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Hotel developers flock to Milwaukee
May 24 2013

A quick rebound from the recession makes Milwaukee a popular target for hotel developers.

Highlights
  • Six hotels with 1,083 rooms are in the downtown Milwaukee development pipeline, according to STR.
  • Recent openings include a Hilton Garden Inn and an independent extended-stay hotel.
  • Occupancy, ADR and RevPAR for downtown Milwaukee improved in each of the past three years.

MILWAUKEE, Wisconsin—Milwaukee, Wisconsin, and particularly its downtown submarket, caught the eye of hotel developers, operators and brand companies looking for markets ripe for development. After several years of restrained supply growth, the city has seen a surge of new property openings and announcements.

“Back in the mid-2000s, there were about 20 hotel projects announced for Milwaukee, most of which never got built because of the recession,” said Greg Hanis, president of Hospitality Marketers International, a consulting firm with offices in Milwaukee and Florida. “Now that the market is doing well again we’re seeing hotel projects opening, under construction or announced.”

Today, six hotels with 1,083 rooms are in the in construction, pre-planning or planning stages of the development pipeline, according to STR, the parent company of HotelNewsNow.com. The submarket currently has 25 hotels and 4,089 rooms.

Recent downtown openings include a 127-room Hilton Garden Inn developed by Chicago-based First Hospitality Group and the 90-room Brewhouse Inn & Suites, an independent extended-stay property. Both hotels were adaptive reuse projects: the Hilton Garden Inn was created from the former Northwestern Mutual Life Insurance Building erected in 1886, while the Brewhouse Inn is in a former Pabst Brewery facility.

Several other hotels are in various stages of development. A 381-room hotel next to the Potawatomi Bingo Casino opens next summer, and earlier this year Kimpton Hotels & Restaurants announced a 158-room boutique property in the city’s Third Ward, a dining, shopping and entertainment district. The property is scheduled to open in 2015. Plans are less certain for a proposed but unnamed hotel that would be part of a lakefront high-rise development that will also include retail and residential.

The opening that is expected to make the biggest splash in the market comes in July, with the debut of the Marriott Milwaukee Downtown. The 205-room property, owned by a local investment group and managed by White Lodging, will be the first full-service Marriott-branded hotel in downtown Milwaukee.

“When the Marriott opens up, we’ll see what it does to the market,” said David Loeb, senior hotel research analyst with Robert W. Baird and Company. “On nights the city sells out—it’s not New York City where it’s 200 nights a year but it does happen—(guests) are pushed well out into the suburbs. This means they will be able to come back (closer to downtown).”

Recession recovery
The downtown market’s quick and strong emergence from the recession is one reason developers are drawn to the city. After falling steeply in 2009, occupancy, average daily rate and revenue per available room rebounded quickly in the following three years, according to STR data.

In 2010, RevPAR in the downtown submarket increased by 12.7%, followed by an 8.2% hike in 2011. Last year, RevPAR rose 3.4% while occupancy reached 65.4%. Since then, business has slowed; year-to-date occupancy through April was down 2.8%, ADR was nearly flat (+0.8%) and RevPAR was down 2%.

Local hospitality executives and analysts said the city has strong demand generators, including a robust convention business. Last year, according to Visit Milwaukee, the city hosted 262 conventions, an increase of 26.5% over 2011.

“Several factors drive the downtown hotel market,” said Kirk A. Rose, president of Marcus Hotels & Resorts, which is based in Milwaukee and operates three hotels downtown. “The downtown is vibrant and it’s a Midwestern city that for the most part hasn’t suffered from the manufacturing malaise that other cities have.”

Hanis sees the city as a “great price alternative” to cities such as Chicago and Minneapolis.

“It’s a market a lot of people and groups haven’t been to, so it is kind of new and fresh,” Hanis said. “It competes well with other secondary Midwestern cities such as Indianapolis, Columbus (Ohio) and to a certain extent, Cleveland. It’s also become a weekend getaway city in the summer for people from Chicago and Chicago suburbs.”

The threat of overbuilding
The prospect of a spike in new supply worries some local hotel executives who believe the market may become overbuilt.

“Milwaukee has always been a solid market, but like a lot of secondary markets it can only sustain so much new product,” said Robert Habeeb, president and COO of First Hospitality Group. “There is definitely the danger of killing the goose that laid the golden egg.”

With three hotels in the market—the 307-room Pfister Hotel, the 729-room Hilton Milwaukee City Center and the 221-room InterContinental Milwaukee—Marcus has the most at stake as new supply enters the market.

“While we’re always concerned with new competition, each of our hotels targets a different segment,” Rose said. “As the top luxury hotel in the market, the Pfister targets the business traveler and groups. The Hilton is the convention center hotel, and the InterContinental appeals a little more to the edgier business traveler.”

Loeb believes additional supply will create several issues for the Marcus properties.

“Will one of these new entrants decide that cutting prices is the way for them to build their cash flow and, if so, what impact will that have on the whole market and therefore Marcus?” he said. “I don’t worry about First Hospitality or White Lodging because they’re very shrewd operators who will want to make it a reasonable rate market, but who knows. And who knows about the (impact of) the casino hotel.”

He also points to the power of the Marriott brand and its robust frequent guest program and whether the Pfister, in particular, will be able to maintain its loyalty among business travelers.

“The challenge for Marcus is to find ways to appeal to those travelers, although they still have some advantages for groups because they have big space and good space right in the center of downtown,” Loeb said. “And the Marcus name means a lot in Milwaukee so they’ll still have appeal for charity events, family functions, weddings and the like.”

Battling back
Marcus and other operators in the market are reacting to the new supply challenges in a variety of ways.

Rose said Marcus “continues to invest in our properties.” This year the Pfister opened a club lounge on the 23rd floor of its tower building for guests on its concierge level. And earlier this month on the same floor it opened Twenty 3, a high-tech boardroom. Later this year, the company will renovate the 176 rooms in the tower building. 

Tim Dixon, principal at Dixon Development and owner of the 102-room Iron Horse boutique hotel in downtown, said it’s important to be constantly upgrading the hotel.

“A secondary market draws transient guests typically from gateway cities and primary cities, so when they come to a market like Milwaukee they’re looking for their expectations to be matched with what they’ve always had in their own cities,” Dixon said, adding his hotel will undergo a major renovation starting in 2016. “We try to provide an outstanding product at a gateway city level of amenities and finish.”

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