Hilton Minneapolis, Minnesota's largest hotel, to go up for auction

The Hilton Minneapolis, the largest hotel in Minnesota, will go up for auction next month as part of foreclosure proceedings.

The 826-room Hilton, located on Marquette Avenue S. and a five-minute walk from the Minneapolis Convention Center, has been a staple of downtown and at the center of the city's travel business for years.

Hilton's foreclosure auction, scheduled Jan. 13 at the Hennepin County Sheriff's Office, is an example of the pandemic's far-reaching impacts on the hospitality industry. But it's unlikely to mean a disruption in service for travelers or the city's convention industry.

"The Hilton Minneapolis continues to be a valued partner of Meet Minneapolis as we work with a wide range of planners to bring future meetings, events and conventions of all sizes to the city," Meet Minneapolis, the city's convention and visitors association, said in a statement Wednesday.

The Hilton and other hotels across the country suffered greatly during the pandemic when travel halted and demand dropped. In early March 2020, hotel analytics firm STR reported that Twin Cities hotels had an occupancy rate of 54%. Later in the month, local hotels were seeing occupancies in the 10% range.

In April 2020, the owners of the Hilton Minneapolis, Chicago-based private equity firm Walton Street Capital and Haberhill LLC of Fernandina Beach, Fla., stopped making their scheduled monthly payments on a $180 million loan from JPMorgan Chase Bank, according to court filings. They were soon notified the loan was in default and, in October 2020, a lawsuit was filed by the lien holders.

As of March 2021, the hotel owners owed more than $201 million on the loan including more than $500,000 in late charges, more than double what the county lists as the hotel's estimated market value as of the beginning of that year. It's also more than the $143 million the owners paid for the Hilton Minneapolis when they bought it in 2016.

In April 2021, a Hennepin County judge ordered the sheriff's auction.

Representatives for Walton Street and Haberhill could not be reached for comment. Haberhill is also the co-owner of the Hyatt Regency Minneapolis along with Starwood Capital.

The 25-story Hilton, built in 1992, has a 25,000-square-foot ballroom and 44 meeting rooms, making it the closest the Twin Cities has to the megahotels found in other major cities.

Hotel traffic throughout Minnesota began to slowly recover this year as fears over the coronavirus subsided. According to Hospitality Minnesota, 68% of operators in the hotel and motel sector matched or beat their 2019 revenue this summer, though revenue was still lower than predicted earlier.

Liz Rammer, president and chief executive of Hospitality Minnesota, said she is encouraged by the increase in revenue and occupancy. Plus, the city got its first five-star hotel when the Four Seasons opened this summer, she said.

"In the best of economic times, changes in hotel ownership are not unusual," she said about the Hilton auction. "Given the devastation leveled on the hospitality industry due to the pandemic, it is unsurprising that there is additional hotel ownership churn. Properties change hands in a variety of ways, some of them very public."

Downtown Minneapolis hotels remain more than half empty even as more people have started to travel this year and begun to work more in the office. Research from STR shows that downtown Minneapolis hotels had an occupancy rate of 46% for the four weeks ended Dec. 3. That compares to 35.5% for the same period a year ago.

STR statistics show that the average annual occupancy rate from 2014-2019 in downtown Minneapolis was 70.5%.

"Business travel isn't what it was," said Steve Buss, founder of St. Louis Park-based commercial real estate investment firm Likewise Partners.

Auctions offer a way for lenders to quickly unload properties rather than holding the assets in hopes of getting higher prices in the future. Buss said that banks are now willing to cut their losses and move on.

"I think what these lenders are saying is 'We don't want to deal with this,'" Buss said.

The Hilton is not alone. LaSalle Plaza, a 30-story office building in downtown Minneapolis, is slated to go to auction next week.

John McCarthy, senior vice president with the local office of Toronto-based commercial real estate services firm Colliers, said that he is expecting to see an uptick in auctions in all property sectors.

"Overall we're going to be seeing this in all classes of properties," said McCarthy.

The outlook is particularly challenging for building owners who have a loan coming due in the next 12 months, said McCarthy, who handles investment sales. Higher interest rates will make it much harder for those owners to refinance.