Nate's Clothing building to go boutique

Most Twin Citians know the sturdy, early-20th-century brick building as the longtime home of Nate's Clothing in Minneapolis' Warehouse District. Perhaps some may recall the short-lived restaurant Om, which burned bright before flaming out amid a financial tangle last year.

Now, there's a new plan in the works for 401 1st Av. N. -- an outfit out of Sioux Falls, S.D., wants to turn the six-story structure into an upscale boutique hotel, the newest entrant in a growing hoard of small-scale lodging in Minneapolis.

"We've wanted to be in downtown Minneapolis for a very long time," said Tom Biegler, president of Regency Hotel Management. "This is the perfect opportunity for us, the perfect spot."

An affiliate of Biegler's firm, called U.S. Hotel & Resort Management, bought the 55,250-square-foot Nate's building for $2.7 million last month and plans to spend an additional $8 million to $9 million renovating it. A restaurant is planned for the street level, where the lobby and maybe a coffee shop will be located, as well.

The 1914 structure is listed on the National Register of Historic Places. Biegler is unsure how many rooms the space will accommodate on the second through fifth floors, which were gutted by former owners before they declared bankruptcy. A sixth floor was added as a potential penthouse, which will be surrounded by a rooftop garden, if all goes according to plan.

Regency is no stranger to the Twin Cities market or to the hotel trade. The firm owns and manages more than 30 properties nationwide, including the Crowne Plaza Minneapolis West in Plymouth and the Best Western Plus Bloomington Hotel near the Mall of America.

The firm also acted as the court-appointed receiver for the Hotel Ivy, which was mired in financial and legal woes before it was bought by Ameriprise Financial Inc. in August.

Biegler's firm will partner with Wayzata-based Milestone Investments Inc., which says it has partnered in various hotel investments worth more than $300 million.

"This is one of, if not the, busiest corners in Minneapolis," said Lou Suski, a broker with Minneapolis-based Gaughan Cos. who represented the seller, Central Bank of Stillwater. "It's a shell ready to be finished."

Central Bank foreclosed on the Nate's building -- also known as the Manufacturers building -- in January 2011. The original lender was Mainstreet Bank in Forest Lake, which was shut down by regulators after betting too heavily on real estate loans to developers and buildings. (Central Bank subsequently bought out Mainstreet's deposits.)

After Central Bank foreclosed on the property, the owners, a group called 401 Group LLC, declared bankruptcy a month later. The building has been vacant ever since, but remnants of the elegant eatery remain, including an expansive bar, a winding stairway and a chandelier that dangles between the first floor and basement, where Om's dining area was located.

It appears as though Minneapolis has caught up to the boutique hotel trend, championed in New York and London more than a decade ago by iconic hoteliers such as Ian Schrager. These smaller hotels typically have a sense of place and are usually unaffiliated with big chains such as Marriott or Radisson, although some chains have boutique brands.

"The success [in downtown Minneapolis] will depend on the business demand," said Kirby Payne, a consultant with Rhode Island-based HVS Hotel Management. "With its location, it may be easy to attract customers on weekends, with Target Field and the Warehouse District, but question is, 'Will business people stay there during the week?'"

The boutique patron, Payne added, "is different from the Hyatt customer who wants the same experience no matter where they go."

The overall Minneapolis hotel market has been improving since a sharp decline at the height of the Great Recession. The occupancy rate for hotels was 63.8 percent in 2011, an increase of 5.5 percent from the previous year, according to a report by PKF Hospitality Research.

The Indianapolis-based firm expects the occupancy rate in Minneapolis to increase slightly in the next year, and the room rate to inch up 4 percent.

PKF Vice President Mark Eble says a new boutique hotel in the Minneapolis market must separate itself from the competition to survive. "It takes savvy and a connection with the consumer. It's just like marketing any other consumer product."