Jan. 08, 2012--With three new hotels being built, and another expected to resume construction, downtown Milwaukee will add around 550 hotel rooms over the next two years -- the most in well over a decade.

Those projects, driven mainly by business travel, will increase by nearly 15% the number of hotel rooms within one mile of the Frontier Airlines Center convention facility. The hotels -- a Marriott, a Hilton Garden Inn, a Staybridge Suites and the independent Brew House Inn & Suites -- will create jobs and tax revenue for Milwaukee, and help draw more conventions.

But the new hotels also will draw customers from existing properties, including those operated by downtown's largest hotel owner, Milwaukee-based Marcus Corp. And that may dilute the effects of their total investment, of just over $120 million, and over 300 jobs.

"There's no question there's going to be some splitting of the pie," said local industry consultant Greg Hanis, who operates Hospitality Marketers Inc.

Jobs and tax revenue generated by the new hotels could come at the expense of existing properties, said Greg Marcus, Marcus Corp. chief executive officer. He's frustrated that two of the projects, the Marriott and the Brew House Inn, are being financed by foreign inves tors in return for obtaining residency visas.

"This is just supply," Marcus said about the new hotels. "We need to create demand."

There are now 3,774 hotel rooms within one mile of the convention center, says Visit Milwaukee, the city's convention marketer.

Two hotels are to open by the end of this year: the 90-room Brew House Inn, at W. Juneau Ave. and N. 10th St., and the 128-room Hilton Garden Inn, at E. Michigan St. and N. Broadway.

Both projects involve converting historic buildings: the former Pabst brew house, and the Loyalty Building, which formerly housed offices, Michigan Street Diner and other businesses.

Meanwhile, work is about to start on the 200-room Marriott near E. Wisconsin Ave. and N. Milwaukee St. It will take two years to complete the hotel, which combines new construction and renovated buildings.

Finally, there's a good chance construction will resume this year on the largely completed Staybridge Suites, at E. Juneau Ave. and N. Water St.

Work on the 126-room hotel stopped in December 2008, when the project ran short of cash amid disagreements among its partners. The property's court-appointed receiver hopes to soon get a judge's permission to sell the 14-story building, allowing construction to resume.

Downtown rebound

Assuming all four projects are completed by the end of 2013, it would be the most downtown hotel rooms built within a few years since just over 800 rooms were added from 1998 through 2001. Those projects -- an expansion of the Hilton, and construction of the Howard Johnson Inn & Suites (which later converted to a Hampton Inn & Suites), Courtyard by Marriott, Best Western Inn Towne Hotel, Hotel Metro, and Residence Inn by Marriott -- were spurred by the new convention facility, and higher demand from business travelers.

Business travel, especially rooms booked for corporate meetings, dropped after the latest recession. But 2011 marked the second year of a rebound for downtown-area hotels, driven largely by individual business travelers and corporate events, said hotel operator Rick Wiegand.

The occupancy rate for hotels in and near downtown was less than 60% in 2009, Wiegand said. It will likely finish 2011 at around 68% or 69%, said Wiegand, who owns the Ambassador Hotel, 2308 W. Wisconsin Ave., and its companion property, the Ambassador Inn.

Wiegand said rooms at the downtown area's newest hotels, which opened in 2008 and 2009 -- the 160-room Aloft, the 100-room Iron Horse Hotel and the 78-room Days Inn & Suites -- generally haven't hurt other downtown hotels. That period also came after Manpower Inc. moved its headquarters downtown, creating more demand.

Of course, absorbing nearly 550 new rooms "is a different story," Wiegand said. He thinks most of that increased competition will be felt on downtown's east side, where three of the new hotels will open.

The Hilton Garden Inn, operated by Rosemont, Ill.-based First Hospitality Group Inc., will likely pull travelers from such similarly priced properties as the Doubletree Hotel and Courtyard, Hanis said. Also, some business travelers who accumulate reward points by staying at Hilton-branded hotels might choose Hilton Garden Inn over downtown's full-service Hilton, he said.

The new full-service Marriott will likely draw guests from Courtyard for the same reason, Hanis said, while also pulling travelers who would otherwise stay at upscale, full-service hotels such as the Hyatt Regency and the Pfister Hotel.

Impact on others

The Pfister, located near the Marriott site, the Hilton and the InterContinental Milwaukee are all operated by Marcus Corp. Despite strong demand, adding a large number of new downtown rooms will affect other operators including Marcus, especially at the Pfister, said David Loeb, an industry analyst at Robert W. Baird & Co.

"Everyone gets hurt when there's new supply, and that's a lot of new supply," Loeb said.

However, Loeb also expects Marcus to respond aggressively.

Along with drawing travelers from the Pfister, Hyatt, Hilton and InterContinental, the Marriott also will likely generate more overall business for Milwaukee by helping attract additional conventions and other groups, said Joe Bocherer, corporate director of sales and marketing for White Lodging Services Corp. The Marriott's owners, a local investors group led by Ed Carow and Mark Flaherty, hired Merrillville, Ind.-based White Lodging to operate the hotel.

The new hotel rooms will help attract more meetings and conventions, said Paul Upchurch, Visit Milwaukee president.

But most planners for large meetings, those that need 1,800 to 2,000 rooms, want their groups staying in no more than four hotels, preferably connected to the convention center, Upchurch said. Downtown Milwaukee typically needs a dozen or so hotels to accommodate those large groups, with just two hotels -- the Hilton and Hyatt -- connected to the Frontier Airlines Center.

"That's a real disadvantage," Upchurch said.

Greg Marcus said the Marriott will play only a minimal role in attracting conventions because it's too far from the Frontier Airlines Center. He said Marriott's biggest impact will likely be on the Courtyard and Residence Inn, but said it and the $18 million Hilton Garden Inn will affect the Pfister and other Marcus Corp. properties.

Meanwhile, the two new extended stay hotels, the Brew House Inn and $30 million Staybridge, will likely compete mainly with downtown's only other extended stay hotel, the Residence Inn, Hanis said.

Hanis said the Brew House Inn could face challenges because it's not tied to a national brand, hurting its ability to attract guests who want a central reservation system and rewards program.

The Brew House Inn is being developed by Oregon, Wis.-based Gorman & Co. Ted Matkom, the firm's general counsel, said Gorman is considering a brand affiliation with a national reservation system.

But Matkom said that's not a necessity because of the Brew House Inn's unusual selling point as a hotel being built within a former brewery.

Both the $18.8 million Brew House Inn and $54 million Marriott are being financed mainly through the EB-5 program, which allows foreign citizens to obtain U.S. residency visas by investing in job-creating projects. The two-year visa can be converted into a green card, which provides permanent U.S. residency privileges for the investor, the investor's spouse and children.

By "selling green cards," EB-5 amounts to a subsidy that distorts the financing market, Marcus said.

But Loeb expects more hotel developers to tap EB-5, which he said is one of the few ways to obtain relatively low-cost financing.

___

(c)2012 the Milwaukee Journal Sentinel

Visit the Milwaukee Journal Sentinel at www.jsonline.com

Distributed by MCT Information Services NYSE:MAR,NASDAQ:RJET,