Recent headlines have sent mixed messages about Milwaukee’s hotel market.
Last year, the Milwaukee Downtown Marriott
filed for bankruptcy, adding itself to a growing list of downtown hotels that recently went into foreclosure and bankruptcy. Meanwhile, Milwaukee-based The Marcus Corp. continued a $20 million renovation of The Pfister Hotel and announced
a $40 million renovation of the downtown Hilton Milwaukee, but that project also includes
shutting down 175 of its rooms, with Marcus leadership citing – in part – a weak hotel market.
Still, three development teams appear to be moving ahead on plans to build new hotels in Deer District, Westown and on the East Side.
Industry experts anticipate these trends to continue in the years to come with more challenges for hotels looming, but gaps in the market could give way to even more hotel development on the horizon.
Data doesn't bode well for Milwaukee
“Some hotels are underwater and are not covering their expenses,” said
Greg Hanis, hotel industry analyst and president of New Berlin-based
Hospitality Marketers International Inc. “Expenses have gone up significantly over the last few years, and room rate increases are not offsetting that.”
That analysis is largely based on numbers from real estate data company CoStar, which reported occupancy for downtown area hotels at 61.6% as of October 2024, down more than 16% from the same time period in 2019. The same report found that the average room rate as of October 2024 had increased 22% from 2019 levels to $178, but due to increased expenses, hotels only saw a 2% increase in revenue per available room, which is a better indicator of a hotel’s cash flow, industry experts say.
High labor costs, lack of consistent labor, increasing operational costs and refinancing of debt, among other factors, are all putting pressure on hotel operators, owners and lenders. The fallout from the pandemic isn’t helping either, largely due to a lack of business travelers since COVID-19 hit that are needed to provide a bulk of hotel business on weeknights and during the winter.
While other markets saw a slight increase in business travelers in 2024, that doesn’t appear to be the case in Milwaukee yet, according to Hanis.
“If I was commissioned to do a market study, which I've been doing for 42 years, and a developer said, ‘We want to build a new hotel in downtown Milwaukee,’ I'd have a hard time right now looking at these types of numbers and telling them it’d be a home run,” Hanis said.
[caption id="attachment_593537" align="aligncenter" width="768"]
The Trade hotel during the 2024 Republican National Convention.[/caption]
Room for new hotel development
However, CoStar data generally includes properties at all price points, including class C properties on the outskirts of downtown, which developers of new hotels do not consider competitors.
Citing proprietary reports,
Doug Nysse, hospitality industry advisor and director of project and development services with
Colliers | Wisconsin, said occupancy for class A downtown hotels is slightly higher than 61% and room rate is “considerably better” than $178 a night.
“We may not be over built, but we may be under-demolished,” Nysse said. “This market, whether it's downtown or including suburbs, has got some dinosaurs. There are hotels that are operationally obsolete and have hundreds of rooms but are maybe 30% occupied most of the time. If some of those were to be demolished, that would be beneficial to some of the newer properties.”
In December, Madison-based hotel development company North Central Group Hospitality (NCG), the developer of The Trade hotel that opened in 2023,
announced that it had finalized plans for another hotel in downtown Milwaukee’s Deer District, called Moxy Downtown Milwaukee.
“There's always the case of guests and customers looking for new experiences, and those new experiences are often provided by new hotels, whether it's a new brand in the marketplace or it's the repositioning or remodeling of a hotel to make it more appealing to travelers,” Nysse said. “That will continue in 2025 and beyond. There will be hotel developers that will find a way to build new hotels for those seeking out new experiences.”
There are some brands and some price points that are underrepresented in Milwaukee, Nysse said, adding that he anticipates an AC Marriott – typically a 4-star hotel – to be planned in Milwaukee in the near term, though he doesn’t know of any official plans.
“We’re still looking to fill some white space in Milwaukee,” Nysse said.
[caption id="attachment_601097" align="aligncenter" width="1024"]
The Moxy Madison Downtown hotel. Image from Marriott[/caption]
Further, Milwaukee-based HKS Holdings is continuing to refine plans for a Hilton Tempo hotel near the Baird Center downtown and a development group consisting of Milwaukee-based Klein Development and Milwaukee developer Jeno Cataldo recently completed demolition at a site on the city’s East Side for a proposed Hilton Tapestry hotel, though construction starts for both the projects have not been announced.
Industry experts agree that’s likely due to financing challenges as high interest rates and construction costs have made all real estate development challenging, and lenders are particularly hesitant to lend to hotel projects due to the market’s softening since 2019. The deals that are getting done nowadays are typically led by experienced hotel developers and often include some sort of additional financing through tax credits to renovate a historic property, as is the case with Marcus Corp. at the Hilton Milwaukee, or by acquiring a property at a discounted price, according to Hanis and Nysse.
"It's been a long recovery from the pandemic nationally and there are lots of hotels that are struggling," Hanis said. "But tourism has been strong, the group market has come back considerably, and there are developers that are still pulling off projects."
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