Downtown hotels show signs of life

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November 8, 2010
By: Gregory J. Scott
Gregory J. Scott
// The hotel market made it off life support this summer. Now a San Francisco-based operator is taking over the Grand Hotel. Are the bad times over for the hospitality industry? //

Credit the Twins and their sexy new stadium. Credit the corporations and their renewed commitment to business travel. Credit the in-state vacationers skipping the big trip to Disneyland.

Whatever the economic trigger, more people stayed in Downtown hotels this year. In fact according to Smith Travel Research, in terms of occupancy the hotels in the Central Business District have enjoyed 11 straight months of growth. Rooms got so packed this past July, the occupancy rate leapt to almost 78 percent — a two-year high, matched only by September 2008, when the Republican National Convention in St. Paul drew scores of travelers to the Twin Cities.

An average occupancy of 65 percent is considered a healthy norm.

And now Kimpton, a big-time luxury brand, has announced that it’s coming to Minneapolis, planting its flag on the iconic Grand Hotel.

But is it a sign that Downtown hotels have finally pulled out of the morass that began in early 2008, the one that sent Hotel Ivy into foreclosure and spurred a loan devaluation for the Hotel Minneapolis?

Or is Kimpton just one more historic boutique hotel brand joining an already crowded scene?

Ted Leines, principal of Leines Hotel Advisors in Eden Prairie, says it’s just a hotel.

“It’s not going to steer the market Downtown one way or the other,” he said. “I do think it signifies that the market is getting some national attention. But that’s in large part because there are some good deals here.”

Pebblebrook Hotel Trust, who acquired the Grand, got it at a steal in one of the most dramatic deals of the year. The company paid $33 million for the 14-story, 140-room property — $3 million less than what was originally discussed — and had threatened to back out of the deal as recently as August.

The bargain allows Kimpton to operate more efficiently in a market struggling with depressed room rates, Leines says. According to Smith Travel Research, the average daily rate Downtown for 2010 is currently $113.66, a four-year low.

The new crop of luxury hotels began to struggle in early 2008, Leines added, because brands like the Hotel Minneapolis, the Foshay and the Ivy “were dependent on a $300 average rate, when the average rate Downtown [at the time] was at $127. So that’s a huge leap they were trying to cover.”

And now, he says, “We’re seeing September start to flatten out. Downtown has rebounded quite a bit, but I don’t think it’s going to sustain that.”

But if Kimpton can hit a $200 average, he added, they’ll be fine.

“They’ll be able to pull from places like Hotel Minneapolis, the Foshay, the Marquette. That’s their whole angle.”

New Grand Hotel GM Amanda Parsons wouldn’t divulge a target average daily rate. She said that the new Grand would target instead a level of service, with amenities like Kimpton’s trademark wine happy hour mixer, beds and water bowls for visitors’ pets and a preference system that allows returning guests to tailor every aspect of their stay. Kimpton also touts a strong reputation in the LGBT community, scoring a perfect 100 percent rating on the Human Rights Campaign’s 2010 Buying for Equality guide.

Ron Vlasic, Kimpton’s regional vice president, said that increased occupancy Downtown had little to do with the decision to come to Minneapolis. Instead, it was simple customer demand.

“We’re in all major markets: D.C., New York, Chicago, L.A.,” he said. “And all of those cities have a direct tie to Minneapolis. So we have quite a few customers traveling here. And probably for the last five years, they’ve been asking, ‘When are you going to get a hotel in Minneapolis?’”

Kimpton’s ability to draw its loyalists from other markets bodes well for Minneapolis, says Meet Minneapolis CEO Melvin Tenant. Their presence makes his job of attracting corporate and leisure travel here easier.

And since the Grand is an existing hotel, its new rooms won’t add to the hotel inventory — unlike the Chambers, the W and the Hotel Ivy did. Tenant estimates that 1,000 hotel rooms were added in 2007 and 2008.

“It took a while for the market to absorb those,” he said. “And that is part of the decline in occupancy [in 2008 and 2009]. But now the market has absorbed those rooms, and we’re looking at another well-known brand putting its flag on an existing hotel. I think that certainly helps our ability to market Minneapolis as a destination.”

Asked about the recent boost in occupancy rates, Tenant was optimistic about a turn-around.

“We do see the momentum continuing to the holidays,” he said. “And next year, too.”

Reach Gregory J. Scott at gscott@mnpubs.com.