Hotel Market Anticipating Strong Development Activity

The Minnesota hotel industry, encompassing 928 properties for a total of 74,406 rooms, saw an uptick in performance in first-half 2014. Occupancy increased statewide from 54.4% in November 2013 to 57.3% in May 2014. The state is currently below the national average of 62.1%.

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The average daily rate (ADR) in Twin Cities hotels decreased from $101.72 in November 2013 to $100.99 in May 2014; however, that number is up 4.6% from May 2013. Revenue per available room (RevPAR)—the hotel industry’s key financial measure—increased 6.2% overall year to date.

Among the submarkets, Bloomington continues to enjoy the highest occupancy numbers at 68.6%, but Minneapolis still attracts the highest average daily rate at $132.68. Outstate markets Rochester and St. Cloud saw overall increases year-to-date in occupancy, ADR and RevPAR.

Notable Transactions

  • Summit Hotel Properties Inc., a Austin, Texas-based hotel investment company, acquired the Hyatt Place Minneapolis Downtown from Hyatt Hotels Corp. Summit paid $32.6 million for the 213-room hotel. The Hyatt Place Minneapolis Downtown is located at 425 S. Seventh Street. It occupies the middle floors of the Centre Village building, which also has condominiums and a parking ramp.
  • The Embassy Suites Hotel Bloomington sold for $24 million to Chelsea Hospitality Partners. The 218-room, all-suite hotel is located at 2800 American Blvd. W., along Interstate 494 between France and Penn avenues.
  • Graves Hospitality Corp. has sold its flagship 255-room Graves 601 Hotel in downtown Minneapolis to New York City-based buyer Loews Hotels & Resorts. The property sold for $65 million and is now called Loews Minneapolis Hotel.
  • New York-based Trinity Hotel Investors sold the 288-room Radisson Hotel Duluth Harborview for $8.2 million in April to Kaeding Management.

Development Activity

  • Mortenson Development is currently building a new Hampton Inn & Suites nearby at First Avenue and Eighth Street. It pre-sold that hotel to Summit Hotel Properties Inc., based in Austin, Texas, for $37.7 million. It is scheduled to be complete in the first quarter of 2015.
  • Heartland Realty Investors is working on plans for an ultra-luxury hotel in downtown Minneapolis. The company wants to convert the 12-story Plymouth Building at Sixth Street and Hennepin Avenue into a 270-room Conrad hotel. The company is under contract to buy the 104-year-old building and is finalizing a franchise agreement with McLean, Va.-based Hilton Worldwide Holdings Inc.
  • TMI Hospitality, a Fargo-based owner of hotel properties, became the first company to sign onto the 100-acre Woodbury development known as City Place. TMI is planning a 108-room hotel on a site it’s buying from Elion Partners, the group that is redeveloping the former State Farm property into a mixed-use project.
  • The Mall of America broke ground on a long-planned $325 million expansion, its largest construction project since the mall opened in 1992. The expansion includes a 342-room JW Marriott luxury hotel. The project is scheduled for completion in August 2015.
  • McGough Development announced plans to develop a 302-room Hyatt Regency hotel on a site it owns near the Mall of America and Minneapolis-St. Paul International Airport. The site is in McGough’s long-planned Bloomington Central Station development, which has a light rail stop and HealthPartners headquarters. The hotel is expected to open in early 2016 with 17,000 sf of meeting space, including an 8,250-sf ballroom.

Outlook
Downtown Minneapolis and Bloomington continue to see growth in the total number of hotel rooms and diversity in the supply, from market-rate to luxury. The growth in downtown Minneapolis is tied to the development boom, particularly centered on Downtown East and the new Vikings stadium that will host the Super Bowl in 2018. Mall of America is hoping that its expansion project will entice more of the mall’s millions of visitors to stay on site.

The hospitality industry is also seeing excitement in outstate markets. In Rochester, Mayo Clinic launched its 20-year, $5 billion investment plan to remake its flagship campus. This massive project is spurring waves of commercial development, particularly in the hospitality industry. The city’s Convention and Visitors Bureau estimates that Rochester could add an additional 2,000 rooms and 18 new properties by 2016. In Duluth, the continued strength of the tourism industry is driving new hotel projects along the waterfront and in nearby Superior, Wisconsin. There are approximately 400 rooms planned to be built during the next two years.

To read more, visit the July 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.
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