Detroit's Hotel Doldrums

The Motor City's top hotels have gotten a much-needed overhaul in recent years, but the downward spiral of the auto industry helps keep occupancy rates down.

By Joe Brancatelli

Just before a glittering new terminal opened at Detroit Metro Airport seven years ago, I flew out for an airport-arranged private tour. Then I drove downtown for my own self-guided view of the seamier side of Detroit's travel infrastructure.

Four of the city's once-famous deluxe hotels were ornate tombs, abandoned for decades and facing the wrecker's ball. Two starkly modern properties built in the 1960s were shabby and sorely in need of new ownership. Even the 73-story hotel in the Renaissance Center, opened in the late 1970s as part of a massive urban-renewal project, was dreary and depressing.

"TERRIBLE!" I scribbled in my notebook in 2002. "Someone should fix."

And fix they did. The Madison-Lenox and the Detroit Statler were demolished, but the Book Cadillac and the Fort Shelby received hundreds of millions of dollars worth of renovations and restorations. The Book, as locals call it, reopened to raves in October and the Fort Shelby came back to life two months later. One of the 1960s icons, the St. Regis, became a spiffy boutique property. The other, the Hotel Pontchartrain, was recently renovated and is now called the Riverside. The cylindrical skyscraper hotel at the Ren Center? It's a Marriott now, and it sparkles. And the city's three casinos have each opened upscale hotels with Vegas-style perks and amenities.

But this is Detroit, where hotel happy endings are always the start of the next lodging nightmare. If anything, the Motor City's hotel scene is in worse shape today than seven years ago.

More than half of Detroit's estimated 40,000 guestrooms are empty, and PKF Hospitality Research says lodging demand will fall further this year. The St. Regis is in receivership. The Riverside has been picketed by employees who say they haven't been paid, and the Detroit News says the hotel owes almost $700,000 in back taxes. One of the casinos is in bankruptcy and another is for sale. Only a handful of buyers have closed on the dozens of pricey condos atop the Book Cadillac. The Fort Shelby's new rental apartments are mostly empty too. And Detroit's revpar (revenue per available room), the key measure of financial health in the lodging industry, is one-third lower than the national average.

"The statistics are scary," admits Shannon Dunavent, general manager of the Doubletree Guest Suites hotel that was lovingly carved out of the carcass of the Fort Shelby. "I've been working in Michigan for 20 years and I won't lie to you. There's no new business in the market. We're all trying to steal from the other guy to survive."

It doesn't take a genius to figure out what's ailing Motown's hotels: The automotive business has been careening downhill for decades. Detroit has never been able to replace cars, and the thousands of related businesses that depend on the carmakers, as the city's economic engine. Hell, even Motown Records moved to Hollywood almost 40 years ago.

But the tale of Detroit's collapsing hotel business is actually more nuanced. It's a story of no good deed going unpunished, of every clever urban-renewal idea having an unintended consequence, and everyone missing the hotel forest for the restored trees of an earlier era.

As Detroit emptied out-the city's population of 900,000 is about half its mid-1950s high-so did the need for much of the city's older hotel infrastructure. The luxury lodging business moved to upscale suburbs like Dearborn and Birmingham. A slew of focused-service hotels popped up in office parks and other business areas outside the deteriorating city core. Fliers who connect in Detroit via Northwest Airlines' large hub at Detroit Metro are well-served by an upmarket Westin hotel that opened adjacent to the new terminal.

During the last decade, even with icons like the Book and the Fort Shelby closed and the casino hotels still on the drawing boards, hotel occupancy rarely surpassed the 60 percent mark. And though there were occasional spikes of demand around special events-the city is sold out for college basketball's Final Four next month-there was never any indication that Detroit needed more rooms.

"This has always been about urban renewal and politics more than market forces," one hotel executive told me last week. "You can admire the drive and the commitment to rebuild Detroit, but there was a lot of 'If we build it, they will come,' thinking. We built. Guests haven't come."

The three casino hotels-each mandated by the terms of their gaming license, each around 400 rooms, and each opened in the last 18 months-flooded the city with new supply. The restoration of the Book Cadillac and Fort Shelby is another example of Detroit's mind over market.

The city's tallest building and the tallest hotel in the world when it opened in 1924, the 33-story neo-Renaissance Book remains a much-loved symbol of Detroit's boom times. But as a business, the 1,100-room property was always a loser. After the war, it changed owners and hotel flags frequently and finally closed in 1984. Over the next 20 years, the city, state, hotel chains, and developers all floated and abandoned restorations plans.

The $200 million project that finally started in 2006 and culminated with a headline-grabbing gala reopening party last fall converted the Book into a 455-room Westin hotel and a residential condo complex. Both projects have been lauded for their design and creative repurposing of the Book's stately shell, but the hotel has been forced to discount rooms to as low as $99 a night.

If anything, the revival of the 23-story Beaux-arts Fort Shelby was even more unlikely. It closed in 1974 and trees sprouted in the derelict building. A $90 million restoration project began in 2007 did wonders for downtown Detroit's streetscape, if not hotel occupancy. Along with 56 apartment rentals, the building now houses conference space, restaurants, and 204 hotel suites. The smallest guestroom is 600 square feet and Dunavent, the Doubletree's general manager, says weekend rates are as low as $89 a night.

"I'm proud of what we've done," she says. "If I can get you here, I know you'll have a great experience."

Detroit Marriott general manager Bob Farmery echoes Dunavent's comments. All he wants is for guests to experience his reinvigorated property. Marriott and the tower's owner, General Motors, have poured more than $150 million into the project since Marriott assumed management of the 1,300 guest rooms in 1998.

Ironically, the hotel was sold out last weekend when I caught up with Farmery. It was hosting college hockey's Final Four and another large group. And Farmery believes Detroit can wake from its lodging nightmare. He thinks the city can profit from the AIG Effect that has forced major corporations to cancel pricey meetings in eyebrow-raising resorts like Las Vegas and Hawaii.

"Our product is terrific and our rates are low," he says. "And nobody will criticize you if you hold a meeting in Detroit."

The Fine Print.
The Doubletree Guest Suites in the Fort Shelby represents the first full-service Hilton hotel in downtown Detroit in more than 30 years. The chain returned to the market in 2004 when the Ferchill Group, which also redeveloped the Book Cadillac, opened a limited-service Hilton Garden Inn in the Harmonie Park neighborhood.

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