The downtown Milwaukee hotel market is making a comeback this year.
Occupancy rates at downtown hotels were up 14.7 percent to 66.0 percent in the first nine months of the year, according to Smith Travel Research (STR). Revenue per available room (RevPAR) is up 14.9 percent to $79.04 at downtown hotels in the first nine months of the year, according to STR.
“In this economy to have a 14.9 percent increase in RevPAR, that’s unbelievable,” said Greg Hanis, president of New Berlin-based hotel consulting firm Hospitality Marketers International Inc. “Downtown Milwaukee (hotel market) has to have one of the largest demand increases this year (in the nation). I can’t recall any other market in the country this year showing a 15 percent increase. I didn’t realize (the downtown Milwaukee hotel market) was doing this good.”
Downtown Milwaukee’s highest quality hotels are probably posting even better results, Hanis said.
The improved performance of the downtown hotel market is attracting hotel developers. Based on the STR data, Hanis predicts that downtown Milwaukee could support up to two additional hotels with about 150-450 additional hotel rooms.
At least three hotel developments are already in the works downtown:
- A 200-room full-service Marriott hotel proposed by Jackson Street Management LLC (which includes Ed Carow and Mark Flaherty of Milwaukee-based hotel development firm Wave Development LLC) southwest of Wisconsin Avenue and Milwaukee Street.
- A proposed redevelopment by Rosemont, Ill.-based First Hospitality Group Inc. of the 124-year-old Loyalty Building at 611 N. Broadway from an office building into a hotel.
- A 90-room, $18.8 million extended stay hotel proposed by Oregon, Wis.-based Gorman & Company in the Brew House building and the Mill House building located northwest of West Juneau Avenue and North 10th Street in the former Pabst brewery complex.
The Marriott project will be controversial because of the plans to tear down five buildings that are more than 100 years old and are in a historic district. Alderman Robert Bauman, who represents the downtown area, has promised to fight the project to preserve the historic buildings. “This is just economic waste,” he said. “There are plenty of other sites where they can build a new building downtown without destroying historic structures.”
However, the developers for the $50 million Marriott hotel project are not seeking a city subsidy and a spokesman says the project will create 200 permanent jobs and 450 construction jobs and would provide about $2.2 million in additional tax revenue annually.
“This is just what the doctor ordered for downtown,” said Evan Zeppos, a spokesman for the Marriott project. “It’s a major shot in the arm.”
First Hospitality Group is still conducting due diligence for the Loyalty Building project, and has yet to disclose details of its plans, except that it also plans to purchase the Mackie Building and would use the Grain Exchange Room in that building for meeting and event space for hotel guests. The 6-story, 92,000-square-foot Loyalty Building has a large atrium that could make it a good fit for a hotel.
Gorman & Company’s hotel project will be financed with $15 million in debt financing from Chinese investors through the federal government’s EB-5 program, which provides green cards and possible citizenship for foreigners that invest in the United States. Gorman is in the process of obtaining approval for all of the Chinese investors, Gorman said.
The Marriott hotel developers are also getting financing from foreign investors through the EB-5 program, Zeppos said.
Hanis said he had heard about another possible hotel project for an historic building along the Milwaukee River downtown, but was unaware of any additional details.
The interest by hotel developers is not surprising after reviewing the Smith Travel Research market data, Hanis said.
“No wonder people are getting excited,” he said.
The downtown Milwaukee hotel market, which has about 3,200 rooms, slumped in 2009. Occupancy rates for the first nine months of that year were down 16.5 percent to 57.5 percent.
That was a steep drop form 2008, which was when the downtown Milwaukee hotel market peaked with 68.9 percent occupancy rate, $88.13 RevPAR and $127.96 average daily rate for the first nine months of the year. For all of 2008 the occupancy rate was 63.6 percent, RevPAR was $80.65 and average daily rate was $126.48.
This year the downtown hotel market’s occupancy rates have returned to 2004-07 levels and RevPAR is back to 2007 levels.
Hotel room rates have been slower to recover. The average daily rate for downtown Milwaukee hotel rooms has only shown a 0.2 percent increase this year to $119.80.
The downtown hotel market’s return to 2007 occupancy rates and RevPAR levels is significant because in 2007 approximately a dozen hotel developments were proposed for downtown Milwaukee. However only a few were actually built: the 100-room Iron Horse Hotel at 500 W. Florida St., the 160-room Aloft hotel at 1230 N. Old World 3rd St. Just north of downtown, the 79-room Hotel of the Arts Days Inn opened at 1840 N. 6th St. The Staybridge Suites hotel at the southeast corner of Water Street and Juneau Avenue was only partially built and went into receivership.
In the post Great Recession economy the capital markets for commercial real estate development remain extremely tight, so it is unlikely that there will be a hotel development boom in downtown Milwaukee.
However, based on the STR data, Hanis predicts that downtown Milwaukee could support up to two additional hotels with about 150-450 additional hotel rooms.
“If hotel developers are looking at downtown Milwaukee they could be saying, ‘Hey, there might be some upside potential there.”
Downtown Milwaukee’s anchor businesses, especially Northwestern Mutual Life Insurance Co., are likely helping the downtown hotel market remain resilient by continuing to bring visitors here for meetings, Hanis said. Increased air service with more direct flights and record numbers of travelers at Mitchell International Airport also probably helps the downtown hotel market, he said. A strong convention year, including the American Legion convention in August, also has helped downtown hotels.
“It’s a combination of a lot of things, but it’s very impressive,” Hanis said. “I think Milwaukee is a very impressive market right now.”
