Aug. 3, 2003 - Times are tough for downtown Minneapolis hotels, considered the flagships -- and key drivers -- of the Twin Cities hospitality industry. From 2000 to 2002, the average occupancy rate for those hotels and others claiming Minneapolis as their home fell 8 percent, down to 63 percent, which is short of the minimum 70- to 75 percent rate hotels generally seek. Meanwhile, the group's average revenue or yield per available room fell 11 percent to $64.41 a night.

Conditions are worse in St. Paul, a considerably smaller market. Last year, St. Paul had an average occupancy rate of about 58 percent and an average nightly room revenue of $61.67, according to the St. Paul Convention and Visitors Bureau. The city's 1,852 hotel rooms brought in $41.7 million in 2002.

But downtown Minneapolis' hotels, which accounted for about a seventh of the 11-county area's 35,000 hotel rooms and a quarter of the region's $640 million in room revenue last year, are prepping for a comeback.

They're polishing themselves up, tightening their belts, adjusting to painful business shifts and committing to better marketing of Minneapolis as a destination for business and pleasure.

"People are doing less business or doing business differently in this economy, and we simply have to adjust to the new business climate," said Scott Lane, sales director for the Hyatt Regency Minneapolis. "All hotels have to learn to do business in this environment or they will not survive."

Most downtown hotels have -- or soon will -- put millions of dollars into renovations to help them keep up with competitors and rising guest expectations. They've added everything from high-speed wireless Internet access and big-screen plasma televisions to seven-layer feather beds and bathrooms finished in granite and marble.

And the city center has attracted a marquee player, the ritzy Le Meridien Minneapolis, though some observers wonder if the luxury hotel will find enough guests willing to pay $300 or more a night to stay there.

As they wait for a business rebound, the hotels are weighing what more they should do to improve their fortunes.

On some points, such as the need to better market Minneapolis, there's consensus. On others, particularly the quest for a 1,000-plus-room convention hotel in downtown, there's much debate.

The flurry of renovations in the downtown hotels is driven by a number of factors. In many cases, it was simply time to update properties that had grown tired or tattered. Many hotels undergo major renovations every five to seven years.

Of course, some are inspired to improve themselves to keep pace with competitors or better position themselves to capture business from the expanded Minneapolis Convention Center.

"Expectations definitely go up every time a new property enters the market," said James Callaghan, general manager of the Radisson Plaza Hotel, which recently completed an $11.5 million renovation. "The bar tends to get set higher and higher. ... All of our changes will enable us to maintain our position as one of the leading hotels in the market." In planning their renovations, the Radisson and other properties were keenly aware of the April debut of Le Meridien.

Le Meridien's owners concluded that the market lacked a hotel that appealed to "C" level travelers -- CEOs, CFOs, CIOs and their compatriots -- who are not bound by corporate travel policies.

"They look for accommodations like the Four Seasons (a high-end hotel chain), and that was not here in downtown," said Scott Fischburg, director of sales at Le Meridien Minneapolis. "But folks told us they'd use a hotel like that if it were in Minneapolis."

Luxury hotels can help cities win convention and meeting business they may not otherwise get, he said. "Some organizations question the validity of a town that does not have a five-star property." A key factor in winning convention bookings is the competitiveness of the hotels around a convention center, said Greg Ortale, president of the Greater Minneapolis Convention & Visitors Association.

"People who are booking conventions want to put their attendees in the best product," he said. "And they want the best rate, too. ... It's no different than any other industry; you have to upgrade to keep up." The downtown hotels offer a good mix of properties -- from limited service, lower-priced hotels to full-service, five-star hotels, he said.

"We have had to cut some rates, sure," Ortale said. "But it's happening all over the country. But we're doing better than other markets. The fact we're losing some business to major markets based on rate would tell me they are in worse shape than we are."

While many business travelers have come to accept bare-bones air travel, they want more from hotels. And that's evident in the renovations of many properties in downtown Minneapolis, said Sam Grabarski, president and CEO of the Minneapolis Downtown Council, which represents that downtown's 400 largest businesses.

"They want higher-caliber hotels, better room service," he said. "Hotels are offering more and more amenities. Food service is coming back."

The big debate among hoteliers in downtown Minneapolis centers on the wisdom of building another big hotel, one with perhaps 1,000 to 1,200 rooms.

When the 821-room Hilton opened in 1992, it helped the city draw more convention business, said Brent Foerster, director of sales and marketing at the Hilton Minneapolis, now the city's largest hotel. But any decision about adding a big hotel needs to be well researched to ensure it doesn't depress occupancy and room rates, he said.

"Bringing in a 1,000-room hotel could benefit everyone, but it could go the other way, too," Foerster said. Dan Little, president of the Minneapolis Hotel Association and general manager of the downtown Minneapolis DoubleTree Guest Suites, doesn't see evidence now of enough year-round business to support another big hotel.

"Can you support that many additional rooms year-round?" he said. "Certainly not in the current market. I think we are right-sized now. Ten to 12 weeks of citywide conventions does not an additional 900-room hotel make." Several large developers are attempting to assemble the land and form a partnership with a national hotel chain to make such a project work, said Grabarski, declining to name the developers.

But until downtown hotels get occupancy rates into the low- to mid-80 percent range, there will likely be concern that downtown can't absorb another big hotel, he said.

"The other side of the argument is that we need it to attract the large conventions that the new convention center was created to attract," Grabarski said. "The argument by many is that we need a 900- to 1,000-room hotel to have the full flowering of our convention center." Convention planners say the city needs a mega-hotel to compete with other cities that can handle a greater number of conventioneers at hotels close to their convention centers, Ortale said.

"People don't want to pay for the cost of busing," he said.

The size of hotels and a convention center does matter when you're bringing thousands of people to town, said Cheryl Kreider Carey, deputy executive director of the American Academy of Audiology.

That group expects 6,500 to 7,000 attendees when it holds its 2006 convention in Minneapolis.

Carey would have preferred to place conventioneers in a handful of hotels but they'll be spread across a dozen or so. "That's normal but not ideal," she said.

Chances of a 1,000-room or bigger hotel coming in 2007 or 2008 are good, Ortale said. "We're doing the due diligence now to make sure we are in fact needing those rooms," he said.

Without that evidence, lenders aren't going to fund such a project, fearing it would not fill enough rooms to make money.

Phil Handy, senior project coordinator at the Minneapolis Community Development Agency said he's not aware of any concrete proposal for a new hotel.

"Right now, it seems the market would not support it," he said. "Over the past three years, there have been some serious efforts to look at the development of another major hotel downtown. But the tanking of the travel market and downturn in the economy moved them to the back burner. They never reached the level of a formal proposal."

No matter what happens with plans for another big hotel, Minneapolis must do a better job promoting itself if hotels are to boost their occupancy rates and firm up room rates, observers say.

Many people are unfamiliar with the city and think there is no reason to visit, according to a study by FutureBrand, a New York City branding firm.

"People who don't know Minneapolis think we are only about lakes, fishing, flannel shirts," the convention and visitors association said last month in a summary of the report. "They see Minneapolis as small, dull, white-bread, stoic and cold."

Minnesota's winters put a big chill on the hotel business. Metro area hotel occupancy rates are highest in June, July and August, according to reports from Smith Travel Research. Last August, the occupancy rate for metro hotels was 76.4 percent. In January 2002, it was 45.8 percent; last December, 45.1 percent.

But the many people who do know Minneapolis prefer it to Seattle, San Francisco, Chicago and Denver, the FutureBrand study found.

Minneapolis needs to identify what differentiates it from other cities and play that up, the study concluded. Those assets include the city's natural landscape and outdoor recreation, the economy, environment, the people, arts and culture, and the high quality of life.

Minneapolis should also move up to a bigger league in competing for conventions, meetings and tourists, the branding firm said. It should change its competitive set from St. Louis, Denver, Kansas City, Cleveland, Cincinnati and Indianapolis to Seattle, Portland, Denver, Boston and San Francisco.

Even among that new competitive set, Minneapolis performs well on most comparative measures. During the study, executives familiar with Minneapolis ranked it third behind Denver and Chicago for its quality as a meeting destination because of its strong offerings in restaurants, entertainment, fun, museums, sports and the arts.

The convention and visitors association is now developing a marketing campaign to tout the city. "Minneapolis has all the attributes to be a premier city," said Karyn Gruenberg, vice president of marketing for the association. "We should stretch beyond just the Midwest and compete more on a national scope."

With the convention center renovation, the addition of a light-rail system and extended bar hours, downtown is significantly improving its attractiveness to visitors, said Lisa Schetinski, director of sales at Crowne Plaza Northstar Hotel in Minneapolis.

"The biggest weakness of downtown Minneapolis is so many people do not know how great it is," said the Hyatt Regency's Lane. "We have residents of the Twin Cities that do not know how wonderful downtown Minneapolis is compared to so many other city's business districts. We do not roll up the streets at five o'clock -- we come alive."

A VIEW OF THE ROOMS

Downtown Minneapolis hotels include the following:

--Crown Plaza Northstar Hotel 219 rooms, four luxury suites. $15 million renovation of meeting space and guest rooms in 2001. Added a 3,600 square-foot ballroom.

--Grand Hotel 140 guest rooms and suites, including a 3,500 square foot Presidential Suite. Business center executive boardrooms feature granite tables and video conferencing. Entire hotel renovated in a $50 million project two years ago.

--Hilton Minneapolis 821 rooms. Open 1992. $5.5 million room renovation in 2001. Spent $1.2 million in 2002 to add five meeting rooms, to total 27, and renovate health club. This year, spent $1.6 million on executive-level guest rooms and lounge.

--Hyatt Regency Minneapolis 533 rooms. $12 million in renovations, including all guest rooms, completed April 2002. Fifth-floor conference center renovation slated for this fall; Nicollet Ballroom, December 2003.

--Le Meridien Minneapolis 255 rooms. $68 million luxury hotel opened this past April. Art + Tech rooms include glass-etched, handcrafted headboards and wall-mounted, 42-inch plasma screen televisions. Bathrooms feature etched glass washbasins on limestone tables.

--Marquette Hotel 277 rooms. $12 million renovation includes expansion of Windows on Minnesota event space on the 50th floor of the IDS Tower, renovation of meeting rooms and guest rooms.

--Millennium Hotel 322 rooms. Lobby and 50 guest rooms renovated. Other rooms were done about four years ago.

--Minneapolis Marriott City Center 597 rooms, including 86 suites. Major renovations planned next year for fourth-floor ballroom and meeting rooms. All mattresses and bedding replaced last year.

--Radisson Plaza Minneapolis 360 rooms. $11.5 million refurbishment completed last month. It includes the new FireLake restaurant, additional meeting space and redesigned guest rooms.

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