Is Janesville due for a hotel overhaul?

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Neil Johnson
Sunday, March 5, 2017

JANESVILLE—Karl Anderson, general manager of the Ramada Janesville, walked through a maelstrom of renovations Thursday that when finished will add 18 new rooms and update the 88 existing rooms at the Milton Avenue hotel.

Those renovations, totaling $1 million in all, Anderson said, will rejuvenate one of the oldest hotels in Janesville.

They include an upgraded lobby with new carpeting, fixtures and a fireplace and a new continental breakfast kitchenette and dining area that Anderson called the biggest in the city's hotel market.

The dining area comes complete with a make-your-own pancake, waffle and mini-waffle machine.

The renovations come as the city's hotel occupancy rate is climbing and developers are considering building two new hotels in Janesville in response to a perceived demand for more rooms.

The Ramada, which is under new ownership as of June, plans to complete the renovations in May, just in time for a summer tourism season that is heavy on visitors traveling here for regional youth sports tournaments. 

“We are trying to get a product to the Janesville market that is going to flat-out compete,” Anderson said Thursday.

Competition among hotels to land a finite number of travelers has begun to heat up as the economy recovers, more people are traveling and more businesses are sending people to conventions. As a result,  hotel room occupancy has begun to rise significantly.

Last year, average hotel occupancy climbed above 60 percent in Janesville for the first time in years. In a few summer and fall months, hotels reported average occupancy rates near 80 percent, according to the Janesville Area Convention and Visitors Bureau.

That's compared to 52 percent occupancy in 2011.

Hotel industry experts consider a hotel market to be profitable when it reaches at least 60 percent occupancy.

The Janesville Area Convention and Visitors Bureau has a stake in monitoring hotel use because it operates on the city's behalf to market the tourism industry. The bureau gets a 52 percent cut of room tax revenues collected by the city.

A new state law requires that tourism bureaus eventually receive a larger cut of room tax collections, although the city is allowed to phase in that change over several years.   

The rise in occupancy comes as hotels such as the Ramada, which was built in 1974, are getting face-lifts and adding rooms and new trappings with the goal of capturing customers in the local market and nearby markets such as Rockford, Illinois.

The average occupancy for 2016 was 62 percent among all of Janesville's 756 hotel rooms. Per-room rates for hotels here have increased from an average of $71 in 2014 to $79 in 2016, said Christine Rebout, executive director of the local convention and visitors bureau.

Rebout said periods of 60 percent occupancy can net $20,000 a night in restaurant and entertainment spending.

Her numbers are based on Smith Travel Reports, a hotel industry analyst that the tourism bureau contracts with to track local hotel use.

Janesville hasn't seen a new hotel built since 1998—almost 20 years. And its 750-some rooms still lag well behind the 1,000 rooms the city had before a former Ramada and another motel on the west side of Milton Avenue were bulldozed in 2007 for the existing Menards store.

But Gale Price, Janesville's economic development director, said last week that a new hotel development could be on the horizon.

Late in 2016, city officials let the cat out of the bag that developers are interested in building at least one, if not more, hotels in Janesville. That news emerged during discussions of a tax-increment financing deal—since approved—that would help a Madison developer buy the former Menards off North Pontiac Drive and turn it into a multistore retail development.

At the time, Price hinted that the redevelopment could include two midsize hotels on the property's as-of-yet undeveloped south side.

Since then, the city has considered whether to reshape Pontiac Drive and add another access road to the former Menards property—projects that could cost hundreds of thousands of dollars.

City staff last month scrapped plans for those traffic projects in the near term.

In an interview last week, Price wouldn't give specifics about prospects for new hotels, and he wouldn't say for sure where in Janesville a new hotel development could be built.

But he said more than one hotel developer is now interested—and he indicated that some have moved beyond tire-kicking the Janesville market.

“The city is getting numerous contacts with an interest in a hotel or hotels,” Price said. “I will tell you that there is imminent interest in starting a hotel development this year.”                 

A few developer proposals to build new hotels have come and gone in recent years, in part because of a finicky real estate lending market coming out of the Great Recession. Anderson said it can cost $4 million to $5 million to build a small- to medium-size hotel.

There's also a slim inventory of land near the Interstate 90/39 corridor that's suitable for hotel development.

But rising occupancy rates here and nationwide have begun to shift how developers are viewing markets such as Janesville's, Price said.

“There has been limited hotel development in smaller markets in the last eight to 10 years," he said. "Now that hotel occupancy nationally is increasing, they're pursuing other markets for expansion opportunities. Submarkets such as Janesville, Rock County, are places developers didn't capitalize on in the last decade. We're now being favored, getting interest we hadn't seen in a long time.”

Price said possibilities for a new hotel range from a mid-size hotel similar to those on the I-90/39 corridor near the Highway 26 and Highway 14 interchanges to a smaller “boutique” hotel that could offer business travelers upscale amenities.

Rebout said renovations such as those at the Ramada are a sign of the hotel market's turnaround.

But while Ramada's renovations will add about 18 rooms, the overall inventory is still more than 200 rooms shy of what it was a decade ago.

Rebout said hotel room inventory hasn't grown in recent years, and during some hotel renovations recently, the number of rooms at times has dipped. At the same time, occupancy in the early months of this year has climbed 10 percent over last year, according to Smith Travel Reports counts.

In addition, tourism traffic and regional youth sports in Janesville and in Rockford, Illinois, have outpaced hotel room growth in both markets. During the summer tournament season, Janesville can get an influx of visitors at sports tournaments at the same time as other major local events.

“You like that side of the game, those big tournament draws, but what you don't like is when other business might be going down the road somewhere else because of it,” Rebout said.

This summer, Price and Rebout said, hotel operators expect a boost in extended stays from crews working on Alliant's town of Beloit power plant expansion and major lane projects on Janesville's leg of the I-90/39 expansion.

Some hotel operators still question whether the market is ripe for new hotels.

Ash Mehatra, a partner owner of Holiday Inn Express on Highway 14—one of just a few hotels here with convention space—said winning over the Janesville market has been an uphill climb.

His company, Hospitality Guru Group, did a major remodeling that was required, but it came in 2013 when the tourism and convention markets were emerging from a long downturn. He said the hotel still is recovering from times of low occupancy, particularly during winter.

Mehatra said his group's remodel might have been timed well with a general economic upturn, but he pointed out that analysts long have held that economic cycles break up hot market runs in the hotel industry every few years.

That's in part because the hotel market relies on discretionary travel, which makes it sensitive to economic lulls.  

Mehatra said hotel market upswings are “not generally sustainable for an eight or 10-year period,” and Janesville's uptick for the last few years has been generally in line with national trends.

“For me, it's sort of still to be determined what the industry sees this year. It's yet to be seen,” Mahatra said.

Anderson believes the concept of one or two small hotels at the former Menards site would be a good prospect for a developer. After all, it would be close to an adjacent banquet hall—the Pontiac Convention Center.

He's said he's "not anti-development" when it comes to the idea of a new hotel in this market. But he wonders what could happen if the economy slows.  

“There might be a rising tide, but what about when it goes back out to sea? Do you know what your plan is afterward?”

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