Schaumburg, IL: Investing Where People Want to Live

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MONEY magazine ranks the best places to live in the nation every year, and the Village of Schaumburg definitely set out to impress this time around, ranking 9th overall. Of course, the EquityRoots team isn’t surprised — the ranking is a testament to the type of markets we like to invest in. The Schaumburg Holiday Inn dual brand project is worth its weight for investors.

Demand Driven

Our team understands that some of the strongest performing investments for hotel investors are often located where quality of living is highest. Whenever EquityRoots’ receives a funding request, our team looks at the proposed project holistically, giving consideration to the brand, amount of funding, and nearby demand drivers that influence people to live or visit a location. Luckily, Schaumburg is abundant with demand drivers, all of which work to ensure that a new hotel development in the village will prove a fruitful investment and bigger economy.

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Schaumburg has a projected job growth of 3.0%, reflecting the village’s promising talent pool in years to come. Many of the companies opening or expanding in Schaumburg will look to host conferences and encourage business trips – which translates into increasing demand for available hotel rooms to host those business visitors. Do you like great weather? Schaumburg has on average 189 clear days every year. People generally want to be in an area that has nice weather, and that can translate to more tourists visiting Schaumburg’s parks and commercial centers, consistently driving revenue.

Many of the reasons why MONEY selected Schaumburg as the 9th best place to live in the US, or alternatively, many of the reasons why EquityRoots selected Schaumburg as the site for our dual-brand development. Source: MONEY Magazine

Other demand drivers can be physical. The Olympic Park is only a short drive from our development meaning that high school, collegiate, and team families have additional lodging options. This is a huge source of potential revenue not only from all the hotel rooms needed, but also for retail and restaurants that these teams will visit. The Woodfield Mall – the largest mall in Illinois and one of the largest in the nation – is an obvious demand driver and amenity for visitors. This benefit works both ways, creating a market where retail and hospitality compliment each other.

Woodfield Mall in Schaumburg, IL is a critical demand driver that brings in value not only through revenue generated from retail, but also as an amenity that supports local hotels and other businesses. Source: Simon Property Group

These demand drivers are also what led EquityRoots to decide that a new hotel in Schaumburg would be the perfect project. To keep up with the commercial needs of a growing Village and the chance to answer that with a high quality project, this project was designed to be healthy for the local economy in addition to the potential opportunity of profit to its stakeholders.

Local investors saw our IHG project as a chance not only to earn a potential return on a Class-A asset, it was also a chance to be a part of developing something that built positive value in their community. For our more recent IHG project in Schaumburg, a significant number of investors were from Schaumburg and nearby regions in Northern Illinois. When you look at different real estate investment options, you also want to consider nearby demand drivers that often provide amenities and other businesses that promote high quality of life. Instead of looking at MONEY’s rankings as a list of the best places to live, you’ll be using it as a guide to help you invest smarter.

Sources

“Largest Shopping Malls in the United States.” American Studies at Eastern Connecticut State University. April 25, 2009.

“The Best Places to Live in America.” MONEY.

 

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Keeping Chicago Competitive: The Hotel Supply Wave

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A Wave of Supply

Chicago’s hotel market is preparing for a supply wave. In the next few years, the Windy City expects to add an additional 12,000 to 13,000 new hotel rooms to its arsenal. To many, this isn’t shocking news. Hotel developers and operators in Chicago have enjoyed a steady climb in RevPAR since 2009. However, in 2016, we saw Chicago’s first decline in RevPAR in 6 years, a sign which some say is reason to worry about the incoming hotel room supply.

Market consultants and policymakers point to a potential oversupply problem as the source of their worries.  Under basic supply-and-demand principles, these critics essentially say that if there are too many hotel rooms in a market, then the price of each hotel room in that market will, on average, decrease.  There will be more hotel rooms than Chicago needs to accommodate its visitors and with more hotel rooms than hotel guests, the argument is that each hotel will get a smaller piece of the pie. We believe that these claims are blown out of proportion and fail to acknowledge any of the upside. While the argument is fairly simple and logical, the critics are erroneously oversimplifying the market and overlooking the micro and macroeconomic consequences. Our business team at EquityRoots wants to make sure investors and hotel owners are not oversimplifying Chicago’s market and then making assumptions on those generalities.

Keeping Chicago Competitive: The Hotel Supply Wave

A robust supply of hotels are critical in establishing continued economic growth in Chicago.

Other regions in the United States outside of Chicagoland (San Antonio, New York, and Seattle, to name a few) have similarly seen the development of new hotels in their respective markets. These brand new hotels attract additional business and travel, and keep their cities competitive in the hospitality market. Cities that fail to upkeep their hotel inventory can lose out on significant business opportunities and city revenue. This includes Chicago, which stands to lose much ground to other established and on-the-rise metropolitan areas. If Chicago wants to remain a world-class city that is capable of handling large conventions and attracting major corporations to set up shop, it needs to keep things fresh with updated hotel products.

The Chicken, or the Egg?

If you’ve been watching Netflix recently, you might have stumbled upon “The Founder,” which takes a look at the entrepreneur Ray Kroc and his role in making McDonald’s a worldwide brand. For Ray Kroc, business growth is a supply and demand issue. Which comes first, the chicken or the egg? Ray Kroc believed that new supply attracts new demand, building the McDonald’s restaurant empire on this theory.  

Likewise, EquityRoots.com believes that the threat of oversupply is overhyped, particularly for the newest hotels to enter Chicago’s market. While it is true that there will be more hotel rooms available in Chicago from a sheer numbers standpoint, the newest constructed hotels will drive others to improve. Newer hotels that are slated to open in Chicago – including a Cambria hotel in Chicago’s Loop and a dual-brand IHG hotels in Schaumburg – introduce updated and upscale venues with cutting-edge floorplans that appeal to old and new visitors to the city. Modern additions including rooftop venues, new technology, and newer beds are likely to attract the majority of incoming travelers, and this is a standard that corporate travelers have come to expect in other markets across the country. This means that the pressure falls to older hotels to reinvest and renovate, especially those that are 20 years old or more. For example, developers are already spending about $20 million to renovate the Talbott Hotel in the Gold Coast in order to keep the asset competitive. Other older Chicago hotels are also expected to renovate and update their rooms and designs to avoid the risk of becoming outdated. Chicago’s hotel room supply will continue to be updated.  Increased expenditure and capital improvements will ultimately raise an owner’s basis, driving rental rates higher to obtain the same return.  As a result, the entire market responds by increasing average daily rates.  The supply of total rooms will go up, but so will quality.  This gives all hotels the edge in competing for corporate and leisure travelers. As a whole, competition will drive up the quality of hotel services and products offered in Chicago, which lead to positive experiences and can encourage even more travelers to visit the Windy City and drive demand.

Moving forward, Chicago is expecting more travelers, which is great news since the number of conventions and meetings held last year in 2016 was atypically low for the Windy City. When you couple that with high-publicity events like the Chicago Cubs’ World Series win last year, EquityRoots.com expects that the future still remains bright for Chicago’s hotels.

 

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So, what caused the 2016 decline?

If it wasn’t primarily oversupply that pushed Chicago’s downward RevPAR dip in 2016, what was the source? Chicago is facing microeconomic issues.  For starters, the city’s current lodging supply is outdated compared to other cities.  It’s also worth noting that Chicago was in the running as a host city for the 2016 Summer Olympics. During the bidding process, corporate travelers shied away from booking in Chicago because the Olympics typically creates a lot of traffic, congestion, and delay in the way of a busy work/meeting schedule.  A number of conventions and businesses avoided booking travel to Chicago during the time frame that the 2016 Olympics would be occurring, opting to hold their conferences and meetings in other cities like Detroit, Indianapolis, Las Vegas, or Minneapolis.  When Chicago wasn’t awarded the 2016 Summer Olympics bid (which went to Rio de Janeiro), the city got a 1-2 punch. The city not only missed out on the opportunity to capitalize on a huge wave of tourism for the games, but also was hurt by the void of typical corporate travel avoiding the market. As 2017 and future years pose more typical operational years, we believe the hotel industry will continue to improve in Chicago.

Chicago needs to stay competitive to keep up with other leading primary markets in the United States, including New York and San Francisco.

Chicago needs to stay competitive to keep up with other leading primary markets in the United States, including New York and San Francisco.

Staying Competitive

Freezing free market activity and slowing down updated prototypes will push Chicago laps behind in a race against other cities. America and capitalism thrived on encouraging innovation and progress.  If Chicago were to halt new development for fear of oversupply, it will have comparatively lower quality lodging than other cities, which will make it more difficult to attract travelers and other demand drivers to come here in the first place. We are seeing incredible market strength in cities like Seattle, NYC, and Boston – cities that happen to offer the latest and greatest hotels and amenities.  Chicagoland needs to put pressure on the status quo, create pressure to improve, and bring in the latest and greatest facilities so that we can attract more businesses and travelers to come here.

Sources

Gallun, Alby. “Hotel market falters after six-year run.” Crain’s Chicago Business. Sept 26, 2017. 

Gallun, Alby. “Will the downtown hotel market bounce back in 2017?” Crain’s Chicago Business. Jan 30, 2017. 

Hoisington, Alicia. “Oversupply concerns loom over Chicago.” Hotel Management. Mar 6, 2017. 

Ori, Ryan. “Talbott Hotel to shut down for $20 million renovation.” Crain’s Chicago Business. Dec 8, 2016. 

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