Hotel developers are back

In early 2007, before the economy collapsed into the Great Recession, hotel development was hot in the Milwaukee area. At that time there were at least 11 proposed hotel developments in the downtown Milwaukee area and another dozen hotel developments that were proposed or under construction in the suburbs.

The Great Recession killed most of the downtown projects. Only two of the hotel projects in the downtown area, The Iron Horse Hotel in Walker’s Point and the Aloft hotel in the Park East corridor, were completed. A third development that included a Staybridge Suites hotel at the southeast corner of Water Street and Juneau Avenue was half built and then halted when developers ran into financial problems. That project remains in receivership.

The suburban hotel projects fared better during the Great Recession. Since early 2007, new suburban hotels include: a Hilton Garden Inn and a Staybridge Suites in Oconomowoc, a Staybridge Suites in Franklin, Hampton Inn and Suites hotels in West Bend and in Grafton, a Crowne Plaza in Wauwatosa, a Comfort Suites hotel on the far northwest side of Milwaukee and several hotels near Mitchell International Airport ,including: a Hilton Garden Inn, A Candlewood Suites, a Fairfield Inn & Suites and a Sleep Inn and Suites.

In 2010, the travel industry began to recover as the economy slowly improved following the end of the Great Recession. Hotel occupancy rates have improved and hotel developers are back with several projects in the works downtown and in the suburbs.

“Here we go again,” said Greg Hanis, president of New Berlin-based hotel industry consultant Hospitality Marketers International Inc.

At least three hotel developments are planned for downtown Milwaukee:

  • Jackson Street Management LLC (which includes Ed Carow and Mark Flaherty of Milwaukee-based hotel development firm Wave Development LLC) plans to build a 200-room full-service Marriott hotel southwest of Wisconsin Avenue and Milwaukee Street.
  • Rosemont, Ill.-based First Hospitality Group Inc. recently purchased the Loyalty Building at 611 N. Broadway. The firm plans to convert the 124-year-old office building into a 200-room hotel.
  • Oregon, Wis.-based Gorman & Company plans to transform the former Brew House building and Mill House building located northwest of West Juneau Avenue and North 10th Street in the former Pabst brewery complex into a 90-room boutique hotel.

In addition, work could soon resume on construction of the half-completed Staybridge Suites building downtown. The project is in receivership and lawyers are trying to iron out how much money investors, lenders and contractors will get once the building is sold, said Ben Stern, an attorney for receiver Seth Dizard.

Once that is determined, the building will be sold to the highest bidder. Several hotel developers have expressed interest in building the half-built structure, Stern said.

“There has been increased interest in the last several months,” he said. “Many parties have shown interest in the property.”

Wave Development made an offer to purchase the building, which was accepted. However, the receiver must accept the highest offer and other developers could out-bid Wave Development, Stern said.

A resolution about who will receive what proceeds from a sale could be worked out by June or July, and then the sale can move forward, Stern said.

Meanwhile, more hotels are planned in the suburban areas, despite the significant number of hotels added in the suburbs since the start of 2007.

A Courtyard by Marriott hotel is under construction at 4620 S. 5th St., near Mitchell International Airport. Another developer, Syner G, is working on plans to build three hotels southeast of Howell Avenue and College Avenue, also near the airport, in Oak Creek.

In Menomonee Falls, a 135-room Radisson hotel recently opened at N88 W14750 Main St. The building was formerly occupied by Falls Inn and was significantly remodeled.

In Mequon, Cobalt Partners LLC is planning a mixed-use development northwest of Mequon Road and Port Washington Road, which would include a hotel.

Interest in hotel development has picked up because of improved occupancy rates and room rates in the national and Milwaukee-area hotel markets, Hanis said.

“In 2010, the last half to two-thirds of the year saw big growth in demand (for hotels nationally),” he said. “That’s continuing into 2011. I think you’re starting to see rates coming back, so revenues are looking good.”

Occupancy and room rates are back to around 2005-06 levels, Hanis said. Those rates peaked in 2007-08.

Many investors waited out the Great Recession. Now that the economy has improved and the hotel industry is showing signs of recovery, investors are backing more hotel projects, Hanis said.

“A lot of people were sitting on the sidelines waiting for this time period,” he said.

The Milwaukee area has shared in the national hotel industry recovery, Hanis said. The Milwaukee area is outperforming several other similar metro areas, he said. Additional air service and record passenger numbers at Mitchell International have boosted area hotels. Low prices in Milwaukee have helped attracted conventions, Hanis said.

“Demand has really come back very well in Milwaukee,” he said. “It seems to be across the board, not just in one pocket of the area.”

But despite the improvement in the market, the Milwaukee area likely cannot support all of the proposed hotels, especially in the downtown area, if they all open at the same time, Hanis said.

“The critical thing with hotel development is timing and the absorption of new rooms,” he said. “You can’t absorb all of these hotels at one time. (Their openings) need to be staggered. Timing is very critical.”

Hotel developers often announce projects in an attempt to scare off competitors, Hanis said. It remains to be seen which of the proposed projects actually get built.

“The age old problem is, will all of these get financing?” Hanis said.

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Andrew Weiland
Andrew Weiland is the editor of BizTimes Milwaukee. He joined BizTimes in 2003, serving as managing editor and real estate reporter for 11 years. A University of Wisconsin-Madison graduate, Weiland is a lifelong resident of the state. He lives in Muskego with his wife, Seng, and son, Zachary. He is an avid sports fan and enjoys coaching his son’s youth baseball and basketball teams.