The hospitality market across West Michigan is gearing up for a level of development not experienced in years.
With more than 700 hotel rooms proposed for sites in Holland, Portage, Grand Rapids and Battle Creek, developers have channeled their efforts into a market segment that many experts expect will continue to flourish over the next few years as the economy improves and business and leisure travel continue to rebound.
But particularly in Grand Rapids where four new hotel projects are in the works, some developers who’ve found their projects plagued by delays caution that the market still has its share of challenges.
The same forces that fueled the hospitality market’s most recent expansion from 2005-2007 are acting as drivers for hotel development in today’s market, industry watchers said.
“It’s not really an exact science, but when you see occupancy rates get above 60 percent, developers start to take notice,” said Doug Small, president of Experience Grand Rapids, the city’s convention and tourism marketing group.
In Kent County, hoteliers reported three consecutive years of record-setting revenues, according to data from Experience Grand Rapids, which projects 5-percent growth in revenue for 2014.
Typically, hotel operators can raise occupancy by cutting rates, but occupancy at Grand Rapids hotels has remained above 60 percent even as rates have gone up, Small said.
The reason: Events such as LaughFest and ArtPrize help to boost the city’s profile and bring more people to the region, said Small, adding that an improving economy also helps to boost business and convention travel.
“What we’re seeing is probably a combination of a lot of things,” he said. “We’ve worked hard at creating a brand and an image for (Grand Rapids) regionally and nationally. We’ve done well at drawing in national conventions and leisure travelers for our growing concert, food and beer scene.”
Grand Rapids market heats up
In Grand Rapids, there are currently four hotel projects in various planning stages.
CWD Real Estate Investment, one of Grand Rapids’ largest downtown property owners, announced in early February that it planned to build a five-story mixed-use hotel at the corner of Monroe Avenue and Louis Street on a site currently used as a surface parking lot.
The project, estimated at $20 million, would include between 150 and 200 rooms.
The hotel is expected to offer a mix of extended-stay rooms, a first in the downtown market, according to the firm.
CWD said it was in discussions with Amway Hotel Corp. — which operates the Amway Grand Plaza, JW Marriott, and Courtyard by Marriott facilities in downtown Grand Rapids — to manage the property once it’s built, but a brand has not yet been announced.
Early plans for the project also included a restaurant, retail space and the possibility of market-rate residential units, according to a statement from the company. However, the developers still need to take the project before the city of Grand Rapids for approvals, likely this spring. CWD hopes to begin construction later this year.
Grand Rapids-based Third Coast Development, operating under the name of Mid Towne Hospitality LLC, is getting set to break ground in mid April on a five-story 142-room Hampton Inn & Suites just east of the Medical Mile on Michigan Street.
The hotel is part of the multi-phase Mid Towne Village project, which currently includes the West Michigan Women’s Health Center, Park Row Condos and the 545 Michigan Street mixed-use building.
The hotel will sit in a north-south position between Dudley Avenue and Paris Avenue. Plans also call for a half-level of underground and two levels of above-ground parking.
In August, the roughly $30 million project was awarded a $3 million performance-based loan through the Michigan Economic Development Corp.’s Community Revitalization Program. The Grand Rapids Brownfield Redevelopment Authority is also contributing $10.4 million in school and local tax capture for the project.
The development of the hotel is just another piece of the puzzle that complements Third Coast’s other projects in Mid Towne Village, partner Brad Rosely said during a panel discussion at an International Council of Shopping Centers program this month.
With two additional residential developments planned in the next six months, Third Coast is trying to create its own hub of activity that connects to downtown, Rosely said.
Hurdles delay some projects
Meanwhile, just north of downtown Grand Rapids in the Monroe North district, Holland-based Suburban Inns LLC has run into parking-related delays for its proposed 270-room Embassy Suites by Hilton project.
“We’ve had issues with a lot of things falling into place for the (Monroe) site,” said Peter Beukema, partner at Suburban Inns. “But we’re excited about the potential of the (Embassy) project and fully committed to it.”
At issue is a dearth of efficient parking solutions for the site, Beukema said.
“If we had parking, our Embassy Suites would be under construction right now,” he said. “With what’s happened, we ended up having to build another four stories into the plan for parking and that obviously wasn’t in the original budget.”
Beukema said fallout from the Ionia-Mason parking lot “soured” the city on building other parking lots in the area, including at his nearby hotel development. The city built the 76-space Ionia-Mason parking lot at a cost of $1.8 million in preparation for a proposed condo development that never materialized, as MiBiz previously reported.
The company’s Embassy Suites project, along with another 134-room hotel and sports bar development proposed for the East Beltline near Woodland Mall, have both been delayed since 2007. Hotel development is a “tough animal” and a lot of decisions can be out of developers’ hands, Beukema added.
In addition to the two Grand Rapids proposals, Suburban Inns announced in early February that it is planning a hotel development in Holland. The company is working with Plaza Realty and Lumir LLC to purchase property at 113 and 121 East 8th Street, between Macatawa Bank’s flagship branch and the splash pad in the city’s downtown.
The developer hopes to break ground this summer on the 130-room or 140-room facility, although it hasn’t yet signed a franchise agreement, Beukema said.
“There is a lot of opportunity in our industry for growth and we’re taking those that are in front of us,” he said. “Lending is good in our industry, and we’re finding a lot of regional and local banks interested in hospitality.”
Other examples of hospitality projects around the region include 616 Development LLC’s plans for a boutique hotel to take up part of the Heritage Tower in Battle Creek and a 97-room Hilton Homewood Suites proposed by TMI Hospitality Inc. and development partners Roger Hinman and Joseph Gesmundo of H&G LLC for 420 Trade Centre Way in Portage.
Additionally, the West Michigan tribal casinos have also been busy adding to their hospitality offerings in recent years. Four Winds Casino in New Buffalo opened a new nine-story, 250-room hotel tower in June 2012, and FireKeepers Casino Resort debuted its 242-room hotel in December 2012. Meanwhile, the Match-E-Be-Nash-She-Wish Band of Pottawatomi Indians last year filed plans with the U.S. Army Corps of Engineers for authorization to fill in an adjacent wetland in anticipation of further development including a possible hotel tower at its Gun Lake Casino site, as MiBiz previously reported.
Trends point to increased activity
Nationally, 2013 was a strong year for hotel and lodging construction, which was the top building sector through the first 11 months of 2013 and grew 26 percent, according to Associated General Contractors of America Chief Economist Ken Simonson. Nationwide, lodging construction was forecasted to be among the top-performing construction sectors and was expected to post double-digit gains in 2014, Simonson said.
In an AGC survey of Michigan-based contractors, one-third of respondents said they expected lodging, retail and warehouse projects to increase in 2014, while the remaining two-thirds expected activity in the segment to remain about the same.
Whenever there’s an influx of hotel developments on the boards, people get concerned about oversupply, but the current market should be sufficient to support the projects, said Small of Experience Grand Rapids. Given the rate projects are moving, Small said he’s still bullish on the market’s ability to absorb more hotel rooms.
“There were the same fears when the JW Marriott opened (in Grand Rapids) as to whether the market could absorb another 300 rooms or if it would siphon off business,” Small said. “I think we can do it again. I’m not a hotel developer, … but I trust they know what they need to make it work. If it’s a unique hotel in the right place, I think we can go out and attract new business with it.”