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City council hears results, criticism of hotel study

MARSHALL — The results of a study of the Marshall hotel market are in, and on Thursday members of the Marshall City Council heard a presentation on the study and a proposal for a possible hotel and convention center near the Red Baron Arena and Expo. However, local hotel owners and managers said they weren’t happy with either.

Several local businesspeople in the audience at a council work session Thursday evening questioned the study’s analysis, as well as the fairness of a proposal for the city to participate in financing a new hotel.

Council members heard a presentation on the market study from David-Elias Rachie and Colin McDonald of Gatehouse Capital. Gatehouse Capital develops both hotels and combined hotel/conference center projects, Rachie said.

In September, the council authorized the area Economic Development Authority to use $20,000 of its funds to pay for the hotel market study. Depending on the results of the study, the city could choose to move forward with the development process of a proposed hotel and conference center. Even if the city chose not to pursue development, it could keep the study results, EDA director Cal Brink said in September.

Rachie and McDonald gave a brief outline of the study’s results, as well as Gatehouse Capital’s proposal for building and financing a conference center and 104-room Mariott hotel. The complete market study report, by international hotel consulting firm HVS, was more than 100 pages long. It covered topics including analysis of hotel supply and demand in the Marshall region, projected occupancy, income and expense figures, and a description of the proposed hotel and conference center.

“It’s a very in-depth study,” Brink said.

Brink said the EDA’s concern was learning how feasible a new hotel and conference center near the Red Baron Arena would be, including its effects on the local hotel market.

Based on results of the study, McDonald said, the hotel market in the Marshall area would support a new hotel and conference center near the Red Baron Arena.

“This city has a unique opportunity to extend its role as a hub of southwestern Minnesota,” McDonald said. The arena and expo needed an adjacent hotel really fulfill its potential, he said.

Rachie said increased activity at the arena and expo could also be positive for other local hotels.

Rachie and McDonald said the project appeared to be a low-risk, high-reward one.

Rachie said Gatehouse Capital was proposing to build a 16,000 square foot conference center and a 104-room hotel. The total cost of the project would be a little over $20 million. Financing for the hotel project would include a mezzanine loan from the city.

Terri Heaton, of financial advisory group Springsted, said it did appear Gatehouse’s proposal could be done, if the numbers in its analysis held. Heaton said there could be some risks to consider in parts of the proposal, however, at this stage the proposal wasn’t detailed enough to quantify them yet.

Council member Glenn Bayerkohler questioned the proposal to have the city participate in financing a hotel.

“I’m concerned about fairness,” to all local businesses, Bayerkohler said. He asked if any other local hotels had gotten government subsidies.

“Not a penny,” called out one local businessperson in the audience. Audience member Shay Patel asked why no one had tried coming to local hotels with incentives like the ones Gatehouse was proposing.

Local hotel owners and managers also said the figures used in the report’s analysis didn’t accurately reflect the Marshall area hotel market. Curt Hoffmann, general manager of the Ramada in Marshall, said occupancy rates at the hotel were around 40 percent — significantly lower than the study was figuring. Patel said the report only looked at chain hotels, and included hotels in cities like Brookings and Watertown, S.D.

“Why look at hotels 100 miles away?” Patel said. More accurate competitors for Marshall hotels would be in Redwood Falls or Granite Falls.

Brink said he understood the concerns of the other hotels in Marshall. However, he said there were hotels interested in coming to Marshall, and the city could get real benefits from having a convention center. Marshall loses business when larger conferences or events go to area casinos because of a lack of space in town, he said.

Thursday’s presentation was informational, said Marshall Mayor Bob Byrnes. The issue would need to come back before the council before any action is taken.

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