Downtown DSM becoming a magnet for new hotels

When Ravi Patel, president of Hawkeye Hotels, started looking at downtown Des Moines in 2008 he saw a pocket of potential.

The city’s core, in the midst of a revitalization, lacked the kind of hotels business travelers demand.

Jump ahead five years, and the company is wrapping up construction on a pair of riverfront hotels — a Residence Inn scheduled to open next month and a Hampton Inn set to open in the summer.

A surge in hotel construction downtown promises to bring at least five new hotels with upward of 900 additional rooms — including a 400-plus-room hotel and convention center deal a local development group is expected to sign sometime this month.

What’s driving this rush to add hotel rooms?

“There was a niche that needed to be filled in the select-service mid-tier market,” Patel said. “There was pent up demand for that type of property and now everyone is jumping in.”

Assistant city manager Matt Anderson said developers are largely feeding off demand for limited-service and extended-stay hotels, the kind popular with corporate travelers for their reward programs and weekly rates. That includes Hawkeye Hotels’ two properties on Second Avenue between Market and Vine streets and a Holiday Inn Express planned south of Martin Luther King Jr. Boulevard.

Downtown missed out on a building boom in the 1990s that saw such hotels pop up around the suburbs.

New hotels planned for downtown will compete with those hotels, not downtown’s full-service properties like the Suites of Locust and the Renaissance Savory, Anderson said. “I don’t think they are going to be direct competition to the existing hotels,” he said.

Operators of existing hotels aren’t as optimistic. They say new hotels that will compete for their customers are getting an unfair advantage in the form of tax incentive packages.

“If businesses are looking to come and compete on a level playing field, everyone is welcome,” said Skip Hammerman, general manager of the downtown Embassy Suites. “As far as incentives and tax abatements, I don’t think that is something that should be given to new businesses. We don’t get those incentives.”

Burlington-based Hawkeye Hotels stands to receive a $1.1 million grant to build an attached 245-space parking garage as part of its $32 million project. That’s in addition to 75 percent property tax rebates for 15 years.

The company originally planned to build a Hampton Inn with a surface parking lot, but was prompted by the city to shift toward a denser project with two hotels and a garage.

Bob Conley, owner of the Holiday Inn Downtown-Mercy Campus, which recently finished a $6.5 million renovation without city funding, said he opposes the tax incentive deals. “The idea of underwriting these hotels tells you the hotels cannot stand on their own merits,” he said.

An incentive package also figures to be part of the deal for a hotel and convention center.

“It’s a very sensitive issue,” Greg Edwards, president and CEO of the Greater Des Moines Convention & Visitors Bureau, said of the planned new hotels. Existing hotel operators “see competition, and no one wants competition. But I also think they see the broader picture and the light at the end of the tunnel.”

The broader picture, Edwards said, is that a 450-room hotel and convention center could lure more major events downtown, bringing more customers for all the hotels.

The big catch, it’s no secret, would be an NCAA men’s basketball regional. Next year the NCAA will open the bidding for the 2017-19 basketball tournaments. If all goes to plan, a hotel and convention center would open in late 2016 or early 2017, Edwards said.

While March Madness makes headlines, it’s the lesser-known conventions that fill hotels. Groups including the National Association of Postmasters, the American Mosquito Control Association and the Women of the Evangelical Church are among the dozens of organizations that have turned down Des Moines for their conventions because the Iowa Events Center lacks an adjacent hotel.

Many of those events demand 600 or more hotel rooms, Edwards said.

Still, existing hotel owners see a new convention center as a benefit.

But Conley, the Holiday Inn owner, says the city shouldn’t go all-in for a convention center just to draw a basketball tournament and a few big events each year. The weeks when there are no events, the new hotel could siphon his customers. “You don’t build a cathedral for Easter Sunday,” he said.

Terry McLane, general manager of the Des Moines Marriott Downtown, said such hotels see good occupancy rates midweek when business travelers are in town but still struggle to fill rooms on the weekends.

Occupancy rates for the metro area have inched up a few percentage points each year since the recession, from 53.5 percent in 2009 to 63.3 percent during the first 10 months of 2013, according to the research firm STR. That’s slightly better than the national average, which was 61.4 percent in 2012, according to the American Lodging and Hotel Association.

Occupancy rates for downtown specifically were not available, but downtown hotel operators say their rooms are about 60 percent full. Edwards said he expects occupancy rates to fall a few percentage points for two to three years after a new hotel-convention center opens, then rebound as more travelers are drawn downtown.

Paul Rottenberg, president of Orchestrate Hospitality, a company that operates the Hotel Fort Des Moines and a handful of downtown restaurants, agreed that occupancy rates stand to take a hit at first.

But Rottenberg isn’t opposed to new hotels. In the same way Panera Bread and Jimmy John’s can benefit his nearby South Union Bread Cafe by attracting more lunchtime customers to the area, adding hotels downtown could broaden the customer base for existing hotels, he said. At least that’s the idea. “You have to hope that you are growing the market and you are not just cannibalizing,” he said.

Reported by:  Desmoinesregister.com