The Hotel Boom

Consider Minneapolis, where occupancy rates hit 71 percent in 2005, up from 68 percent in 2004, according to Steve Sherf, senior vice president for GVA Marquette Advisors, whose Minneapolis office offers consulting and valuation services for real estate developers and owners. “That’s a pretty good jump,” he says. “The business traveler is back, the tourist traveler is back, and there’s been virtually no new supply added for a number of years, so occupancies have been running up.”

Average daily room rates are also up. According to Benjamin Graves, co-proprietor of the Graves 601 Hotel, which opened in May 2003 on First Avenue across from the Target Center, “the rate structure has gone up about 10 percent each year over the past two years in the core business area.”

Consequently, banks and investors are now looking favorably on hotel projects, and developers are following the money trail. “What really drives hotel development, of course, is availability of money. So when Wall Street or the insurance companies or other financial sources decide a hotel is a favored investment, then we see projects pop up all over,” Sherf says. “The positive growth rate has triggered the availability of money, so we now have people looking for places to build hotels.”

Everything Old is New Again

The trend for those developing hotels in downtown Minneapolis is to renovate existing—and historic—structures. Burnet, for example, built his Chambers Hotel in the former Fairmont building—which opened in 1908 as a hotel, but, in recent years, housed low-income residents and a street-level adult bookstore—and the adjacent ProColor Building, built a year before the Fairmont. The Chambers will be managed by hotelier Ira Drukier’s BD Hotels, which also operates New York’s Chambers Hotel.

Minnesota’s first Westin Hotel will be a 214-room property in the historic Farmers & Mechanics Bank building on Marquette Avenue and Sixth Street. Ryan Companies is developing the project. When construction is complete, Ryan will sell the finished property for an undisclosed sum to Connecticut-based HEI Hospitality. HEI will operate the hotel, which is scheduled to open in spring 2007.