Three hotels are under construction in downtown Milwaukee: a 205-room Marriott hotel southwest of Wisconsin Avenue and Milwaukee Street; a 128-room Hilton Garden Inn hotel in the historic Loyalty Building at 611 Broadway; and the 90-room Brewhouse Inn at the former Pabst brewery complex.
When compete, the three new hotels will add 423 rooms to the downtown hotel market supply.
A fourth downtown hotel project remains in limbo, but could resume this year. The half-built Staybridge Suites development at the southeast corner of Water Street and Juneau Avenue has been halted for about three years and has been mired in receivership. The project could finally emerge from receivership this year and resume construction. However, the eventual buyer of the property will have to determine if the building still becomes a hotel and if that hotel is a Staybridge Suites.
“Staybridge Suites has not been part of the project for awhile,” said Ben Stern, an attorney for the receiver, Seth Dizard. “Whoever ends up with the property might make it a Staybridge Suites, but they might not.”
If completed, the Staybridge project would add yet another 126 hotel rooms to the downtown market. Combined with the other three hotels under construction, the downtown market could add 549 rooms during the next two years. By comparison, Hyatt Regency, the second-largest hotel in downtown Milwaukee, has 481 rooms.
But the biggest splash of all could come from the Menomonee Valley, just outside of downtown, where the Forest County Potawatomi tribe plans to build a 382-room hotel next to Potawatomi Bingo Casino.
If all of these projects are built, the city’s hotel market will add 931 rooms. That is a lot of hotel rooms for a market like Milwaukee to absorb. Currently there are about 3,500 hotel rooms in downtown Milwaukee.
Greg Marcus, the president and chief executive officer of The Marcus Corp., which owns the Pfister, Intercontinental and Hilton hotels downtown, says he is concerned about the huge increase in hotel room supply coming to the downtown area.
“The numbers are shocking and speak for themselves,” Marcus said. “Clearly, with this unprecedented increase in supply and no new demand on the horizon, we are headed for trouble. Milwaukee is not above the law of supply and demand.”
“It’s overkill,” said hotel industry consultant Greg Hanis, president of Hospitality Marketers International Inc. “The (downtown Milwaukee hotel) market is doing well, but it is not doing as well as you would expect for all of these hotels to come online.”
The downtown Milwaukee hotel market had a very good year in 2011. According to Hendersonville, Tenn.-based Smith Travel Research, downtown Milwaukee hotels had a 64.7 percent occupancy rate, higher than pre-Great Recession levels which peaked at 64.0 percent in 2008. The total amount of hotel rooms sold in the downtown area was 826,757 in 2011, up 8.4 percent from 2008.
However, the 2011 average daily rate ($119.73) and revenue per available room ($77.46) trailed 2008 levels for ADR ($125.15) and RevPar ($80.08).
“This increase in supply is certainly not warranted by our market performance,” Marcus said. “Although occupancy has come back to pre-recession levels it is at a much lower (room) rate. You don’t take occupancy to the bank. You take the combination of occupancy and rate to the bank, expressed as RevPar. RevPar has not returned to pre-recession levels.”
The downtown hotel market could struggle to maintain its 2011 performance when all of the new supply is added two years from now.
“Unless we have major demand growth in the next two years the existing properties are going to experience a hit in absorbing these rooms,” Hanis said.
The new hotel projects are being artificially supported by subsidies, Marcus contends.
“Not one hotel, planned or recently built (in downtown Milwaukee), has been developed based upon the economics of the hotel itself,” he said. “The Aloft, the Marriott, the Brewhouse Inn and the Hilton Garden Inn all have subsidies from the sale of green cards (via the federal EB-5 program), new markets tax credits, or both. Added to this scenario, Potawatomi is now building a hotel that is essentially subsidized by its gambling operation.”
But the developers of the new hotels believe they are each serving a niche in the market.
The Potawatomi hotel will target the most specialized market segment. The tribe says its hotel is intended to be an amenity for its gaming patrons and will provide little competition to the rest of the city’s hotel market. The tribe commissioned a study by Memphis-based hospitality consulting firm Pinkowski & Company, which says that 90 percent of the Potawatomi hotel’s guests will be new hotel stays in the city with visitors who otherwise would not spend the night in Milwaukee.
“Is (90 percent) a realistic number? I don’t think it is,” Hanis said. “That is just not going to happen. Where are they going to get these people from?”
Chuck Pinkowski, the owner of Pinkowski & Company, and Martin Boscaccy, a consultant with the firm, said the casino will attract more gambling patrons if it has a hotel. In addition, current casino patrons will stay longer if the casino has a hotel, they said. Those two factors create additional hotel customers for the market, they said.
“People are more likely to come to a casino if there are hotel rooms associated with it,” Boscaccy said.
The casino says it already has about 6 million visitors a year, making it the top tourism destination in the state. The most commonly asked question by casino patrons is, “when are you going to get a hotel?'” said casino general manager Mike Goodrich.
Casino hotels operate much differently than other hotels, Pinkowski and Boscaccy said. Casinos use their hotels to keep their best customers at the casino longer. Often, the casino’s best customers get hotel rooms “comped” for free, which entices them to stay longer and gamble more.
“Each player has a calculated value. Casinos have a formula (to determine who gets free hotel rooms, meals, etc.),” Pinkowski said. “It’s not necessarily how much you lose. It’s the amount of time you spend at the tables and the slot machines. It’s all part of their strategy to keep the significant players there, keep them in the casino. It’s really a different type of business from a lodging perspective.”
“Casino hotels operate so different than a traditional hotel,” Hanis said. “They use the hotel as a loss leader to get people in the casino. Anything they lose discounting rooms they can more than make up with additional gambling revenues. If (the hotel) breaks even, they’re happy.”
The Potawatomi casino hotel will not be able to attract many business travelers or convention attendees, Hanis said. But he predicts it will compete with existing downtown hotels for leisure travelers.
“The weekends are going to be interesting to watch,” Hanis said. “(The casino hotel) will impact the adult leisure market. (But) it won’t be a family hotel. You’re not going to take your kids there. What are they going to do?”
The Potawatomi tribe says their hotel will be a “four-star/four-diamond” level property with a full-service spa, a casual-dining restaurant and a sky lounge, bar and deck.
The developers for the Marriott hotel also promised that it would be of “four-star” caliber. As a new property it will have an advantage over the other full-service hotels downtown, but now it could also face competition from the Potawatomi property. Still, a spokesman for the project said the developers, Jackson Street Management LLC, are not concerned about any of the other hotel developments, including the Potawatomi project.
“There are a lot of projects, but we think it is better to have more investment in the marketplace,” said Evan Zeppos, spokesman for Jackson Street Management. “More investment in Milwaukee is a good thing. More traffic in and out of town is a good thing for everyone.”
The Marriott hotel will cater to a different market than the casino hotel, Zeppos said, and will appeal to visitors that want to be near the business, dining and cultural destinations in the heart of downtown.
“They are two very different projects with very different clientele,” Zeppos said. “For our guests, the casino is not the sole purpose of their visit. They might go down there, but they want to be in the downtown hub near attractions, museums and restaurants.”
