Building a world-class hotel on the old Nicollet Hotel Block in downtown Minneapolis has been part of United Properties' plans for the site for years. But the developer and its partners are still deciding whether a hotel is financially feasible for the massive project, said Bill Katter, president of United Properties, in an interview.

On Thursday, United Properties planned to submit an alternative plan to the city where the complex might only consist of office space.

"We haven't finished our thinking about the hotel, but I would say it has been a challenge to get the investment community to accept the required hotel overnight room rates," Katter said.

Developer United Properties and partner JMI Realty Inc. are supposed to submit land-use applications next month for their plans to redevelop the city-owned Nicollet Hotel Block on the northern end of Nicollet Mall. The name came from the 18-story hotel that used to occupy the site.

The most recent plans for the site entail a 36-story tower consisting of about 50 condos, a 280-room hotel and nearly 500,000 square feet of office space anchored by RBC Wealth Management. For years, United Properties has been in talks with Four Seasons Hotels & Resorts to operate the hotel, but last month United Properties hinted to the city that it might need to forgo the hotel and condos and replace those floors with apartments. Another alternative would be an all-office project.

"The challenges for the Four Seasons is the average daily room rate required to make the hotel actually a feasible investment for anybody is very high," Katter said.

The average daily rate (ADR) for hotels in the Twin Cities has been a cause for concern, Katter said. In the past couple of years, there has been a rush of new hotels in Minneapolis that have opened and increased the supply, he said.

For the Four Seasons to work, it would have to be able to garner a room rate 1.5 times higher than other hotels in Minneapolis, Katter said.

"They have much larger rooms than the industry standard, and then the level of finish throughout the hotel including the rooms is of the highest quality compared to anything else, and lastly, their level of service is much more costly. So when you put all of those things together, you have to get those overnight room rates," he said.

The hotel portion of the development is estimated to cost about $150 million, Katter said.

Another wrench in the plans is that city planners haven't been supportive of the design to include a porte-cochere along Hennepin Avenue for hotel drop-offs.

Despite these setbacks and other delays having to do with securing financing, Katter said United Properties will submit its land-use application. Developers expect to break ground on the complex in the spring.

Nicole Norfleet