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Hospitality industry experts say the flurry of hotel development activity in the northwest corner of the metropolitan Milwaukee area shows hotel owners and developers are confident the market will continue its turnaround from the COVID-19 pandemic.
The area of far-northwest Milwaukee, Menomonee Falls and Germantown along I-41 is where developers are working to build two new hotels and reposition others.
The latest proposed hotel is a 103-room SpringHill Suites by Marriott, which would be built at the Whitestone Station development in Menomonee Falls. It would be built next to an existing Home2 Suites by Hilton hotel.
Also expected is a new 122-room WoodSpring Suites by Choice Hotels southeast of North 124th Street and West Bradley Road in Milwaukee and the conversion of the Comfort Suites at the Park Place office park into a Holiday Inn Express and Suites.
Chicago-based Odyssey Hotel Group LLC also plans to redevelop the Holiday Inn Express it owns in Germantown into a Fairfield Inn & Suites. Rachit Dhingra, chief executive officer and managing director of Odyssey Hotels, said the hotel is adding a third floor for larger, two-room suites. It will go from 72 to 100 rooms. This will help the hotel capture some of the summer travelers it’s missing, such as people in town for sporting events, said Dhingra.
“By the time we’re done, this is going to be pretty much a brand-new asset,” he said.
This all follows the 2019 conversion of a Radisson hotel into a Delta Hotel by Marriott in Menomonee Falls.
Multiple factors have likely led to this flurry of hotel development activity in the area, said Doug Nysse, director of project and development services with Colliers International | Wisconsin.
One is that suburban hotels have largely performed better than downtown hotels throughout the COVID-19 pandemic. This is because suburban hotels are smaller than their downtown counterparts and don’t rely on large groups to fill their rooms, he said.
The northwestern suburbs are also seeing growth from employers, he said. This includes the Leonardo DRS and Milwaukee Tool corporate campuses in Menomonee Falls.
“(The companies) by themselves might not lead to a significant number of room nights generated, but you put them all together, and you put them around a center of gravity of growth of corporate travelers … then it becomes more convenient for those guests to stay nearby,” Nysse said.
Another indicator of confidence, Nysse said, is the new brands the existing hotels are taking on. He said when hotels are repositioned, they can get a stronger or weaker brand. If they get a stronger brand, they are moving up the chain scale, which runs from economy to luxury. The higher-end of the chain scale denotes pricier daily rates.
The hotel company behind the brand also matters. The premium brands, Nysse said, are Marriott, Starwood (part of Marriott), Hilton and Hyatt. The Radisson in Menomonee Falls upgraded to a Delta. Even though both are considered upscale brands, Delta is stronger because it’s by Marriott.
A review of industry data shows this corner of the market is still recovering from the effects of the pandemic, though it has been better off than in 2020. Through November of last year, the occupancy rate for hotels in this area was down roughly 16.5% from the same period in November 2019, the year before the pandemic derailed hotel business. That’s according to data provided by Hendersonville, Tennessee-based STR Inc.
Greg Hanis, president of New Berlin-based Hospitality Marketers International Inc., said although demand has not returned to pre-pandemic levels, hotels are getting more money for the rooms that are being occupied.
STR data showed average daily room rates of the hotel rooms fell in line with 2019 levels in August. They exceeded them in the following months through November. Average daily rate is another metric used to gauge industry performance.
Hanis said strength in average daily rates is being seen across the country and is a sign that hotel operators do not have to offer discounts to entice travelers.
“The hotels did not discount as much as they have in other recessions or economic downturns,” he said. “They said, ‘Well, people want to travel. Let them pay the rate.’ And that is pretty much what has happened here.”
Hanis said hotel developers in this market are likely thinking the same thing as others in the industry: 2022 is going to be a “significant swing year,” and the hotel market will be at or above where it was in 2019. He said if the new hotel projects break ground in early spring, they would be ready by 2023.
“By that time, if everything holds positive for the balance of the year, I think there’s going to be the ability for these markets to absorb an appropriate number of new rooms,” he said. ν