Despite high vacancy rates, most hotels in decades opened last year in downtown Minneapolis

Amid a still-challenging hospitality market, six new hotels opened in five buildings in downtown Minneapolis in 2022 — the most openings in a year that the area has seen in decades, according to hospitality industry tracker STR.

While the additional rooms are good news, they are not solving a major issue, said Ben Graves, CEO of Minneapolis-based hotel developer and operator Graves Hospitality.

"Minneapolis is one of the two worst [hotel] markets in the country," he said. "The majority of the country right now is back to 2019 levels."

The overall Twin Cities market ranked 24th among the top 25 markets for hotel occupancy in January, according to STR research. Only Chicago ranked lower.

Minneapolis is not a high leisure travel destination. It relies on business and conference guests.

That reliance is impeding recovery.

"Corporate meetings and business travel were hit hard and have rebounded slower than leisure, sports and convention travel," said Brent Foerster, senior vice president of destination sales for the tourism agency Meet Minneapolis.

"The corporate and business markets are typically significant demand generators for Minneapolis based on the number of Fortune 500 and other corporations based in the city."

Planning for the new hotels began before the pandemic, said Graves, whose company operates a Marriott Moxy near U.S. Bank Stadium and a Marriott Residence Inn in the core of downtown.

The hotels added 875 rooms to downtown Minneapolis, which now has a total of 40 hotels with about 9,200 rooms, Meet Minneapolis said. Another hotel is under development. The 123-room West Hotel is slated to open in the North Loop in the fall.

Meanwhile, downtown Minneapolis hotels remain two-thirds empty. From Jan. 1 to Jan. 28, they saw an occupancy rate of 32.7%, well below the national occupancy rate of 53.1% for the same period, according to STR, which is owned by Washington, D.C.-based commercial real estate company CoStar Group.

And the Hilton Hotel, the largest in downtown, is under a cloud of a potential foreclosure auction. A sheriff's sale has been rescheduled for March 10. After the hotel's owners could not stay current on their loan when the pandemic hit, a large chunk of business disappeared.

But receiver reports in court records show that the Hilton took in $44.4 million in revenue in 2022, significantly up from $12.2 million the year before.

"Convention hotels are actually doing quite well," Graves said. "Meetings and events are coming back."

Yet some operators say they are seeing signs of progress.

"We're definitely getting there. We can see there's a definite uptick in [business] travel," said Riana van Staden, regional director of sales and marketing for Hotel Indigo.

Hotel Indigo is the newest hotel to open. The hotel started booking rooms in December, and a grand opening is planned for April or May when its bar and restaurant open. Situated in the former Crowne Plaza hotel in the Northstar Center complex, Kothe Real Estate Partners and Great Lakes Management Group, both of Madison, Wis., pledged $25 million to overhaul the property.

The glitzy Four Seasons, within the RBC Gateway office tower that opened in June 2022, has drawn the most attention among the new hotels. Built by Minneapolis-based developer United Properties, which signed a term sheet with Four Seasons Hotels in November 2018, it is the first five-star hotel in Minnesota and features two restaurants led by celebrated chef Gavin Kaysen.

"Some new hotels attract new demand with it, like the Four Seasons," Foerster said. "That being said, select markets such as business travel have been slower to recover, and new properties create more competition for the customer during slower occupancy times."

Bloomington-based JR Hospitality and Iowa-based Hawkeye Hotels co-developed the other four new hotels in two dual-branded projects.

Not far from Target Center, the developers delivered two hotels in two new, nearly identical adjacent six-story buildings, each with its own hotel: Cambria Hotels and Fairfield Inn & Suites. The Fairfield opened in August; the Cambria opened in November. The project, on a site where a Ramada Inn once stood, was first pitched in early 2018.

The partners also developed a project in what had been a vacant office building on 2nd Avenue S., three blocks north of the Indigo. The property has two brands under one roof — the Home2 Suites extended stay hotel with 103 rooms and Tru by Hilton with 98 rooms.

Jay Bhakta, a managing partner with JR Hospitality, acknowledged that downtown Minneapolis is not bouncing back as quickly as other hospitality markets and has further to go for a full recovery. But he's encouraged.

"We're seeing some growth. There's a lot of upside in what can happen in that market," said Bhakta, who added that he is seeing more activity downtown.