Chicago Hoteliers' Next Frontier May Be Neighborhood-Centered Development

The next great Chicago hotel could be coming soon to a neighborhood near you.

The city’s hotel developers are turning their focus away from longstanding downtown hospitality hotbeds and directing their attention toward desirable neighborhoods across the city to create unique offerings with hyperlocal touches.

From Wicker Park to River North to West Loop, executives at Bisnow’s Chicago Hospitality Summit said the city’s unsung blue-chip locales could be the key to unlocking additional growth in the hospitality sector.

“More so than ever, Chicago is a fabric of neighborhoods, and those neighborhoods have their own subeconomies, microeconomies, that have … great upside opportunity that haven't historically been realized,” said Ryan McNamara, vice president at Hyatt, at the Waldorf Astoria Chicago event Tuesday. 

Maverick Hotels and Restaurants CEO Robert Habeeb said his company recently opened a hotel in the Illinois Medical District, a nontraditional market. Convincing skeptics during the development process that there was a need for a hotel in the area wasn’t easy. 

It required a leap of faith to see potential for the concept, he said. 

But when the new hotel launched, its performance was so strong that Habeeb likened it to coming “out of the gate like a racehorse.” 

“The population of many of these communities is akin to a small town somewhere, and there's demand for a hotel stay,” Habeeb said. “If you don't overbuild it — you're not going to build a Four Seasons in some of these neighborhoods — but if you build a high-quality, mid-scale hotel product, you will do well.”

Habeeb said his company is ready to break ground on another neighborhood hotel and is planning a third hotel in a nontraditional market, too. 

Big player Hyatt has built hotels in Wicker Park and Lincoln Park, among other areas without a historically significant stock of hotel properties, McNamara said, adding the industry is just beginning to realize the potential of these neighborhoods.

Opening up new frontiers may be profitable in light of Chicago’s hotel industry already raking in a major win with a significant bump to its pricing growth last quarter. The city saw 16.9% pricing growth year-over-year in Q3 2024 relative to Q3 2023 levels, according to an October report from Lighthouse.

Chicago posted the highest growth of the quarter when compared to other cities across the Midwest, according to the report.

But the way neighborhood hotels are designed is important to their success, said Alissa Bozza, an associate and project designer at HKS. The traditional model for designing hotels centered on consistency, with hotels under the same brand umbrella looking the same from city to city.

Now, guests expect hotels to have an identity that isn’t just tied to the city it’s located in but aligned with the neighborhood itself, Bozza said. As a result, the design process now begins from scratch, with the finished product based on unique features and strengths of the neighborhood, she said. 

“A hotel no longer can just feel generic,” Bozza said. “It can't just ‘feel Chicago.’ It has to feel [from] that neighborhood.” 

Woolpert Vice President Tim Reber said Chicago has an advantage over many of the cities in the Sun Belt he works in because there are a lot of desirable destinations for visitors, like the Salt Shed in West Town — places that aren’t typical tourist attractions. When developers in the Sun Belt look for sites to start a project, they’re looking for sites with liveability and walkability.

Chicago offers that almost everywhere, he said.

Megadevelopments within neighborhoods could also be key to driving hotel growth in the areas, Bozza said. Bally’s Corp. is underway on its $940M casino and hotel complex along the Chicago River. Bozza, who is working on the project, highlighted it as a development that isn't isolated from the broader city community but is in the “heart of a neighborhood.”

Bally’s is looking to develop the neighborhood further, and other landowners in the area are soliciting mixed-use developments, which could boost tourism and keep people exploring the area, Bozza said. 

The final key to developing in neighborhoods, Bozza said, is designing a property that satisfies both residents and visitors. 

“Design not only for a tourist, but for locals,” she said. “So a tourist kind of feels like a local, and … a local feels like they're already on vacation, just walking to work past some of these developments.”