5 facts about Midwest hotel investment and development

Chicago hosted more than 55 million visitors in 2017. Photo credit: Pixabay/Free-Photos

The Midwest continued to hold hotel investors’ attention last year, and that trend will likely continue this year, according to a new report from Marcus & Millichap.

The firm’s “2018 Hospitality North American Investment Forecast” broke down investment and development trends by region while providing forecasts for what investors can expect in the year ahead. Here are five important things to know from the report:

1. Investors Eye Major Cities in Central Midwest

The Central Midwest is composed of Missouri, Oklahoma and Kansas. Last year, Missouri and Oklahoma led gains for occupancy and revenue per available room in the Central Midwest. Moving forward, major businesses and sporting teams in the region will keep the hotel bookings coming.

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For example, Marcus & Millichap reports that in Missouri major corporate relocations—such as the National Geospatial Intelligence Agency, Pfizer and Microsoft—will help to create weekday room demand. Additionally, occupancy for St. Louis hotels is anticipated to grow thanks to the 2018 SEC Men’s Basketball Tournament at the Scottrade Center. Moving south, the recent opening of the Oklahoma City’s Expo Center has attracted more events to the area, and this year construction will start on a new convention center.

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Due to expected demand growth, which Marcus & Millichap forecasts to be 1.9 percent year-over-year in room nights, hotel buyers are looking to Missouri metro areas as higher service properties are sold. Limited hotels available for sale in Missouri in tandem with increasing investor appetite led to bidding wars last year, which caused the average sale price per room to jump 28 percent.

In particular, hotels in St. Louis and Kansas City helped to push those sales prices higher. Part of the reason hotel prices have jumped in these cities was due to the types of assets. While in the past independent and economy hotels were mostly sold, mainly midscale and upper-midscale hotels traded last year.

“While there is greater diversity of chain scales in the deal pool, non-institutional investors are still predominantly trading 30- to 40-year-old buildings with fewer than 100 rooms,” according to the report. “These buyers prefer suburban establishments near major highways.”

 

2018 Central Midwest Region Forecast

Supply

8,600 rooms

+1%

Occupancy

58.4%

+50 bps

ADR

$91.78

+2.3%

RevPAR

$53.60

+2.2%

Source: Marcus & Millichap’s “2018 Hospitality North American Investment Forecast”

 

2. News Projects in Central Midwest to Fuel Demand

The region will offer many new developments in the near future, according to the report, including:

  • a $380-million redevelopment of the parkland surrounding St. Louis’ Gateway Arch, which will be completed this year and will add 11 acres of greenery and expand the museum space;
  • a $322-million, 800-room hotel adjacent to the convention center in Kansas City will open in 2020 from Loews Hotels; and
  • Oklahoma City will see a 270,000-square-foot convention center and Omni property that will open in 2020.

3. Upper Midwest Investors Look Outside Major Cities

More travelers are flocking to the Upper Midwest, which includes North Dakota, South Dakota, Nebraska, Minnesota, Iowa, Wisconsin and Illinois.

Upper-midscale hotels are the investment winners in the region, according to Marcus & Millichap. While buyers from the Southwest and West Coast often seek out transaction opportunities in urban centers such as Chicago and Minneapolis, a majority of recent deals last year happened in secondary markets of Wisconsin and Illinois.

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4. Events will Bring Demand to the Upper Midwest

Travelers are visiting the Upper Midwest for many different events. Namely, Minneapolis-St. Paul hosted the Super Bowl last year, which boosted hotel performance for the market and contributed to RevPAR growth to the state.

Additionally, Chicago hosted more than 55 million visitors in 2017, with many thanks to the McCormick Place’s multiple attendance records for the year. This year, a hotel connected to the center will open. Further, hotels adjacent to convention centers in Des Moines and Omaha are set to open this year, which will spur demand in the region—which is forecast to grow 1.8 percent year-over-year in room nights.

 

2018 Central Midwest Region Forecast

Supply

12,600 rooms

+1.1%

Occupancy

59.9%

+40 bps

ADR

$109.68

+1%

RevPAR

$67.08

+1.2%

Source: Marcus & Millichap’s “2018 Hospitality North American Investment Forecast”

 

5. In the North Central Region, Indianapolis is on the Map

The North Central region comprises Michigan, Ohio and Indiana, according to the Marcus & Millichap report. Of those, major metro areas in Indiana and Ohio are leading the charge in terms of investment—and Indianapolis, especially, is on the top of the list.

“Within the region, more hotels changed hands in Indianapolis last year as consistent occupancy, ADR and RevPAR gains have attracted buyers to the city, raising it to the top of the deal pool,” the report reads. “A corresponding increase in the average price is partly reflective of intensified buyer demand in the market. Prices have also risen in Indianapolis due to a higher volume of select-service sales.”

 

2018 North Central Region Forecast

Supply

10,700 rooms

+0.8%

Occupancy

61.9%

+100 bps

ADR

$100

+1.4%

RevPAR

$62.41

+2.2%

Source: Marcus & Millichap’s “2018 Hospitality North American Investment Forecast”


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