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In announcing plans to develop a new hotel — in the midst of a pandemic that has ravaged the hospitality industry — the Milwaukee Bucks and North Central Group are counting on better days ahead.
Team officials and the Madison-based hotel developer recently announced their intentions to build a 230-room boutique hotel in the Deer District just north of Fiserv Forum in downtown Milwaukee. The Marriott International Autograph Collection hotel would be built on a 2.4-acre lot the Bucks have dubbed “Block 6,” at the corner of Juneau and Vel R. Phillips avenues.
What’s more, the team said this would likely be the first of two hotels they’d like to develop in the area around the arena.
The timing of the announcement may at first seem curious. Hotels nationwide, and especially those located in downtown Milwaukee, are still reeling from the effects of COVID-19. The pandemic took away a massive chunk of hotel business this summer, during what is normally the local market’s busiest season.
Industry data provided by Hendersonville, Tennessee-based STR Inc. shows downtown Milwaukee hotel occupancy rates never topped 40% between June and August. This is normally when area hotels are packed, as guests flock to downtown to enjoy the lakefront, Summerfest and other music festivals, or a Brewers game at nearby Miller Park.
But in planning three years out, the Bucks and NCG aren’t looking at existing conditions. They’re predicting better times ahead.
“We absolutely believe we will get past this,” said Jeff Lenz, NCG president and chief development officer, noting the company’s existing hotels went from average occupancies of 70-80% earlier in the year down to 10-20% in March.
“This hotel is not going to open until the middle of 2023,” he said. “We’re going to be through this and, really, our key right now is investing in the future and in places like this that have multiple demand-generating components — a corporate component, leisure component, entertainment component, dining services immediately adjacent.”
Doug Nysse, principal of Milwaukee-based hotel industry advisory firm Arrival Partners, said it will be “difficult to near impossible” in the near term to obtain construction financing for new hotel projects. But it is expected that things will change in the next 12 months, allowing for projects to be funded and move forward.
“Assuming it takes 18 to 24 months to build a new hotel, by the time it opens the expectation is we are well onto recovery,” he said.
Greg Hanis, hotel industry analyst and president of New Berlin-based Hospitality Marketers International Inc., said by making the announcement now, the Bucks and NCG are effectively fending off other developers who may be looking to do a similar project downtown.
He said that many developers would look at the prospect of one, possibly two, new hotels being added to the market as a red flag for their own projects. This is especially true given the current market conditions and the potentially long recovery period, he said.
“They have just literally secured their position against any additional competition coming into Milwaukee at this point,” Hanis said.
Michael Belot, senior vice president of Bucks Ventures and Development, predicted the hospitality business will stabilize fairly quickly once the COVID-19 outbreak is under control. He said people will again be drawn to the Deer District for its entertainment options.
“I think hospitality is going to come back fairly quickly once we get past everything, once vaccines develop,” Belot said. “Because people want to treat themselves and they want to enjoy themselves and have fun.”
Nysse said the hotel is certainly well situated to benefit from leisure travel, given the entertainment options nearby. But it will partly rely on corporate travel, he said. This market segment is more desirable because corporate travelers are less worried about room rates.
He said the new hotel could serve as a generator of that demand by helping to attract a large corporate tenant to the Deer District.
A big question for Hanis is how long it will take the group market – convention and large corporate event attendees – to return. He said demand from the group market ideally should be at least 50% of what it was pre-pandemic in order to support the two planned hotels in the Deer District.
“You’ve got to show a sign that individual hotels (downtown) are at least doing internal group business that’s supporting their occupancy, otherwise they’re just competing against the social leisure and corporate market in order to survive,” he said.
Staff writer Maredithe Meyer contributed reporting to this story.