The Midwest rolls out the welcome mat: Hotel sales, development on the rise

by Dan Rafter

How hot is the hotel industry across the Midwest? Just ask Ronn Thomas, senior director of brokerage services with Cushman & Wakefield|NorthMarq in Minneapolis. This CRE pro in the past 15 months has helped close six hotel transactions for his clients.

These sales have stretched from Rochester, Minnesota, to New Richmond, Wisconsin. In 2015 alone, Thomas has closed three hotel transactions. And the market is showing no signs of slowing. Thomas already and has additional properties under contract as he works closely with clients including Kelly Inns, Titan Development & Investments, InterMountain Hotels and Marriott.

Thomas says that there’s no secret to the increase in business. It’s all about the economy.

Ronn Thomas

Ronn Thomas

“The economy is strong, so hotels will follow that,” Thomas said. “People are traveling. Businesses are sending their employees out into the field again. People are taking family vacations. Because of this, the hotels are doing well.”

Thomas points to his own market, Minneapolis/St. Paul. He says that a handful of new hotel projects are in the planning stage or under construction, with some ready to open in the next several months.

The Twin Cities is a strong hotel market today, Thomas said. The Mall of America in nearby Bloomington, Minnesota, always attracts travelers, and those travelers need places to stay. Then there are the Fortune 500 companies in the Twin Cities that attract business travelers.

The Minneapolis/St. Paul market is far from the only one seeing a surge in hotel sales and development. Marcus & Millichap, in its mid-year hotel report, said that the hotel business is on the rise across the country. Increasing demand for rooms had raised the annual occupancy rate of U.S. hotels to 65.2 percent at the midpoint of 2015, according to Marcus & Millichap. That is an impressive figure; Marcus & Millichap reports that this is the highest this rate has ever been, besting the prior record of 64.8 percent set 20 years ago.

CBRE in May reported that U.S. hotels saw an increase of 12.3 percent in net operating income during 2014. That marked the fourth consecutive year of profit growth higher than 10 percent. Even better? CBRE experts predict that this profit growth will continue throughout 2016.

The Minneapolis/St. Paul market is seeing a wide range of new hotel types hitting the market. Thomas said that select-service hotels are a big draw today. These differ from full-service hotels because they don’t offer services such as on-site restaurants or dry cleaning.

Because of this, they are less expensive to operate, which is attractive to owners. They also charge lower room fees, attractive to travelers. Brands in this category include Holiday Inn Express and Hampton Inn.

“These types of properties have higher margins,” Thomas said. “They don’t have the restaurant to worry. They don’t have that food-and-beverage component that involves staffing and service. They don’t have the overhead that a full-service hotel has. Consumers consider them to be a good value. They don’t have to pay for services that they aren’t going to use.”

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