April 05–Downtown Detroit’s hotel market has for decades faced the same problem: How to attract guests year-round and not just during the auto show and other special events.

Now, with downtown’s revitalization picking up speed, hoteliers are betting big that there will be more paying guests to fill hundreds of more rooms.

The city’s hotel market is in the midst of a growth spurt as developers turn derelict downtown buildings into upscale boutique hotels. As momentum builds, even one former by-the-hour motel is getting cleaned up and renamed to attract a more respectable and deep-pocketed clientele.

Spurred by a rebounding auto industry and convention business, as well as growth in entertainment options, downtown Detroit hotels saw their best performance in years in 2014, hitting an average occupancy rate of about 66%, according to local hospitality officials. The average nightly rate was $115 to $120.

“That is one of the highest I’ve ever seen, and I’ve been tracking this since 1980,” hotel consultant Chuck Skelton, president of Ann Arbor-based Hospitality Advisors, said of the latest occupancy figures.

The improved performance reflects Michigan’s economic recovery, with the state’s unemployment rate less than half of what it was six years ago and auto sales currently revving at pre-recession levels. And there are signs that Detroit hotels have overcome a psychological barrier — visitors no longer presume they’ll do business downtown during the day and flee the city at night for suburban hotels.

The arrival of thousands of new office workers and hundreds of new residents has made downtown Detroit appear safer and attractive. So have the rapidly expanding restaurant and entertainment scenes. There’s more people and things to do.

“For years and years, people would stay in Dearborn and the rest of the suburbs and drive downtown to do business and then drive back out to the suburbs — that’s not so true anymore,” Skelton said. “You’ve actually got people going downtown and staying downtown now because there’s activity down there, there are things to do, there are nice hotels and you have the casinos.”

Cobo expansion

Also key to this revival has been the $279-million expansion and upgrade of Cobo Center, the city’s main convention facility. The work, due to finish this year, created the Grant Riverview Ballroom and the soaring riverside Atrium, major selling points for attracting new convention business.

Downtown Detroit hotels reported a low 47% occupancy rate in late 2008, when they were struggling to fill all of the rooms then flooding the market with the reopened 453-room Book Cadillac, the 203-room Fort Shelby and the three new 400-room hotels attached to each Detroit casino.

Much of that inventory was absorbed as the recession lifted and some older hotels finally closed. Now there is a push to open midsize boutique hotels in and around downtown.

“We think, generally speaking, that there is an undersupply of hotel rooms in the market at the moment,” said Mario Tricoci, managing partner and CEO for Aparium Hotel Group, which is planning a 100-room boutique hotel near Cobo Center. “Now if you add up all of the rooms that have been announced, that’s a different story. But we also know that just because you’ve announced, it doesn’t mean it’s going to happen.”

Some of the latest projects

–Aloft Detroit: The 136-room hotel opened just before Christmas in the newly restored David Whitney Building along Woodward Avenue. The building dates to 1915 and was completely untenanted for 15 years.

–Foundation Hotel: Construction could begin within 90 days on the Aparium Hotel Group’s 100-room project involving a gut renovation to the old downtown Detroit firehouse headquarters at 250 W. Larned.

–Wurlitzer Hotel: New York firm ASH NYC is considering a $20-million makeover of the slender and vacant Wurlitzer Building, 1509 Broadway, into a 100-room hotel.

–New hockey arena site: The Ilitch organization plans a hotel for the new Detroit arena and entertainment district.

–Joe Louis Arena site: The Financial Guaranty Insurance Co., one of the city’s former bankruptcy creditors, has development rights for a potential 300-plus-room hotel on the site of the to-be-demolished Joe Louis Arena.

–Trumbull & Porter: Opened in the 1960s as a Holiday Inn, the 144-room Corktown Inn, 1331 Trumbull, is about to receive an extensive facelift and rebranding courtesy of Access Hotels and Resorts.

Until a recent ownership change, the motel offered hourly room rates, a stuffed dummy in a pickup truck for security and had a lobby vending machine stocked with panties, condoms and other curious items. The property will be renamed “Trumbull & Porter.”

“We’re very bullish about the resurgence that’s taking place,” said Barry Caplan, managing principal at Access.

Growing capacity

There are now about 3,500 hotel rooms in downtown — almost twice as many as 15 years ago — and roughly 41,000 in the overall metropolitan area, according to industry experts.

Even though some number of Detroit hotels routinely go bankrupt during economic downturns, industry experts have been saying since the early 1980s that downtown needs more hotels to attract more big conventions. That’s because convention-goers generally prefer to stay near their event.

“We have groups that avoid Detroit as a destination because there are not enough hotel rooms downtown,” said Michael O’Callaghan, chief operating officer of the Detroit Convention and Visitors Bureau. “So consequentially, we’re going after mid-scale conventions.”

There have been reopenings and renovations: the 25-story Pontchartrain Hotel (367 rooms) came back to life two years ago and a shuttered 106-room boutique inn on the east riverfront where Frank Sinatra used to stay, formerly known as the Omni Hotel, is now the redone Roberts Riverwalk Hotel.

To keep these hotels open and attract new ones, industry experts say, Detroit must serve up enough lodging business to support hoteliers between big events like the North American International Auto Show in January, when rooms sell out and rates skyrocket.

“That’s what developers are looking at in Detroit or any other downtown area — is there enough business 200 days a year to support my hotel when those conventions aren’t in town?” O’Callaghan said.

A few downtown hotels have recently left the market, such as the famed Leland Hotel which no longer lets rooms for overnight stays, and the Cass Corridor’s Temple Hotel, a 32-room low-budget hotel within the new arena district that was torn down last year.

The triangular-shaped Milner Hotel, 1538 Center St., formerly the oldest continuously operating hotel in the city, closed in 2012 to be redeveloped by Bloomfield Hills-based Princeton Enterprises. The building reopened this year with 67 market-rate apartments and a new name: The Ashley.

The flip side of a strengthening Detroit hotel market could be weakening demand for some older suburban hotels.

Now on the endangered list is the massive 773-room hotel in Dearborn near the Fairlane Mall that was once a Hyatt Regency but is now the Adoba Hotel. One of the biggest hotels in the state, it came close to shutting down last fall amid overdue property tax bills. The property’s manager did not return a message for comment last week.

“That hotel was built for the large convention and corporate market surrounding Ford, and it was the only game in town for a number of years,” said Ron Wilson, CEO of Troy-based Hotel Investment Services, which manages and develops hotels. “That time has passed. And there’s nothing you can do to make it smaller.”