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Tru by Hilton adds to Duluth's hotel boom

A rendering of Tru by Hilton, a new hotel under construction at Central Entrance and Blackman Avenue in Duluth. Photo courtesy of Hilton.1 / 2
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A trendy new hotel is opening in Duluth next year, testing the limits of a market already awash in new places to stay.

Tru by Hilton, billed as "vibrant, affordable and young-at-heart," is now under construction at the corner of Central Entrance and Blackman Avenue. The hotel will have 106 rooms over four stories, according to planning documents filed with the city last winter, and a Hilton representative said the franchise is set to open in the fall of 2019, "though opening dates can fluctuate over time."

Hilton launched the Tru brand in 2016 to compete with other midscale offerings such as Comfort Inn. With brightly colored common areas and smaller rooms with lower price-points, the company is targeting "people of all ages that have a common zest for life," spokeswoman Kaity Cash told the News Tribune, "and it is the very first hotel brand to meet the needs of a previously underserved group of travelers, who seek simplicity and value without compromising quality and design."

Duluth has seen a significant hotel-building boom in recent years as tourism — and the price of a night's stay — grows. But so far the visitor base is rising just fast enough to meet the addition of new rooms.

"(Occupancy) has flattened out to be just about even with 2017," said Anna Tanski, CEO of Visit Duluth. "If you consider the inventory going up 10 percent overall, we're fortunate we haven't seen a tremendous sag in occupancy. Having more rooms doesn't necessarily correspond to more visitors."

Not right away, at least. Tanski compared the latest hotel hot streak with the redevelopment of Canal Park in the late '90s. It took a few years for demand to catch up with the supply, and that may again be the case.

"I'd expect we'd be on a similar path to see that trend play itself out again," Tanski said. "But there's a lot more development outside of Duluth," such as the Holiday Inn Express in Hermantown and the Hampton Inn in Superior.

"That kind of compression also has an impact on Duluth," she said.

The increased competition has put pressure on rates recently, benefiting visitors but hitting hotels' bottom lines.

"I believe that most hotels are selling a few more rooms here and there but at lower rates or the same rates as in 2017," said Todd Torvinen, an executive vice president with Duluth-based ZMC Hotels.

Meanwhile, costs continue to rise, especially as hotels also have to compete with each other for employees amid record-low unemployment in the region.

"Net operating income is lower, especially with expense increases occurring across the board for wages, taxes and normal inflation with Fed rate increases," Torvinen said.

Tanski said that while it can be "a challenge to absorb the increased inventory," Visit Duluth will keep trying to fill as many rooms as possible.

"We're trying some new, creative and innovative marketing techniques, and 2019 will bring a lot of firsts for us."

Tourism taxes up in 2018

Duluth's 2018 tourism tax collections continue to trend ahead of last year. In fact, they're up 4.9 percent for the first eight months of this year.

Hotels and motels have demonstrated the greatest strength, leading the way by generating tourism tax collections 6.8 percent higher than last year.

"I believe the increase in tourism taxes is related primarily to new hotels opening and previous new hotels opening in the last several years continuing to ramp and stabilize," said Todd Torvinen, an executive vice president with Duluth-based ZMC Hotels. "It takes three to four years for a new hotel to stabilize or ramp up."

Wayne Parson, chief financial officer for the city of Duluth, noted that two new hotels have appeared on the local scene since 2017 — the Hampton Inn & Suites North near Miller Hill Mall and the Fairfield Inn & Suites on Park Point — increasing the room inventory.

"There has been some concern that we've reached the saturation point, that room rates will go down and that revenues will be flat. But obviously we're still seeing growth," he said.

Anna Tanski, CEO of Visit Duluth, said the recent surge of new rooms has not seen a matching surge in new visitors.

"What we tend to see when we have that increase in inventory, we'll see rates adjust downward a little bit, occupancy will probably also adjust downward — until you build up a larger visitor base," she said. "It's the roller coaster effect."

Torvinen estimates that about 32,000 more room nights were booked in Duluth through August, compared with the same period last year, but that's spread across an expanding field of hotels.

"The pie is getting bigger for city collections, but the pieces are getting smaller for hotels," he said.

Duluth had budgeted for a flat year of tourism tax collections, anticipating no growth from 2017 to 2018.

If the city's hospitality industry continues to match or outpace its performance last year, Duluth's tourism tax fund will finish 2018 with a surplus of more than $370,000. It remains unclear what would become of that windfall.