Hotel Activity Continues in Downtown Minneapolis; Overall Market Sees Slight Occupancy Decline

The Minnesota hotel industry, encompassing 877 properties for a total of 72,488 rooms, saw a decline in performance in second-half 2013. Occupancy decreased statewide from 56.9% in May 2013 to 54.4% in November 2013. The state is still slightly below the national average of 57.4%.

Hotels-YTD-0114_700px

The average daily rate (ADR) in Twin Cities hotels increased from $96.67 in May 2013 to $98.53 in November 2013. Revenue per available room (RevPAR)—the hotel industry’s key financial measure—increased by 6.5% overall year to date.

Among the submarkets, Bloomington has historically enjoyed the highest occupancy numbers, but Minneapolis is now outperforming all the submarkets with occupancy rising to 73.5% year-to-date. It is also now attracting the highest average daily rate at $142.30.

Outstate markets Duluth and Rochester also continue to see overall increases year-to-date in occupancy, ADR and RevPar and outperform the national average in all three indicators.

Continued Activity in Downtown Minneapolis
Heartland Realty Investors is under contract to buy the historic Plymouth Building in downtown Minneapolis and is considering converting it to a hotel. Heartland has a deal to buy the 12-story, 103-year-old building from TruCore Realty.

In addition, Heartland Realty Investors has acquired the upscale Hotel Ivy in downtown Minneapolis. The company will not rebrand the 136-room hotel, which is part of Starwood Hotels & Resorts’ Luxury Collection. However, it is planning a multimillion-dollar renovation—no structural changes, just some updated furniture, carpet and wallpaper—and weighing whether to reconcept the Porter & Frye restaurant. This will be the second hotel property for Heartland. The company bought the Holiday Inn Metrodome in late 2012. It was repositioned as the Courtyard Minneapolis Downtown earlier this year following a $17 million renovation.

The Hilton Minneapolis began work this fall on a $14 million renovation to its guest rooms and hallways. The guest rooms will get new bedding, window treatments, furniture and accent walls. They’ll also get mini fridges, new safes and 50-inch flat screen TVs. The Hilton is aiming to finish the project by late March 2014.

Summit Hotel Properties Inc. acquired the Hyatt Place Minneapolis Downtown from Hyatt Hotels Corporation. Summit, an Austin, Texas-based hotel investment company, paid $32.6 million for the 213-room hotel. The Hyatt Place Minneapolis Downtown is located at 425 South Seventh Street, a few blocks from the Metrodome.

The Marquette Hotel at IDS Center will undergo a $2 million renovation early next year. All 281 guest rooms will receive new carpet, paint, drapes and sheers. The lobby will also be renovated. Construction will begin in February 2014 and should be completed by late spring. The guest room upgrades will be completed in phases, allowing the hotel to remain open throughout the project.

Notable Transactions
In Bloomington, the Shakopee Mdewakanton Sioux Community will own a 330-room luxury hotel planned at the Mall of America, and the property likely will be branded as a JW Marriott. Mall officials confirmed that the Shakopee Mdewakanton Sioux Community has signed a letter of intent with the mall for the development rights to the project, which is part of a broader $250 million mall expansion.

Also in Bloomington, the Hotel Sofitel Minneapolis was sold to WB Hotel Partners, an entity majority-owned by Galleria mall developer Warren Beck. With 282 rooms, it is one of the largest Twin Cities hotels. Since its sale in September, the hotel was rebranded as a Sheraton and an $8 million renovation was announced.

In Brooklyn Center, the former Crowne Plaza Minneapolis North, located just north of Interstate 94/694 at 2200 Freeway Boulevard, sold for $2.75 million to Dallas-based Boxer Resorts. The new owner plans to renovate and rebrand the 13-story, 176-room hotel. Until then, it will operate independently as the Minneapolis Boulevard Hotel.

In Maple Grove, Apple Ten Hospitality Ownership Inc., a Richmond, Va.-based real estate investment trust (REIT), paid $12.7 million cash to buy the 120-room Hilton Garden Inn Minneapolis/Maple Grove. The 11-year-old, three-story hotel is located at 6350 Vinewood Lane North in Maple Grove. The seller was North Central Group Hotels, based in Middleton, Wis., which will continue to manage the property.

In Eagan, Morrissey Hospitality Cos. Inc, owner of The Saint Paul, has proposed a four-story, 123-room hotel next to the Paragon outlet mall that’s under construction. Morrissey has proposed to buy a 0.9-acre site at the intersection of Cedar Avenue and Highway 13. They have applied for the franchise rights for Hilton Hotels & Resorts’ Home2 Suites extended-stay brand. The all-suite chain, which doesn’t have other locations in Minnesota, features contemporary design, small kitchens and various high-tech amenities. The hotel would have 123 rooms with average rates of around $117 per night. It is tentatively scheduled to open in spring 2015, though Morrissey still needs to buy the land from the city and get city council approval for its plan.

In Shakopee, American Group of Properties, based in West Des Moines, Iowa, paid $2.8 million to buy the 175-room Americas Best Value Inn & Suites. The property is located at the highly visible intersection of Canterbury Road and Highway 169. Canterbury Park, the state’s largest horse racing track, is less than a half-mile away.

Outstate Activity
Two hotel projects are in the pipeline in Duluth and nearby Hermantown. One is a 75- to 80-room Holiday Inn Express Hotel & Suites near Miller Hill Mall proposed by the Lion Hotel Group. The project is expected to serve travelers from the nearby Duluth International Airport as well as shoppers at the Miller Hill Mall. The second is a 96-room La Quinta InnSuites & Hotel that would go on Maple Grove Road.

Finally, in Rochester, four new limited-service hotels are underway. Homewood Suites (108 rooms) is under construction across from St. Mary’s Hospital, and three others are planned in retail areas on major highways leading into town: La Quinta Inn and Suites (83 rooms), Comfort Inn and Suites (77 rooms) and Staybridge Suites (109 rooms).

Outlook
According to a recent report from the Penn State Index of U.S. Hotel Values, values are set to increase through at least 2014, led by particularly strong gains in the economy. Hotel values are projected to increase 8.8% during 2013, equating to a per-key value of $106,957. During 2014, values are projected to increase 6.9% to a per-key value of $114,334, according to the index.

Despite this increase, lenders and owners are worried about oversupply going forward. At the 19th Annual Lodging Conference, Fred Grapstein, senior VP of Vornado Realty Trust, express this concern saying, “There are 20% more rooms under construction today than there was a year ago, and 90% of them are in hotels with 200 rooms or less, and 65% of them are in the upscale or upper-midscale segments. In reality, we’re building the same box everywhere in the (United States), just with different brand names.”

In 2014, all eyes will be watching what happens around the Mall of America in Bloomington, the new Vikings stadium in Minneapolis and the Paragon outlet center in Eagan. While many projects are either planned or under construction, we will have to see if developers shy away from committing to new deals until the numbers reveal whether these rooms quickly fill or remain vacant.

To read more, visit the January 2014 edition of Cushman & Wakefield/NorthMarq’s Compass report, now available online.  Visit the web site: www.northmarqcompass.com

About Cushman & Wakefield/NorthMarq

​Cushman & Wakefield/NorthMarq is a joint venture formed in September 2011 by NorthMarq Real Estate Services and the Minnesota operations of global real estate services firm Cushman & Wakefield. By combining the talent of both organizations at the regional level with the global platform of Cushman & Wakefield, we offer clients the best combination of regional strength and global capabilities. The result: the leading commercial real estate firm by all measures in the Upper Midwest.
This entry was posted in Hospitality. Bookmark the permalink.

Leave a Comment

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s