Purchased by Thor Equities in 2005, this 1,639 room hotel was like a grand old lady down on her luck. The Hilton Corporation had spent 12 years studying the property and had been unable to formulate a plan, so they sold it and kept the management of the hotel. The net operating income was $18 million. With a $170 million renovation budget, Tobin used her Vassar College education in American History with her understanding of real estate, and immersed herself in the hotel business. She developed a business plan she anticipated would generate $45 million NOI. At the cap rates of the day (7%-8%), property value would increase threefold.
Three Big Ideas
The business plan Tobin created with her team entailed 3 ideas: 1. reestablish the Palmer House brand as one of America’s finest historic luxury hotels perfectly located in the capital of the Midwest, the real Chicago; 2. reshape the food and beverage offerings to fit the aspirations of the Palmer House and put it back into the psyche of today’s Chicago; and 3. be very focused on revenue drivers such as hospitality suites and the penthouse, in order to push rates and occupancy up. At the core of this approach was the maximization of revenue potential for every square foot of real estate within the building.
Working closely with her project team, Tobin put together the plan piece by piece, ensuring that each aspect added to the whole. The existing food and beverage program was skewed towards less profitable room service rather than banquet. She closed every food service outlet in the hotel and rebuilt a program that generated significantly more revenue.
The lobby, which had originally been a grand, rarified place, had become conducive to napping on overstuffed sofas. The bar was dark, narrow and depressing. It sustained itself financially but was uncomfortable for most women. The restaurant served fewer than 25 meals most nights. In response, Tobin closed all the food venues, relocated non revenue producing services (security and business center) off the lobby level, and transformed a column free, well proportioned room into a new ballroom space, named the ‘Honoré Room’ after Potter Palmer’s wife. It was forecast by the hotel operator to achieve $350,000 in NOI annually, but generated over $1.1 million in 2010.
In the lobby, Tobin removed the carpeting, revealing time worn but rich terrazzo with impeccable detailing. Polished to a high sheen, the floor bounced light and bright noise around the impressive room, creating an immediate convivial atmosphere. Relamping the historic Tiffany era lamps, Tobin corrected the mood from dark to vibrant and sexy, and built a new bar and restaurant spilling into the lobby. Most importantly, she maximized efficiency for both banquet and restaurant by building a new dedicated kitchen in the old bar. Suddenly, the Palmer House was hopping.
With 110 rooms per floor, the corridors upstairs were long and gloomy and the walk from the elevator was bound to be long. Tobin knew that people like looking at people; researching Palmer House history she discovered that the Empire Room had been famous after the war (as in World War II) as a nightclub. She researched the entertainers who had played there, and framed large studio shots of the greats and near greats (Mae West, Jimmy Durante, Frank Sinatra, Sonny and Cher) who had played the Empire Room once upon a time. All of a sudden, the corridors didn’t seem so long, and guests began asking for rooms nearest their favorite entertainer.
By focusing on the real estate, establishing what today’s traveler - both business and leisure - is looking for, and then providing it, the project team was able to allocate its budget carefully and with great results. The Palmer House renovation has won great acclaim from both historians and the industry.