May 13, 2012--Climbing marble steps on the grand iron staircase within a future hotel he's opening in downtown Milwaukee, John Callan pauses, gazing up to the soaring six-story atrium's skylight.

"You just can't duplicate this," said Callan, general manager of what will be a Hilton Garden Inn when renovations are completed this fall.

That unusual historic atmosphere is a major selling point for the 127-room hotel, which First Hospitality Group Inc. is creating within the Loyalty Building, built in 1886 as the headquarters for Northwestern Mutual Life Insurance Co.

The hotel is expensive to create, although federal historic preservation tax credits pay for some of the costs. Also, the guest rooms are more costly to heat and cool, thanks to their 12-foot to 15-foot ceiling heights -- compared to 8 feet in a typical hotel room.

But those differences will help attract both business and leisure travelers when the Hilton Garden Inn competes with other higher-end downtown hotels, Callan said. First Hospitality, based in Rosemont, Ill., operates 50 hotels, including historic properties in Chicago, Indianapolis and Des Moines, Iowa.

"The guests love them," Callan said.

The Hilton Garden Inn is tentatively set to open Sept. 14, at the northwest corner of E. Michigan St. and N. Broadway. It will include a restaurant, fitness center, business center and small meeting rooms. First Hospitality will use the Grain Exchange Room at the Mackie Building, just across Michigan St. from the Loyalty Building, for large catered events.

Much of the hotel's marketing will focus on business travelers, Callan said.

Room rates will vary according to season, but will typically start at $159 a night, Callan said. That positions the Hilton Garden Inn above midpriced downtown hotels like the Hampton Inn & Suites, and below top-tier properties such as the Pfister Hotel, he said.

The Hilton Garden Inn's main competitors will include the Courtyard by Marriott, Aloft Hotel, Residence Inn, Ambassador Hotel and Hotel Metro, Callan said.

The hotel is an upscale "select service" facility, said Greg Hanis, an industry consultant. That term distinguishes the Hilton Garden Inn from full-service hotels, such as the Pfister, Hyatt Regency and Hilton, which have much larger banquet rooms and at least 200 guest rooms.

It is one of three downtown hotels under construction, all showcasing historic preservation features.

The others are the 200-room Marriott, near the southwest corner of E. Wisconsin Ave. and N. Milwaukee St., with mostly new construction blended into facades and small portions of some 19th-century buildings along Wisconsin Ave., and the 90-room Brew House Inn & Suites, which is being created within the former Pabst brew house at the northwest corner of W. Juneau Ave. and N. 10th St.

They'll open at a time when demand for downtown hotel rooms is stagnant, and could drop because of recent airline service cuts at Mitchell International Airport, said Greg Marcus, president and chief executive officer at Marcus Corp., which operates the Pfister, Hilton and InterContinental Milwaukee.

Both the Brew House Inn and 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. That amounts to a subsidy that distorts the financing market, Marcus said.

"If the market is so great, why can't they do something without a subsidy?" he said.

The Hilton Garden Inn has a bank construction loan to cover 60% of its total costs, with equity financing from the owner providing the rest, said Robert Habeeb, First Hospitality president and chief operating officer. The project's total costs have been estimated at $18 million to $20 million, with historic preservation tax credits, a form of equity, covering less than 10% of the tab, Habeeb said.

While demand nationally for hotel rooms dropped during the recession, it has been rising during the recovery, including in Milwaukee, Habeeb said.

The renovations at the Loyalty Building started in December, with Kahler Slater Inc. serving as the project's architect and Madison-based Stevens Construction Corp. as general contractor.

The work was delayed until building owner First MKD LLC, a First Hospitality affiliate, reached agreements to buy out the leases of the Loyalty Building's last two tenants, a dentist's office and Michigan Street Diner.

The Hilton Garden Inn's rooms will feature the huge windows which were originally designed to direct natural light into the building's offices during the pre-electricity era.

The building's other unusual historic touches include a handful of fireplaces, no longer operable, that will be in some of the guest rooms, and more than 20 safes, some of which will be preserved in the hotel's corridors, from when Northwestern Mutual stored money for paying claims.

"These things, honestly, are works of art," Callan said, while showing off one elaborately decorated wall safe.

The Romanesque-style building was constructed with granite, later painted over -- perhaps to cover the coal dust that had accumulated over decades, Callan said. First Hospitality plans to clean the building's exterior and restore that original look.

For the Hilton Garden Inn's 75 to 100 employees, it will be a workplace unlike most have ever seen, said Callan, a hotel industry veteran.

"For guys who've been around as long I have, you just love something distinct," Callan said.

___

(c)2012 the Milwaukee Journal Sentinel

Visit the Milwaukee Journal Sentinel at www.jsonline.com

Distributed by MCT Information Services