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Mixed views on need for hotel space in Janesville

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JAMES P. LEUTE
February 15, 2009
— Stan Jones understands why a new hotel often is linked to new commercial developments in Janesville.

After all, the city lost about 25 percent of its hotel rooms when the Ramada Inn and neighboring Oasis Motel were bulldozed in 2007 to make way for the new Menards.


But even though some think Janesville has a shortage of hotel rooms, Jones—a 33-year veteran of the local hotel industry—said Janesville has an adequate supply, particularly given a down economy that has diminished corporate travel and discouraged leisure travelers.


Last fall, Hendricks Development Group proposed a commercial development that included a hotel for property it owns on Fulton Street near Interstate 90/39.


Another developer had plans for a project that included two hotels at the Pontiac Drive site Menards vacated.


And there’s long been speculation about a downtown hotel.


“The thinking is that there aren’t enough rooms, especially with the Ramada and Oasis being torn town,” said Gale Price, the city’s manager of building and development services. “The local hotel market has certainly tightened with the number of rooms reduced, and competitiveness has increased.”


Mark Membrino of HDG said there’s still strong interest in the Fulton Street hotel project, which stalled as credit markets tightened.


The project at the former Menards site fell apart for several reasons, including cold feet on the part of the anchor retailer.


As it stands, Janesville has 13 lodging establishments that pay 8 percent of their room revenues to the city in the form of a room tax. Together, they have 777 rooms.


In 2007, they paid more than $800,000 in room tax, which roughly translates into room sales of about $10 million.


On its face, a $10 million market is appealing to outside hotel developers.


But the devil’s in the details, said Jones, who is part of a group that built the Holiday Inn Express and Janesville Conference Center in 1994.


“I know there are developers looking, and one even wanted to partner up with us,” Jones said. “But the community-wide average occupancy is what’s telling about this market.”


On average, local hotels sell about 55 percent of their rooms on any given day.


In 2007, for example, if every room in the city had been rented every day of the year, the local hotel market would have peaked at about $18 million, assuming a $65 nightly rate that those in the local industry say is a sound average.


The city’s room tax numbers for 2007 show that the hotel revenues of $10 million translated into an occupancy rate of 54.5 percent.


It’s been said about the industry that a hotel makes money at 60 percent occupancy. At 80 percent, it makes good money.


“That’s kind of an old cliché, but it’s fairly accurate,” said Jones. “You have to factor in development costs, and the cost of construction, even for a mid-price hotel like ours, has doubled since we built.”


The local market didn’t simply wake up one morning in 2007 with 250 fewer hotel rooms. The Ramada had been in decline for years before it was razed, selling only a small percentage of its available rooms.


But there are certainly times when the city could use the extra rooms, said Christine Rebout of the Janesville Area Convention & Visitors Bureau.


“In July, August and September, I’d love to have those rooms back,” she said, noting that Janesville often accommodates overflow visitors to Madison and Rockford, Ill. “But when you look at where we are now, I’m worried about those that we have surviving.”


Jones agrees with that assessment of the highly cyclical business.


Last year, occupancy at the Holiday Inn Express was somewhat down, while revenue was somewhat up because of higher room rates.


“And then in November, we just hit a wall that’s continuing now,” he said.


He expects the bleakness to continue this year at his hotel, which caters more to corporate travelers.


“Corporate travel is down, and that’s something that’s easy for companies to cut because it goes right to the bottom line.”


On the leisure side of the ledger, Jones noted that last weekend was one of the flattest he’s seen in Janesville.


“I just don’t believe the community needs additional rooms,” he said.


Jones knows that sounds self-serving, but there’s a flip side.


“I bring this up with my group, and we discuss it all the time,” he said. “If there was a need, we’d be doing something.


“We just don’t think more rooms are warranted.”



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