Spotlight Milwaukee: A stable market with solid demand drivers for hotels

MILWAUKEE—Hoteliers have their sights set on Milwaukee, as the stable market has all the right demand drivers: great lakefront and an activities-driven downtown area, as well as solid corporate and leisure demand, according to sources.

“All the right pieces of the puzzle are there,” said Bob Habeeb, CEO of Chicago-based First Hospitality Group. FHG has one hotel in downtown Milwaukee and one on the outskirts of the city, according to Habeeb. The company has 46 hotels with 7,300 rooms open in its portfolio.

“We’ve always liked Milwaukee,” he continued. “It’s a good, predictable market, and it’s proximate to Chicago.”

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“Milwaukee boasts a diverse economy, with healthcare, education, services, insurance and manufacturing, along with strong seasonal leisure visitation, as major contributors,” according to HVS’ “2016 HVI Hotel Valuation Index.” Additionally, the city is home to large companies that have international customer bases. This often draws visitors to the market for training and industry conferences.

“It’s a good Midwestern market with a stable environment and growing demand—and balanced demand with corporate and leisure. All of those factors are usually pretty appealing to developers,” Habeeb said.

RELATED: Milwaukee, along with other Midwest markets, including Chicago and Cleveland, will be under the spotlight at NATHIC Midwest, Nov. 16 and 17, at the InterContinental Hotel Chicago Magnificent Mile. To learn more about the event and to register, click HERE.

Mario Tricoci, CEO and managing partner of Chicago-based Aparium Hotel Group, is also an advocate of Milwaukee. His company boasts the 100-room Iron Horse Hotel in the city. The hotel was the group’s first as a company and is consistently on top lists for hotels in the U.S. Aparium now has hotels opening all over the Midwest, including Detroit, Minneapolis and Kansas City.

“[Iron Horse] is as much about Milwaukee and the personality of the city; it’s more about the city than us,” Tricoci said. “It’s the perfect market representative of our philosophy; it’s where our passion lies.”

Aparium Group’s 100-room Iron Horse Hotel in Milwaukee runs above 80-percent occupancy.

Supply

“There has been a lot of interest in the last year to 18 months that has led to a great deal of supply headed toward Milwaukee in all sectors,” Habeeb said.

Recent additions to Milwaukee include: the 158-room Kimpton Journeyman Hotel; a 155-room SpringHill Suites property; and a 220-room Westin close to the new Northwestern Mutual Tower, according to HVS. A Cambria hotel & suites property and Homewood Suites by Hilton are in the planning stages, according to the consultancy group.

Tricoci said there have been “whispers” about new supply coming into Milwaukee. He also said there is some product coming in farther north of the downtown area.

The Milwaukee market has 10 hotels with 1,192 rooms in the pipeline, according to STR data. Of those, six hotels with 711 rooms are under construction. As of June, the market had 150 existing hotels with 16,666 rooms open.

“We’re always thoughtful about new supply coming in,” Tricoci said. “All that means is that we have to sharpen our game so we’re still the most relevant.”

Habeeb shows more worry. “I think there’s a danger in Milwaukee of oversupply,” he said. “We haven’t seen it yet with our products, so I’m happy for that. But clearly there’s some concern.”

When asked if he’d put another hotel in the city, Habeeb said: “I think the right brand in the right location, we would still entertain. I think a secondary brand in a secondary location wouldn’t be prudent right now because of all the supply coming in.”

Year-to-date June, the Milwaukee market has seen a 1.3-percent increase in supply, while demand has risen 4.5 percent.

Performance

Although new supply is coming into the market, Tricoci said there hasn’t been much of an impact on his hotel’s performance. The Iron Horse finished last year with over 80-percent occupancy and north of $220 average daily rate, he said.

Habeeb said he’s also happy with how his Milwaukee properties are performing.

“We opened a Hilton Garden downtown, and we think we have a great location and that’s been a big help to us,” he said. “We’re in our third year there, and our hotel has performed above our expectations since its opening.”

As of year-to-date June, Milwaukee saw an increase in revenue per available room of 6.7 percent to $64.07, according to STR. Average daily rate was up 3.4 percent to $103.12. Occupancy was up 3.1 percent to 62.1 percent.

Transactions

HVS expects Milwaukee hotels to continue to increase in value over the next three years.

According to the group, limited sales volume occurred for the city over the past two years. Eleven hotels were sold during that time period with an average sales price of about $55,000 per room. The highest transaction recorded during that time was the Hampton Inn Milwaukee Airport. The hotel sold in Nov. 2015 for about $6.2 million or $71,078 per room.

Interested in developing in Milwaukee? Want to learn more about what’s going on in the Wisconsin market and Midwest hotel development and investment overall? These topics and more will be covered at NATHIC Midwest, Nov. 16 and 17, at the InterContinental Hotel Chicago Magnificent Mile. To learn more about the event and to register, click HERE.

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