotel quite distinguished within the competitive market in Kuala Lumpur, and we as an owner enjoyed our highest owner return in 2014,” Toru Kurokawa, Daito Asia Development executive director, told HOTELS.

The story continues here from the perspective of management.

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