The Hotel Boom

Plus, Sherf says, “there is the expectation that we’re a Midwestern city, so we shouldn’t be charging New York rates.”

That said, the new crop of hotels is “a notch above the typical full-service hotels that this market has seen,” Barr says. Consider the Minneapolis Chambers, which will be the market’s first “boutique” hotel—an emerging breed of distinct, high-style properties with room rates to match. The Chambers will boast several food and beverage venues created by Jean Georges Vongerichten, an elite New York chef. The property’s public spaces will be outfitted with approximately 200 contemporary art pieces, some from Burnet’s private collection and others he purchased specifically for the Chambers.

“We have great hotels here—the Radisson, the Hilton, the Marriot, and others,” Burnet says. “They’re all great properties and we’re lucky to have them. But from a high-service, high-design standpoint, if you look at New York, South Beach, San Francisco, Los Angeles, and parts of Chicago, there has been a strong move to high-service, high-design, more intimate boutique hotels.” Burnet’s target customers include top business executives, high-profile artists and athletes, and deep-pocketed vacationers who prefer distinctive lodgings.

The Ivy Hotel will wear the five-star Luxury Collection brand, which Starwood has approved for only a few U.S. sites. “I think that the Graves 601, along with The Grand [Hotel, which opened in 2000 at Sixth Street and Second Avenue South in Minneapolis] kind of tested the water and proved that there definitely is a market here for the higher-end, higher–price point hotel,” says Russell Nelson, president and principal of Nelson Tietz & Hoye, a Minneapolis-based corporate real estate consulting firm.

Rising construction costs also are encouraging the upscale movement, Sherf says. “Construction has become so expensive that the only way to justify the cost of building a new hotel is to be able to charge a huge average rate,” he says. “And to do that, you have to call yourself a luxury hotel.”

According to Morrissey, “a luxurious hotel is about 300,00 to a half-million dollars a [room] key to build.” Based on the standard hotel-industry formula, he explains, if a developer’s construction costs are $500,000 per room, his room rates must average $500 (or 1 percent of per-room costs) to maintain the necessary cash flow.