The latest entrant into River North's crowded lodging market is betting that a hostel heavy on style but cheap on price will draw budget-minded tourists and younger business travelers.
A venture led by New York-based development firm Sydell Group Ltd. paid $13.5 million for the former Tokyo Hotel at 17-19 E. Ohio St., according to public records. The company plans to open one of its Freehand hostels in the property, a concept it is pursuing in several major cities with Ronald Burkle, a billionaire investor and prominent Democratic fundraiser.
The 16-story structure is just two blocks west of North Michigan Avenue. It was owned for many years by Lake Forest businessman Jim Lee, who has been a holdout against a wave of development that has surrounded the outdated building with pricey hotels, trendy restaurants and residential towers.
Sydell financed the deal with a $31.8 million loan from an affiliate of New York-based Marathon Asset Management, public records show. The money will pay for a gut rehab of the 16-story structure.
In Chicago, the firm will develop around 250 beds, split roughly evenly between private rooms and dormitory-style suites with four or eight beds, said Andrew Zobler, Sydell's CEO. The company liked the former Tokyo property's location near River North's dining and shopping options, he said.
Younger tourists who can't plunk down $200 a night for a room will be attracted to the Freehand, according to Ric Mandigo, senior consultant with T. R. Mandigo & Co., an Elmhurst-based firm that specializes in hospitality projects. The challenge is finding customers during the winter months.
“They're going to have to figure out what to do during the offseason,” he said.
'WE'LL OFFER A COMPELLING VALUE ALTERNATIVE'
Mr. Zobler declined to discuss planned per-night rates. At the company's only other Freehand location, in Miami Beach, Fla., a private room with a king-size bed cost $170.50 per night this morning for the coming weekend, according to the hostel's website. The price for a bed in a shared suite is $25.50 or $39 per night.
“We'll offer a compelling value alternative,” Mr. Zobler said.
Mr. Zobler acknowledged that attracting customers gets harder here as the weather turns cold. But having about half the beds in private rooms will allow the firm to find customers throughout the year, he said.
Guests will have access to a kitchen and a lounge. The interiors will be designed by New York-based Roman & Williams Buildings & Interiors, which also designed the Miami Beach Freehand and is working on the hotel conversion of the former Chicago Athletic Association building at 12 S. Michigan Ave.
In the lobby area of the former Tokyo Hotel, Sydell will open a bar called the Broken Shaker and a café.
Developing the Freehand will take about 18 months, Mr. Zobler said.
In addition to facing off with lower-price hotels in River North, Sydell will compete with the city's existing hostels, including the 115-bed Chicago Getaway Hostel at 616 W. Arlington Place in Lincoln Park and a 550-bed hostel at 24 E. Congress Parkway downtown, which is owned by American Youth Hostels Inc., a non-profit based in Silver Spring, Md.
“There's no doubt we'll lose some business,” said Jon Ridge, a St. Paul, Minn.-based central region vice president for American Youth Hostels.
In the summer, the Loop hostel reaches occupancy rates in the high 90 percent range, according to Mr. Ridge, but that falls to about 50 percent during the week from September to May. Weekends are fuller.
American Youth Hostel charges between $30 to $45 per night for a dorm bed, with private rooms averaging around $89 per night, he added.
Mr. Lee, the former owner of Tokyo Hotel, declined to comment. Ginza, a well-known sushi restaurant in the building, will close Oct. 26 after 26 years in business.
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