Three days before the new Embassy Suites in downtown Minneapolis was slated to open, a brass chandelier hung in a jumble from the ceiling and lounge furniture was scattered around the lobby.
Employees and managers completed a mad dash to get the new hotel open in the renovated Plymouth Building last month. It’s a scene that will repeat often as Minneapolis and St. Paul experience an unprecedented surge of hotel openings this fall.
Six hotels, all under different brands, in the two downtowns will add more than 1,000 rooms to the Twin Cities hospitality market, which already has about 40,000 total rooms. Just this past week, a Hyatt Place opened in the old Post Office building in St. Paul. Hundreds more rooms are expected to follow in the coming years. Hospitality industry experts say the market can easily absorb the new capacity, at least while the economy is strong.
“I can’t really remember a time when we have seen this kind of hotel boom,” said Steve Cramer, president and chief executive of the Minneapolis Downtown Council and Downtown Improvement District.
In its Downtown 2025 Plan, the council said it wanted to grow the downtown core’s population in part by adding 1,100 hotel rooms. At the time the plan was created in 2011, there had been a lull in hotel room additions downtown, and the goal seemed “pretty audacious,” Cramer said. Minneapolis has blown past that target.
“I’m excited about all of this development taking place,” said Ronn Thomas, senior director of hospitality for Cushman & Wakefield/NorthMarq. “I think there was pent-up demand for additional rooms.”
With interest rates low and the economy solid, the hospitality industry tends to flourish. Some of the local hotel properties are aging and have given rise to more opportunities for fresh franchises. A lot of business has spilled out into the suburbs, but new downtown rooms surrounded by other development will help reverse that trend.
“When you get a certain amount of office density and residential density and restaurants ... hotel developers they see opportunity for the market that traditionally might have gone out” to suburbs, said Ted Leines, founder and chief executive of Eden Prairie-based Leines Hotel Advisors.
“The demographics have really shifted,” Leines said. “A lot of people will want to stay downtown.”
New hotels hope to add to that energy. Embassy Suites spent more than 18 months renovating the Plymouth office building, which had a prime location at Hennepin Avenue and S. 6th Street, close to the city’s theater and nightclub scenes as well as Target Center and Target Field.
“The Plymouth building with the location being right in the heart of downtown, Target Center, Mayo Clinic, Target Field, the light rail right behind us, it fit everything we wanted in a building,” said Larry Daniels, vice president of operations for HRI Lodging, which manages the Embassy Suites property.
The hotel opened Aug. 25 with 290 suites and modern features, such as meeting spaces with LED lights that could be turned to different colors. The hotel kept the century-old original doors on the lobby elevators.
On the other side of downtown Minneapolis, men in hard hats were hard at work one humid summer day as they tried to complete the bar area at the Radisson Red, the first in the United States in the newest brand line from Minnetonka-based Carlson Rezidor Hotel Group.
The hotel, near U.S. Bank Stadium and the new Wells Fargo complex, gears to customers with a “millennial mind-set.” It has no front desk and a mobile app that allows guests to unlock their rooms and chat with other guests among other functions. A large mural near the entrance by local artist Adam Turman helps give the property an art gallery vibe.
“We think that we can enhance the hotel experience through art, music and fashion,” said Rich Flores, vice president of branding for Radisson Red.
Across the river in St. Paul, the new Hyatt Place retains some of the character of the old Post Office building, with many of the hallways lined by the building’s original tan tile. The old wooden office doors with metal mail slots are also reused throughout the hotel.
“I feel like we’re right in stride with what’s happening,” said Danny Heggen, development project manager for Nelson Construction and Development, which acquired a portion of the building for the hotel with the help of its Virginia-based equity partner Red Leaf Development. The other part of the building is for apartments.
In St. Paul, new hotels are also planned near the Xcel Energy Center, including a 160-room Hampton Inn and Suites scheduled to open in December and potentially a Radisson Red.
In downtown Minneapolis, an AC Hotel Minneapolis Downtown is scheduled to open in October across from the Minneapolis Central Library and the independent Hewing Hotel in the North Loop will open by November. The existing Depot Renaissance Hotel has added 110 rooms, too.
Michael Roess, who plans to develop a hotel off Washington Avenue in Minneapolis, is waiting as he keeps count on how many hotels are coming onto the market and what the economy and construction costs will look like in three years. “There’s still room for a boutique hotel in Minneapolis, but it’s just a matter of timing,” he said.
Hotel planners and executives use a measurement called revenue per available room, or RevPAR, to track the health of a market. In the Twin Cities, hotels have seen RevPAR steadily rise over the last five years, according to commercial real estate services firm CBRE. In a report earlier this month, CBRE Hotels forecast that by the end of 2016, local hotels will achieve RevPAR of $79.28, a growth of 3.5 percent, over 2015. That is slightly slower than their forecast of 3.6 percent for hotels nationwide.
The market’s occupancy rate is expected to decline to 67.9 percent this year from 68.3 percent last year. As new hotels keep being built, occupancy is forecast to gradually decline to 64 percent in 2020.
Major one-time events coming to the Twin Cities like the Super Bowl and the X Games will help but won’t move the needle in the long-run, said Mark Eble, managing director of CBRE Hotels covering Minneapolis.
However, Eble said, as long as the economy holds, RevPAR will continue to grow through 2020.
“If we have a recession next year, it will be awful … If it’s just another year of 2 to 3 percent demand, occupancy rate will dip, but absent that, [new hotel rooms] will eventually be absorbed,” he said.