Real Estate Spotlight: Area hotel projects moving ahead despite market uncertainty

It was supposed to be a banner year for hotels in southeastern Wisconsin.

The market was coming off a strong 2019, the region was slated for plenty of new hotel developments, and operators were preparing for visitors to fill rooms for major area events, especially the Democratic National Convention.

Then the COVID-19 pandemic hit, leading to empty hotels and a shakier outlook for hotel developers.

Market data for hotels in downtown Milwaukee shows the extent of the pandemic’s impact.

“In the 45 years of being in this business, I have never seen it like this,” said Greg Hanis, an industry consultant and president of New Berlin-based Hospitality Marketers International Inc.

The data, provided by Hendersonville, Tennessee-based STR Inc., shows occupancy rates for downtown Milwaukee hotels no higher than 12.9% on a weekly basis for the five-week period beginning March 22 through April 25. By comparison, the downtown Milwaukee hotel occupancy rate for the full month of March 2019 was 70.1%, and in April 2019 the occupancy rate was 74.5%.

Other key metrics aren’t any better.

Compared to April 2019, the three weeks in April showed average daily room rates were down nearly 48% and revenue per available room was down 91.6%, said Hanis. The comparison isn’t apples to apples, since the April 2020 data was without a handful of days. Even so, the contrast is clear.

Hanis said hotel owners and developers have different perspectives of the current state of the industry, depending on their situation.

Those who are already running several existing hotel properties are more concerned with how to support their operations, make mortgage payments and pay their employees. As a result, many are likely pausing plans for new hotels.

“They’ve tabled development plans to see what will happen, they’re more concerned about day-to-day operations,” he said.

Individual developers and those in smaller markets are generally more optimistic, said Hanis. He said a project near the start of the development process is likely 18 months to two years away from opening. Their thinking, he said, is that they’ll finish their projects when the COVID-19 pandemic is over and the hotel market is strong again.

So, despite the struggles facing the hotel industry right now, there are still several hotel and meeting space developments in Milwaukee and throughout the region that are either in progress or expected to commence soon.

The largest of these is the proposed doubling of the Wisconsin Center convention space in downtown Milwaukee. The nearly $420 million project would expand  the facility to 300,000 contiguous square feet of exhibit hall space and add another ballroom of at least 30,000 square feet.

Although the project isn’t directly tied to more hotel rooms, it could lead to more overnight stays and encourage additional hotel development downtown.

Marty Brooks, president and chief executive officer of the Wisconsin Center District, told BizTimes earlier this spring that an expanded convention space would be able to host simultaneous or overlapping events. In particular, overlapping events would eliminate scenarios in which the Wisconsin Center is occupied by events moving in and out but is not bringing with it the demand for hotel rooms on those nights.

“It’s really giving us the ability to have hotels book over more nights,” he said.

The project could also raise the likelihood of more hotels being developed nearby. Potential development sites include the lot southwest of Wisconsin and Vel R. Phillips avenues, and the former Bradley Center site.

“I would love to see in the properties adjacent to or within a couple blocks of the convention center … one or several other full-service hotels developed,” Brooks said.

The downtown convention center expansion is slated for a 2021 groundbreaking, but WCD is waiting for the market to recover before it issues bonding for the project.

Coralville, Iowa-based Hawkeye Hotels and Bloomington, Minnesota-based JR Hospitality are continuing construction of a two-building, three-hotel project at the northwest corner of Clybourn and Jefferson streets downtown. Altogether, the hotels will add 331 new rooms to the downtown market.

Allison Ordman, a spokeswoman with Hawkeye Hotels, said construction is continuing during the coronavirus pandemic, and workers on site are following strict protocols to ensure the site remains as safe as possible.

The hotels are slated to open by the end of 2020, and the developers don’t plan to limit staff size or room availability.

“Nobody is certain what this summer and fall might look like,” Ordman said. “We have sales and operations teams in place who are actively working toward an opening in which these hotels are fully operational.”

Oak Creek is working with Wisconsin Dells-based Stand Rock Hospitality to develop a 121-room Homewood Suites by Hilton hotel and an 11,500-square-foot event space next to the Ikea store, northwest of Drexel Avenue and I-94.

Andrew Vickers, Oak Creek city administrator, said the project appears to be on track. He said Stand Rock hopes to close on the property by June 1 and commence construction shortly thereafter.

Further south, the proposed 35,000-square-foot expansion of Racine’s Festival Hall coupled with a new 171-room hotel is also moving forward in that city’s downtown. The city is working with Dallas-based Gatehouse Capital on the project.

Shannon Powell, a spokesman in Racine Mayor Cory Mason’s office, said the city speaks frequently with the developer. A project team is in place consisting of city and Gatehouse staff, “which works to move the development forward,” he said.

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Alex Zank covers commercial and residential real estate for BizTimes. Alex previously worked for Farm Equipment magazine and also covered statewide construction news at The Daily Reporter. He graduated from the University of Wisconsin-Eau Claire, where he studied journalism, political science and economics. Having grown up in rural western Wisconsin, Alex loves all things outdoors, including camping, hiking, four-wheeling and hunting.

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