Rental apps become a key to reviving old Minnesota hotels

There's a glut of empty hotel rooms across the state, but Grant Carlson is betting that technology and a growing penchant for close-to-home getaways will help revive a pair of historic boutique hotels he's acquired since the start of the COVID-19 pandemic.

In early 2020, Carlson and a group of investors bought the Grant House Hotel in Rush City, about an hour north of the Twin Cities. A year later, they bought the Anderson House Hotel in Wabasha, which for many years touted an unusual amenity: A room filled with cats that could be lent to guests for the night. Both hotels are on the National Register of Historic Places.

"That market has exploded during the pandemic," Carlson said. "I'm a big proponent of reusing historic buildings and recycling them and bringing them into their next chapter of life."

Small, old hotels in small towns are notoriously challenging. They need upkeep that can be expensive and confront demand fluctuations that are more extreme than in urban markets.

Carlson is betting he'll succeed by running them like short-term vacation rentals, like those on AirBnb and VRBO.

Most short-term rentals are operated by people looking to make a little extra money by renting out a spare room or a vacation property when they're not using it. But a growing number of those listings on those sites are being posted by more traditional hotel operators.

AirDNA, a market research firm focused on short-term rental companies, said that since 2019 there has been a more than 75% increase in the number of hotel rooms listed on Airbnb in the United States.

Liz Rammer, president and CEO of Hospitality Minnesota, said the pandemic itself has driven a radical shift in the way traditional hotels operate and market themselves. Today, the average hotel occupancy rate in the state remains below 40%.

At the same time, the industry is suffering from a dramatic shortage of workers, forcing many hotels to embrace the kinds of practices that are standard among short-term rental offerings.

That means hotels are continuing to offer the kind of pared down, limited-contact services they started to offer during the worst of the pandemic. That includes touch-free check-ins on mobile devices and the elimination of daily housekeeping and turn-down services.

"His [Carlson's] timing could not be more perfect," said Megan Kellin, publisher of Lake Time Magazine and owner of Hotel Rapids, an event center and several short-term rentals in and around Grand Rapids, Minn.

Reducing labor costs can dramatically improve the economic viability of smaller hotels like the ones Grant acquired, Kellin said.

Kellin said the lodging industry has become increasing segmented because travelers have very specific expectations. Airbnb customers, for example, tend to look for a more unique lodging experience like they'd find in a historic boutique hotel.

Legally, however, there is little difference between a rental suite in a privately-owned home and one in a more traditional hotel, according to Ben Wogsland, Hospitality Minnesota's executive vice president. He said lodging providers in Minnesota are all supposed to be licensed to ensure the health and safety of guests. The estimated 8,000 short-term rentals in Minnesota are not licensed.

Carlson said that his foray into the hotel business is a natural extension of Superior Stays, a vacation rental business he and several partners launched a few years ago. That company operates nightly rentals in Minnesota, North Dakota and Wisconsin. In Minnesota, that business manages several lakeside condominiums along the North Shore of Lake Superior in Lutsen and a growing number of downtown Minneapolis apartments and condominiums.

At the Anderson House, which is just down the street from the National Eagle Center, where a massive expansion is underway, and at the Grant House in Rush City, the physical transformation of the buildings is still in its "infancy," Carlson said. Upgrades will include EV charging stations and a touch-free check-in system.

"Small hotels in small markets are historically an operational nightmare," he said.

The Anderson House, which is considered the oldest operating hotel in Minnesota, is fully operational but will require more significant upgrades beyond the bedding and linens that have already been replaced. Because of the building's historic status, he plans to fund some renovations with grants and federal tax credits. Last week, the Wabasha Port Authority voted in favor of a zero-interest loan that will help finance some of those improvements.

One of Carlson's highest priorities for that hotel is reopening the Lost Dutchman, a speakeasy-style bar in the basement. He's also working with Twin Cities-area chefs on a rotating schedule of pop-up-style meals. He tested the concept in February for the town's Grumpy Old Men Festival by hosting lunch prepared by a former chef at the Spoon and Stable restaurant in Minneapolis.

Carlson said that while the pandemic has made the profit model for such hotels even more challenging in some ways, it has created opportunities by making them more affordable.

"We're coming in at the right price," he said. "And we're buying a brand that's been there for over 100 years."

Carlson, who has more than 20 years' experience in commercial real estate and development, is converting a former county jail in Duluth into income-restricted rental apartments. He hopes to keep adding historic hotels to his portfolio.