Checking into the hotel sector
The Twin Cities hotel market has been growing with a full head of steam the past few years, and despite a slower start in 2014, the pace appears to be continuing. It might be difficult to top recent record years, but investors still are finding plenty to like in the Minnesota hospitality sector.
“Everybody’s happy right now — it’s the perfect market,” says Jon Ruzicka, a Minneapolis-based associate in the national hospitality group at Marcus & Millichap. “In 2014 we’re looking at the fourth year in a row for growth. It’s going to be a good year for hotels.”
Both sales and new construction are thriving, fueled by low interest rates, more cash for hotel deals, and record-breaking occupancy rates. In 2013, Minneapolis hit a stellar 72 percent and St. Paul had 63 percent — a very good showing for the capital city, says Lowell Lankford, a hotel broker with KW Commercial in Wayzata.
Minneapolis-based Ryan Cos. US Inc. is partnering with Carlson Rezidor Hotel Group to build a 150-room Radisson Red hotel and a 200-unit apartment building under one 27-story roof — a $101 million project. (Submitted rendering)
Minneapolis-based Ryan Cos. US Inc. is partnering with Carlson Rezidor Hotel Group to build a 150-room Radisson Red hotel and a 200-unit apartment building under one 27-story roof — a $101 million project. (Submitted rendering)
“Whenever hotels are having very good years, then that generates the excitement and enthusiasm to go ahead and continue to build more,” says Lankford, adding that these robust results attract investors from outside Minnesota. “When an area cracks into 72 percent occupancy, you’ll see additional supply wanting to come into the market to pick up that demand.”
Real Capital Analytics, a New York commercial property data company, backs Lankford’s observation by noting that investors are more frequently turning to secondary U.S. markets like the Twin Cities. Sales volume in non-major metropolitan areas increased by 49 percent last year, while sales in the six major metros fell, according to a Real Capital Analytics report.
There are several examples of non-local investors finding properties to their liking in the Twin Cities, thanks to the area’s strong performance. This spring, Texas-based Summit Hotel Properties agreed to purchase the Hampton Inn and Suites, which is under construction, for $37.7 million, as Finance & Commerce reported in March. Mortenson Development is building the hotel at 19 Eighth St. N. in downtown Minneapolis, with plans to open it this summer.
At the end of 2013, Summit closed on the $32.6 million purchase of the Hyatt Place at 425 S. Seventh St. in downtown Minneapolis. The hotel, which was recently remodeled and converted from a Comfort Suites, garnered the sale price of $178,673 per room.
“Hotels are so profitable now, sellers can ask for a higher price and buyers will make more money than they would have four years ago,” says Ruzicka.
Overall, the hotel industry should expect a strong 2014, following on the success of 2013, reports the Hotel Management publication. In addition to low rates and abundant capital, the resurgence of commercial mortgage-backed securities is another big factor driving hotel sales nationwide. Last year, 41 percent of total lending composition came from these funding vehicles, according to Real Capital Analytics.
That mirrors trends across the country, where hotel building is going like gangbusters. More than 600 new hotels and 65,000 rooms were expected to open last year, an increase of more than 40 percent over 2012, according to STR Analytics, a hotel data consultancy in Tennessee. In Minnesota, sales of hotels and resorts hit $240 million, under the record-breaking year of $400 million in 2012 but still strong, Lankford notes.
Marcus & Millichap projects a fifth consecutive year of growth for the national hotel industry. It’s powered by an increase in travel volume that expands room nights by 2.4 percent and national occupancy rates to 63.2 percent. A 7.3 percent boost in room revenue also is expected during the year.
The Twin Cities area currently enjoys several vibrant spots for transactions and new hotels, including in downtown Minneapolis, Bloomington and Downtown East, where the Vikings stadium is under construction. In Downtown East, Minneapolis-based Ryan Cos. US Inc. is partnering with Carlson Rezidor Hotel Group to build a 150-room Radisson Red hotel and a 200-unit apartment building housed under one 27-story roof — a $101 million project. The project is atop a parking ramp Ryan is building for the stadium.
In addition, JW Marriott has teamed up with Mortenson Development on a 342-room hotel and office tower on the Mall of America’s north side in Bloomington. The project also features a 180,000-square-foot office tower and 165,000 square feet of additional retail space at the mall. The Shakopee Mdewakanton Sioux Community will pay to develop the estimated $100 million hotel, which it will own.
As reported in Finance & Commerce, Bloomington also saw one of the first big transactions of 2014 — the $24 million sale of the Embassy Suites at 2800 American Blvd. W. Felcor Lodging Trust of Texas sold the property to Bloomington Hotel Owner SPE LLC. The city’s Interstate 494 corridor had other activity, too. Warren Beck, developer of the Galleria Mall, purchased the Hotel Sofitel last fall for $18.25 million and converted it to the Sheraton Bloomington. He plans an $8 million renovation of the 282-room hotel.
In general, the year should hum along, especially if interest rates remain low. In the coming years, though, the pace of new development most likely will slow as the market works to absorb all of the new occupancy, Ruzicka says.
Lankford’s sense is that other hotel properties in downtown Minneapolis will change hands in this climate. “I think it will be a big year for sales,” he says. “I also think it will be a good year for investments and new products being planned.”
Reported by: Finance-Commerce.com
“Everybody’s happy right now — it’s the perfect market,” says Jon Ruzicka, a Minneapolis-based associate in the national hospitality group at Marcus & Millichap. “In 2014 we’re looking at the fourth year in a row for growth. It’s going to be a good year for hotels.”
Both sales and new construction are thriving, fueled by low interest rates, more cash for hotel deals, and record-breaking occupancy rates. In 2013, Minneapolis hit a stellar 72 percent and St. Paul had 63 percent — a very good showing for the capital city, says Lowell Lankford, a hotel broker with KW Commercial in Wayzata.
Minneapolis-based Ryan Cos. US Inc. is partnering with Carlson Rezidor Hotel Group to build a 150-room Radisson Red hotel and a 200-unit apartment building under one 27-story roof — a $101 million project. (Submitted rendering)
Minneapolis-based Ryan Cos. US Inc. is partnering with Carlson Rezidor Hotel Group to build a 150-room Radisson Red hotel and a 200-unit apartment building under one 27-story roof — a $101 million project. (Submitted rendering)
“Whenever hotels are having very good years, then that generates the excitement and enthusiasm to go ahead and continue to build more,” says Lankford, adding that these robust results attract investors from outside Minnesota. “When an area cracks into 72 percent occupancy, you’ll see additional supply wanting to come into the market to pick up that demand.”
Real Capital Analytics, a New York commercial property data company, backs Lankford’s observation by noting that investors are more frequently turning to secondary U.S. markets like the Twin Cities. Sales volume in non-major metropolitan areas increased by 49 percent last year, while sales in the six major metros fell, according to a Real Capital Analytics report.
There are several examples of non-local investors finding properties to their liking in the Twin Cities, thanks to the area’s strong performance. This spring, Texas-based Summit Hotel Properties agreed to purchase the Hampton Inn and Suites, which is under construction, for $37.7 million, as Finance & Commerce reported in March. Mortenson Development is building the hotel at 19 Eighth St. N. in downtown Minneapolis, with plans to open it this summer.
At the end of 2013, Summit closed on the $32.6 million purchase of the Hyatt Place at 425 S. Seventh St. in downtown Minneapolis. The hotel, which was recently remodeled and converted from a Comfort Suites, garnered the sale price of $178,673 per room.
“Hotels are so profitable now, sellers can ask for a higher price and buyers will make more money than they would have four years ago,” says Ruzicka.
Overall, the hotel industry should expect a strong 2014, following on the success of 2013, reports the Hotel Management publication. In addition to low rates and abundant capital, the resurgence of commercial mortgage-backed securities is another big factor driving hotel sales nationwide. Last year, 41 percent of total lending composition came from these funding vehicles, according to Real Capital Analytics.
That mirrors trends across the country, where hotel building is going like gangbusters. More than 600 new hotels and 65,000 rooms were expected to open last year, an increase of more than 40 percent over 2012, according to STR Analytics, a hotel data consultancy in Tennessee. In Minnesota, sales of hotels and resorts hit $240 million, under the record-breaking year of $400 million in 2012 but still strong, Lankford notes.
Marcus & Millichap projects a fifth consecutive year of growth for the national hotel industry. It’s powered by an increase in travel volume that expands room nights by 2.4 percent and national occupancy rates to 63.2 percent. A 7.3 percent boost in room revenue also is expected during the year.
The Twin Cities area currently enjoys several vibrant spots for transactions and new hotels, including in downtown Minneapolis, Bloomington and Downtown East, where the Vikings stadium is under construction. In Downtown East, Minneapolis-based Ryan Cos. US Inc. is partnering with Carlson Rezidor Hotel Group to build a 150-room Radisson Red hotel and a 200-unit apartment building housed under one 27-story roof — a $101 million project. The project is atop a parking ramp Ryan is building for the stadium.
In addition, JW Marriott has teamed up with Mortenson Development on a 342-room hotel and office tower on the Mall of America’s north side in Bloomington. The project also features a 180,000-square-foot office tower and 165,000 square feet of additional retail space at the mall. The Shakopee Mdewakanton Sioux Community will pay to develop the estimated $100 million hotel, which it will own.
As reported in Finance & Commerce, Bloomington also saw one of the first big transactions of 2014 — the $24 million sale of the Embassy Suites at 2800 American Blvd. W. Felcor Lodging Trust of Texas sold the property to Bloomington Hotel Owner SPE LLC. The city’s Interstate 494 corridor had other activity, too. Warren Beck, developer of the Galleria Mall, purchased the Hotel Sofitel last fall for $18.25 million and converted it to the Sheraton Bloomington. He plans an $8 million renovation of the 282-room hotel.
In general, the year should hum along, especially if interest rates remain low. In the coming years, though, the pace of new development most likely will slow as the market works to absorb all of the new occupancy, Ruzicka says.
Lankford’s sense is that other hotel properties in downtown Minneapolis will change hands in this climate. “I think it will be a big year for sales,” he says. “I also think it will be a good year for investments and new products being planned.”
Reported by: Finance-Commerce.com
