Recent
news of
The Marcus Corp.'s plans for a major $40 million renovation of its downtown
Hilton Milwaukee hotel came with a somewhat surprising piece of information: the number of available guest rooms at the historic property will be reduced from its current 729 to 554.
As part of the project, expected to be complete by next summer, all 554 guest rooms in the hotel’s original footprint, built in 1928, will be refurbished with new bathrooms, modern amenities and upgraded heating and cooling systems. But the remaining 175 rooms located in the west tower -- added to the building in 2000 -- will no longer be utilized.
On its face, the decision to reduce the downtown Hilton hotel's room inventory may seem counterintuitive to local efforts to drive more visitors to the city and to prop Milwaukee up as a premiere destination for meetings and events. The Hilton is the city’s largest hotel and one of two hotels connected to the newly expanded
Baird Center, both via skywalk. The other is the 481-room
Hyatt Regency at 333 W. Kilbourn Ave. Both the Hilton and Hyatt are known as “convention headquarters” hotels, which are large hotels located in extremely close proximity to the convention center and, because of their large scale, can commit a high number of rooms to convention groups.
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The Hilton Milwaukee hotel in downtown Milwaukee.[/caption]
Industry experts say the number of rooms available in convention headquarters hotels is crucial to the city's ability to attract large-scale meetings and conventions. Milwaukee already falls behind many peer cities, like Indianapolis and Columbus, when it comes to rooms available in convention headquarters hotels. And now that the city's convention center has doubled in size -- thanks to the recent $456 million expansion project -- questions remain about the possibility of a third convention headquarters hotel, one that would help accommodate an expected 100,000 additional visitors to Milwaukee annually because of the expansion.
'Not a healthy market'
But now is not a good time to be adding more hotel rooms to the city's current supply, says Marcus Corp. CEO
Greg Marcus, who spoke to BizTimes on Thursday about the company's decision to reduce the Hilton's inventory.
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Greg Marcus[/caption]
Marcus pointed to the troubled state of downtown Milwaukee's hotel market, saying Milwaukee currently ranks eight out of 10 of its peer cities for RevPAR, or revenue per available room. He also pointed to a string of bankruptcies at downtown-area hotel properties in the past couple of years, including The Iron Horse, the Hampton Inn & Suites, the Cambria Hotel and the Milwaukee Marriott Downtown.
"That's not a healthy hotel market," said Marcus, who argues the city currently has too many hotel rooms.
With continued discussions of a third convention hotel -- one that would likely require some form of subsidy from the city -- the move to take 175 of the Hilton's rooms offline was made out of "
risk mitigation," said Marcus.
"We're making investment decisions that last many, many years, and I can't make an investment decision that's going to last years where someone's talking about coming in and subsidizing a competitor," he said.
Challenging environment
The seasonal nature of the hotel business is also a huge challenge in a city with long, cold winters. Downtown hotels can rely on what's usually a jam-packed events calendar in summer and fall for a steady stream of bookings during those few months, but it's a different story the rest of the year.
"We can talk about new conventions coming, but we still have to operate 365 days a year," said Marcus. "And so when you build lots of room inventory, you've got to hope that it can also be absorbed at other times too, not just for some big events."
The decline in business travel since the COVID-19 pandemic has been a problem for large full-service hotels like the Hilton Milwaukee because that business is crucial for filling rooms not filled by convention attendees and during the winter months, said
Greg Hanis, a hotel industry analyst and owner of New Berlin-based
Hospitality Marketers International, Inc. Leisure travel has recovered from the pandemic, but business travel has not, he said.
"With what has happened with the downtown office market, the corporate traveler market has probably shrunk in Milwaukee," Hanis said. "In between the large conventions you just don't have the corporate traveler that you had before."
In recent years downtown Milwaukee has added several smaller hotels, like The Trade, a 205-room hotel that opened last year in Deer District. Business travelers are increasingly choosing smaller, more intimate hotels than larger full-service hotels like the Hilton Milwaukee, Hanis said.
"The corporate traveler has changed its perspective a lot, they feel more comfortable going into a smaller hotel," he said. "I think what Marcus is doing is they're realizing it's very difficult to fill 700 rooms. The market just can't support it. They have to be competitive in a market that is obviously not showing the demand that's needed for 700 rooms."
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The Hilton Milwaukee's west tower.[/caption]
Future of the Hilton's west tower
The 175 rooms in the Hilton's west tower will "eventually" be removed from available room inventory, according to a news release announcing the renovation project. Once that happens, the 14-story addition could be repurposed into something else, perhaps multifamily housing, Marcus said.
"It's a nice building, well built. It's valuable real estate," he said.
Marcus also said the company would be open to ideas for keeping that part of the property operating as hotel rooms.
Hanis said the west tower of the Hilton Milwaukee hotel could be converted to a separate hotel with a different brand.
"It could be done that way if it can be separated out and the brand can figure out how to do it," he said.
