Des Moines group plans hotel at former St. Paul post office

By Kevin Duchschere kevin.duchschere@startribune.com

One of downtown St. Paul's most historic buildings — the city's longtime central post office, vacant for five years — will be transformed next year into a place where you can either spend the night or hang your hat.

Officials with Nelson Construction and Development of Des Moines said this week they will build a 149-room business-class hotel on 4½ floors of the 17-story art deco Custom House building, the balance of which local developer Exeter Realty Co. already is turning into 202 high-end apartments.

The hotel development is the latest sign that things may be picking up in the downtown St. Paul market, where two large hotels are in the midst of major renovations and hopes persist for another new hotel near the Xcel Energy Center.

The Nelson project, to be a Hyatt Place franchise, will share the lobby of Custom House with the apartment complex and occupy the second through fifth floors.

In addition to guest rooms with 13-foot-high windows, it will include an indoor pool, fitness area, lounge and meeting rooms.

Nelson last week paid $2.85 million for the hotel portion to Exeter, which bought the building in 2013 for $5.25 million. Nelson will begin demolition in March and expects to open in April 2016, shortly after Exeter begins accepting apartment tenants.

Nelson, which has turned other historic properties into hotels in Des Moines and Omaha, has been working for months on designs for the St. Paul hotel, Heggen said.

"The building never could be re-created — it doesn't make sense economically," he said. "The challenge is knowing which pieces of fabric to retain and which pieces you can refresh."

The total renovation cost for the old post office is expected to top $100 million, with about $25 million of that covered by tax credits for historic buildings. The project also has received $5.8 million in tax-increment financing from the city, and cleanup grants from the Metropolitan Council and the state Department of Employment and Economic Development.

Last fall, Opus Development Co. and Greco Real Estate announced plans for an ambitious housing and retail project at W. 7th Street and Kellogg Boulevard that would include a hotel to serve convention center traffic.

And this summer, a multimillion-dollar renovation project at the Crowne Plaza Riverfront will be finished and the 414-room luxury hotel will open as the InterContinental St. Paul. That hotel and the DoubleTree by Hilton, also being renovated, were purchased two years ago by the Mille Lacs Band.

Graves said that they passed on developing a hotel at Custom House, but he added that the downtown market will accommodate Nelson's entry.

"We'd be a tiny bit interested in a convention center hotel, but it would have to be subsidized," he said.