Uptown’s hotel horoscope: Outlook not so good

Only one of three recent proposals to fill Uptown’s hotel void still has a shot at moving forward

During the last couple years, Uptown was abuzz with the prospect of being the site for a new hotel — possibly three of them — something the area hasn’t had in more than three decades.

But development changes, a sliding housing market, tighter lending restrictions and a weakening economy have silenced the hype. Only one of the planned projects still has a shot at moving forward and the odds aren’t in its favor.

Here’s what’s been going down with hotels in Uptown:

• Greco Real Estate Development’s pitch for a 100-room hotel as part of a mixed-use project in the Lyn-Lake area never made it off the drawing board. Brent Rogers, the firm’s vice president of development, said GRECO got a call from a hotel operator interested in the project, but in the end, the hotel just didn’t fit.

“We’ve never been hotel guys,” Rogers said. “We did entertain the idea, but it never really materialized.”

• Plans for a 140-room Graves hotel as part of the Ackerberg Group and CAG Development’s mixed-use project Mozaic on Lagoon and Fremont Avenues were scrapped when the condominium market collapsed, requiring a redesign that now includes apartments and more office, commercial and green space.

Stu Ackerberg, president of The Ackerberg Group, said the new design does not allow enough square footage for a hotel and the materials and rental units wouldn’t fit as well with the upscale Graves concept.

“It had a synergy between the hotel and the homeowners,” he said of the previous design.

Ackerberg was also concerned about the number of potential hotel users in the area today. He said that number would probably grow as area improvements are made such as the renovation of Calhoun Square. He said he’d still like to develop a hotel in the area someday.

• Investor Curt Gunsbury, who last spring received city approval for a six-story, 114-room boutique hotel on Holmes Avenue between Lake and 31st streets, is the last man standing with hopes of construction. Gunsbury said he’s in negotiations about financing for the development, called Hotel Uptown, and is “on the razor’s edge” about whether the project will come to fruition.

“Hotels are really complicated animals that require many, many things to make them work and Uptown is problematic as a site for development,” he said, declining to elaborate.

A tougher climate for developers

Steve Sherf, a senior vice president at hotel industry research firm GVA Marquette Advisors, said many area developers jumped on the hotel bandwagon when the market was hot a couple years ago, but like the condo market, things have cooled.

“There was a real rush to build new hotels because there was a lot of real estate money looking for investment,” Sherf said. “But I think that people are beginning to realize that we have a huge supply of new rooms either coming on now or about to come on or have recently come on. You combine that realization with the tightening credit and it’s going to be harder to get loans.”

Downtown has seen a flurry of new hotel construction recently with projects such as The Hotel Minneapolis at 401 2nd Ave. S. But Uptown’s projects didn’t get underway before the housing market tumbled and other economic factors tightened lending restrictions.

Sherf said lenders require at least 20 percent equity on a hotel project nowadays and often upward of 30 percent.

Craig Wilson, a principal of Kandiyohi Development Partners who is involved in the development of a boutique hotel at 2550 Nicollet Ave. S., said the equity required for that project is significantly more than what it would have been a few years ago, though he wouldn’t give specifics.

“We’re not set back at this moment, but the economy isn’t helping at all,” he said. “Everything has become more complicated.”

Sherf said business travelers make up the bulk of hotel occupants and their travels start to taper off just before an economic stumble. GVA Marquette hasn’t released metro-area occupancy rates for 2007 yet, but Sherf said “from people I’ve talked to, occupancies have started to soften up at the end of 2007.”

Despite the dreary economic forecast, there’s still potential for a hotel in Uptown, Sherf said. It couldn’t be a “vanilla franchise” type of operation, he said. It would have to be different, edgy and appeal to the demographic. And challenges remain.

“The hotel that goes into Uptown is going to have to be fairly small because I don’t believe the market is that big,” he said. “The cost per room is going to have to be quite high. You’d need a lot of equity to pull off a project like that.”

City Council Member Ralph Remington (10th Ward) said there’s definitely a need for an Uptown hotel for business travelers and others who visit the area for its restaurants, proximity to the lakes and other amenities.

“A lot of residents wish there was a place for family and friends to stay other than their house,” Remington said.

Uptown’s first hotel was called the Hotel Carling and was a small operation in the William’s Pub building on Hennepin Avenue. It closed in the 1970s.