As the list of Milwaukee-area hotels that have found themselves in financial trouble grows longer, hotel industry experts warn that it's "just the tip of the iceberg" as Milwaukee gears up for 2024, a year packed with events in the city.
The Iron Horse Hotel, the Hampton Inn & Suites and now the Cambria Hotel, all in or near downtown Milwaukee, have had those financial troubles made public.
In August, the Hampton Inn & Suites in the Westown neighborhood of downtown was taken back by its lender in a deed in lieu of foreclosure action. Then in October the hotel was sold to a new owner/operator, Lisle, Illinois-based E.M.A. Hospitality.
In September, the locally-owned Iron Horse Hotel in Walker’s Point was sent to auction to resolve its ongoing Chapter 11 bankruptcy.
And this week, the
Cambria Hotel, also in Westown, went into foreclosure.
"As an observer, it looks like (the Cambria Hotel) follows the same model as others are facing," said
Doug Nysse, hospitality industry advisor and director of project and development services with
Colliers | Wisconsin.
"Many hotels today are facing trouble. It’s just not known how many," said
Greg Hanis, hotel industry analyst and president of New Berlin-based
Hospitality Marketers International Inc.
High labor costs, lack of consistent labor, increasing operational costs and refinancing of debt, among others, are all putting pressure on hotel operators, owners and lenders.
The fallout from the pandemic isn't helping either. Hotel occupancy levels in the Milwaukee area have yet to return to pre-pandemic levels, largely due to a lack of business travelers.
All this could mean more hotels throughout the Milwaukee metro area — not just downtown — could see themselves in similar dire financial situations in the near term.
"There are many hotels in this situation, with more expected to come," Hanis said. "These hotels with difficulties are lurking below the surface. They are trying to work things out, but when they can’t, they are going into foreclosure or are put up for sale."
"In 2024 the industry feels this is just going to get worse before it improves," Hanis added.
Stress for some, opportunity for others
While the situation creates stress for some, it presents opportunities for others.
Hotel development, like all development, is slowing due to rising construction and borrowing costs, limited access to capital and changing consumer demands. Nysse anticipates that activity in the hospitality sector will shift from new development to acquisitions, with 2024 presenting opportunities for cash buyers.
For hotels that go into foreclosure in Milwaukee, Nysse and Hanis agree that there is a market for these properties and most will not sit on the market long.
"In a major market like Milwaukee, and then you associate a strong brand, there's a market of buyers and a market of lenders that have confidence in those brands in major markets, which makes those hotels quicker to trade," Nysse said.
This isn't the first time that the hotel industry has faced challenges like this, according to Nysse, but the difference this time is the missing business traveler that previously filled hotels during the week and were less sensitive to rate increases.
RNC headlines upcoming busy summer for Milwaukee hotels
The hotel industry's financial trouble and subsequent foreclosures could have real implications for Milwaukee, which is scheduled to have one of the busiest tourism summers on record in 2024, with three weekends of Summerfest, the now annual Harley-Davidson Homecoming Festival and the Republican National Convention, among others planned.
The 2024 RNC is chief among the large-scale events on Milwaukee’s upcoming calendar. The four-day event will bring an estimated 45,000 visitors to the city, taking over 300 to 400 hotel and motel properties, or up to 14,000 hotel rooms, within a 60 mile radius of downtown, according to local organizers.
While the Iron Horse Hotel and Cambria Hotel have remained operational throughout the foreclosure proceedings, the Hampton Inn has remained fully closed since May. In October,
permits filed with the City of Milwaukee Department of Neighborhood Services indicate that its new operator is moving into the space, but no details as to when the hotel could reopen have emerged.
If distressed hotels end up closing at the wrong time, Milwaukee will lose inventory needed for the big upcoming events.
"No owner wants their asset to be known to be in trouble," Hanis said. "Then, like the Hampton, they just close when nothing else can be done. If more hotels like the Cambria surface, the big events expected like the RNC could have a real problem to deal with."
Nysse said that, while there's always a risk that distressed properties could end up closing, if hotel owners and their lenders see positive cash flow on the horizon, they would be inclined make arrangements to defer action that might result in closure.
