Hotel building is booming
Hotel Developers are on a building binge In Greater Des Moines, but experts say the market isn’t bloated yet
Friday, May 02, 2014 7:00 AM
It would be difficult to put your finger on the heartbeat of a city, but one occasional visitor to Greater Des Moines said she wants to feel it when she spends the night in a hotel room.
Plenty of hotel activity in suburban Des Moines
Kinseth Hospitality Cos. plans two hotels for an area near Stagecoach Drive and Mills Civic Parkway in West Des Moines.
Fairfield Inn & Suites West Des Moines recently completed a renovation.
An 89-room Fairfield Inn in April at 8661 Plum Drive in Urbandale.
Hampton Inn is proposed for the 8900 block of Plum in Urbandale.
Courtyard by Marriott Ankeny has completed lobby redesign, including a restaurant called The Bistro.
Homewood Suites Ankeny should complete construction in August on 85 rooms.
Chances are that Kim Whalen will be listening for that beat in an upscale AC by Marriott that her husband is planning for the East Village. And over the next few years, she could sample the city from the nearly 1,000 rooms that are planned for downtown Des Moines alone.
Kim Whalen is married to Mike Whalen, president and CEO of Heart of America Group, which already has six hotels in Greater Des Moines and plans to build an upscale AC by Marriott on what currently is a city parking lot at East Fourth Street and Grand Avenue.
Whalen also has plans to build another hotel in Des Moines, not to mention a hotel for Heart of America’s Prairie Crossing development in Altoona, where the company enticed Bass Pro Shops to build and where a Massachusetts developer plans a tony outlet mall.
He is part of a crowd of developers taking advantage of a thaw in hospitality lending to fill what many people believe has been a void in rooms downtown that cater to business travelers, shoppers, sports fans, theater buffs and occasional tourists.
Focus has been on a $120 million, 450-room convention center hotel near the Iowa Events Center that supporters believe will help Des Moines attract events that skirt the city because it lacks a facility that can host large groups under one roof. But developers have had their sights on downtown for several years. Their plans were held up by the tanking of financial markets in 2007. Whalen said he had planned a hotel for Fourth Street and Court Avenue that year, but he pulled back because of tight credit markets.
Sherman Associates Inc. of Minneapolis approached city planners several years ago with concepts for two hotels near Southwest 11th Street and Martin Luther King Jr. Parkway as part of its Riverpoint West residential and commercial project. The development company now proposes one hotel, a Holiday Inn Express, that could help fill a need for limited-service hotels, said Jackie Nickolaus, vice president of development.
The company is listening to HVS Global Hospitality Services, a New York firm that consults for the hospitality industry and is conducting a market study of Greater Des Moines for Sherman.
HVS Vice President Tess Greene noted in an email to the Business Record that “new supply is anticipated to reduce the market’s overall occupancy.”
That shouldn’t dampen a developer’s spirits though.
The HVS study has not been completed, but Greene said: “Thus far, we note that Des Moines benefits from a diverse economy. Renovations to Principal Financial Group’s downtown campus, as well as Kum & Go’s announcement that it will build a new headquarters downtown, are anticipated to support economic growth in downtown Des Moines. The opening of several new hotels in and around the downtown is expected to prompt a wider distribution of corporate, group, and leisure demand.”
Increased demand is the point, said Greg Edwards, president and CEO of the Greater Des Moines Convention and Visitors Bureau.
“It goes back to supply and demand,” he said. “It’s no different than adding flights with Southwest. Demand has been good.”
Randy Clarahan, construction executive for M.A. Mortenson Co., the Minneapolis developer who will oversee construction of the convention center hotel, said there will be plenty of business to go around.
“There will be enough residual benefit for the other hotels in the area that will keep it from cannibalizing the other hotels,” he said about the convention center hotel’s impact on other inns.
Jeff Hunter, owner of the Hotel Fort Des Moines, said it could take a decade for the market to absorb the 450-room infusion of rooms that would come on line with the convention center hotel.
The hotel “would be a boon to Greater Des Moines in the long run,’ he said.
Hunter also pointed out that the majority of hotel construction planned for downtown is for limited-service rooms, and that there has been a “dearth of the product.”
“I think this phenomenon speaks to the vitality of the downtown core, but some developers may be jumping the gun,” he said.
Adam Montufar, a hotel real estate specialist with Chicago-based Paramount Lodging Advisors, said the Greater Des Moines hotel market is benefiting from an influx of cash from investors, not to mention a lull in hotel development that lasted from the 1990s to the recent completion of the Residence Inn Des Moines Downtown at 100 S.W. Water St. and Hampton Inn Des Moines Downtown at 120 S.W. Water St. The hotels were built by affiliates of Burlington-based Hawkeye Hotels Inc. (Read more about Montufar on Page 6.)
“I think there are a couple of different variables at play,” Montufar said. “Downtown Des Moines has had very modest supply increase over the last 20-plus years. Only four hotels have opened since 1990, including the recent Residence Inn. From that standpoint, the market is overdue for new product.”
The overall hotel industry is at the top of its game after a seven-year lull in financing and occupancy. A construction spending forecast compiled by the American Institute of Architects predicted that hotel development will experience a 13 percent increase this year from the roughly $15 billion in spending in 2013.
“There is financial justification to build in many areas,” said Montufar, who brokered the sale late last year of Suites of 800 Locust to a Minnesota company. “I think downtown Des Moines is particularly attractive to developers because the city is still very much in growth mode. The lack of past supply also means there are quality brands to choose from and the right types of improving demand around the area to drive business. However, this is a significant amount of new rooms for a market the size of downtown Des Moines to absorb. Ideally, the convention center hotel will draw the volume of new business the city envisions. If it does, that will certainly help to strengthen the market as whole.”
The hotel building binge is not limited to downtown Des Moines.
Whalen of Heart America Group sees potential across Greater Des Moines.
In West Des Moines, city planners are hearing from nine or 10 hotel developers, said Clyde Evans, director of the city’s community and economic development department.
“The thing that a lot of folks have told me is that we are enjoying high occupancies right now,” Evans said.
An 89-room Fairfield Inn opened April 10 at 8661 Plum Drive in Urbandale. The Marriott franchise will be the third hotel operating on Plum. A fourth is on the books, a Hampton Inn that will be part of a 15-acre retail development R&R Realty Group is planning for the 8900 block of Plum in the company’s Highland Pointe office and retail project.
“All across the metro area and the nation, there is a lot of activity,” said Jackie Johansen, marketing manager for R&R Equity Partners.
At the request of the Business Record, Edwards of the Greater Des Moines Convention and Visitors Bureau compiled a quick list of new hotel construction and renovations.
Here’s a glimpse of some of the activity beyond the projects mentioned above:
• Des Moines Marriott Downtown – completed renovation of public spaces on floors two and three, meeting space on third floor, health club and restaurant.
• Renaissance Savery Hotel- new owners plan $8 million in renovations that include an additional restaurant.
• 201 East Locust LLC– 120-room extended-stay property in the works.
For Whalen, all of the activity supports his view that hotel development business runs in cycles, typically turning every seven years or so.
The “dark days” of the recession extended the current cycle by a year or two. In the rush to tap into development dollars, there will be winners and losers, just like in any business cycle.
“You’re starting to see the surge ... in two or three years, the market will be overgrown,” Whalen said.
He said he plans for the long term. He sees Des Moines transitioning into a maturing city with all the amenities – restaurants, cultural events, even tattoo parlors – that are typical of gateway cities.
AC by Marriott, for example, is a brand that the hotel conglomerate has yet to introduce in the United States. When Whalen first approached the company, which operates under several brands in Greater Des Moines, he was told that the company was more interested in traditional gateways, such as New York, Los Angeles and Chicago. AC by Marriott currently operates in Italy, Portugal and Spain.
Whalen led company representatives on a tour of the East Village, and they walked away convinced that their boutique hotel could make a go of it.
The clincher came when Whalen pointed out a tattoo parlor across the street from the parking lot where the hotel will be located.
“He said that sealed the deal,” Whalen said.
Downtown Hotel Boom
Two new hotels have or are opening soon downtown and another four are proposed in addition to eight existing hotels. If all the proposed hotels are built, more than 1,000 rooms would be added to about 1,500 existing rooms downtown.
Residence Inn Des Moines Downtown
127 rooms | 100 S.W. Water St.
Hampton Inn Des Moines Downtown
131 rooms | 120 S.W. Water St.
AC by Marriott
100 rooms | East Fourth St. and Grand Ave
201 East Locust LLC
120 rooms | 201 E. Locust St.
Holiday Inn Express
125 rooms | MLK Jr. Pkwy and S.W. 11th St.
Convention Center hotel
450 rooms | Fifth and Park avenues
Hotel Fort Des Moines
160 rooms | 1000 Walnut St.
Holiday Inn Downtown At Mercy Campus
251 rooms | 1050 Sixth Ave.
Hyatt Place Des Moines Downtown
93 rooms | 418 Sixth Ave.
Renaissance Des Moines Savery Hotel
182 rooms | 401 Locust St.
Des Moines Marriott Downtown
411 rooms | 700 Grand Ave.
The Suites of 800 Locust
51 rooms | 800 Locust St.
Embassy Suites Hotel Des Moines Downtown
234 rooms | 101 E. Locust St.
Quality Inn & Suites Event Center
155 rooms | 929 Third St.