Suburban Chicago , and the O’Hare Airport area in particular, may be the most distressed lodging market in the U.S. Last year, according to Smith Travel Research, RevPAR for O’Hare’s 50-some hotels was down 31 percent over 2008, a year in which it fell 10 percent. Occupancy slipped to 56 percent in 2009, and average rate fell 17 percent. Prolonged slumps in performance usually result in distress, and suburban Chicago is no exception. In the past six months, a number of high-profile properties have closed, filed for bankruptcy, defaulted or gone under supervision of special servicers.

• The 467-room Wyndham O’Hare closed New Year’s Day after its owner, Kennedy Associates Real Estate Counsel, defaulted on a loan and FDIC shuttered the property’s original lender, San Diego National Bank.

• Three days earlier, the 429-unit Sheraton Chicago Northwest closed, even though an adjacent, two-year-old, $25-million CoCo Key indoor water park remains operational.

•Following a foreclosure notice from Regents Bank, the owners of the venerable Wyndham Drake Oak Brook closed in November.

• The nearly two-year-old, 556-room InterContinental Chicago O’Hare filed for bankruptcy in August. According to David Neff, partner with law firm Perkins Coie, who represents the owners, the lenders have allowed the property to continue operating. And while no deals are imminent, Neff says “a number of entities have signed confidentialty agreements and are conducting due diligence on the property.” He adds that the property is doing relatively well, gaining market share and high guest satisfaction ratings.

The O’Hare situation is a classic supply and demand imblance scenario that demonstrates the fragility of any lodging market, even one as historically strong as O’Hare has been. As recently as 2007, occupancy for the market topped 72 percent with healthy gains in rate (up 5.7 percent) and RevPAR (up 5.0 percent).

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