There’s a glut of empty hotel rooms across the state, but Grant Carlson is betting technology and a growing penchant for nearby getaways will help revive a pair of historic boutique hotels he acquired since the start of the COVID-19 pandemic.
In early 2020, Carlson and a group of investors bought the Grant House Hotel in Rush City, about an hour north of the Twin Cities. A year later, they bought the Anderson House Hotel in Wabasha, which for many years boasted an unusual amenity: a room full of cats that could be loaned out to overnight guests. Both hotels are listed on the National Register of Historic Places.
“This market has exploded during the pandemic,” Carlson said. “I’m a big proponent of reusing historic buildings, recycling them, and bringing them into their next chapter of life.”
Small and old hotels in small towns are notoriously difficult. They require maintenance which can be expensive and face more extreme fluctuations in demand than in urban markets.
Carlson is betting he will succeed by managing them as short-term vacation rentals, like those on AirBnb and VRBO.
Most short-term rentals are operated by people looking to make a little extra money by renting out a spare bedroom or vacation property when they’re not using it. But an increasing number of these listings on these sites are published by more traditional hotel operators.
AirDNA, a market research firm focused on short-term rental companies, said that since 2019 there has been a more than 75% increase in the number of hotel rooms listed on Airbnb in the United States. .
And a growing number of these short-term rental platforms have now added a filter that allows travelers to search specifically for hotels. Airbnb — the largest such site — started doing so in 2019. The move came after a huge surge in hotel listings in 2018, said Sam Randall, an Airbnb spokesperson.
Liz Rammer, president and CEO of Hospitality Minnesota, said the pandemic itself has caused a sea change in the way traditional hotels operate and market themselves. Today, the average hotel occupancy rate in the state remains below 40%.
At the same time, the industry is suffering from a severe labor shortage, forcing many hotels to adopt the kinds of practices that are standard among short-term rental offerings.
This means that hotels continue to offer the kind of pared-down, contact-limited services they began to offer during the worst of the pandemic. This includes contactless check-ins on mobile devices and the elimination of daily housekeeping and bed turndown services.
“His [Carlson’s] the timing couldn’t be more perfect,” said Megan Kellin, publisher of Lake Time Magazine and owner of Hotel Rapids, an event center and several short-term rentals in Grand Rapids, Minnesota.
Reducing labor costs can dramatically improve the economic viability of smaller hotels like the ones Grant acquired, Kellin said.
“You can buy these historic properties for pennies on the dollar, but you still have to hire staff, do the training, and manage the humans,” she said. “But people don’t expect the check and the clean towels and the hot cup of coffee in the lobby anymore.”
Kellin said the lodging industry has become increasingly segmented because travelers have very specific expectations. Airbnb customers, for example, tend to seek a more unique lodging experience, like at a historic boutique hotel.
Legally, however, there’s little difference between a rental suite in a private home and one in a more traditional hotel, according to Ben Wogsland, executive vice president of Hospitality Minnesota. He said accommodation providers in Minnesota are all supposed to be licensed to ensure the health and safety of guests. The estimated 8,000 short-term rentals in Minnesota are not permitted.
Carlson said his foray into the hotel business is a natural extension of Superior Stays, a vacation rental business he and several partners started a few years ago. This company operates overnight rentals in Minnesota, North Dakota, and Wisconsin. In Minnesota, this company manages several lakefront condominiums along the north shore of Lake Superior in Lutsen and a growing number of apartments and condominiums in downtown Minneapolis.
At Anderson House, which is just down the street from the National Eagle Center, where a massive expansion is underway, and at Grant House in Rush City, the physical transformation of buildings is still in its “infancy.” , said Carlson. Upgrades will include electric vehicle charging stations and a contactless check-in system.
“Small hotels in small markets have historically been an operational nightmare,” he said.
At the Grant House, which has just 11 rooms, a previous owner spent nearly $1 million on renovations before closing it due to a “health crisis”.
The Anderson House, which is considered Minnesota’s oldest operating hotel, is fully operational but will require more significant upgrades beyond the bedding and linens that have already been replaced. Due to the building’s historic status, he plans to fund some renovations with federal grants and tax credits. Last week, the Wabasha Port Authority voted in favor of a zero interest loan that will help finance some of these improvements.
One of Carlson’s top priorities for this hotel is the reopening of the Lost Dutchman, a speakeasy-style bar in the basement. He’s also working with chefs in the Twin Cities area on a rotating pop-up style meal schedule. He tested the concept in February for the city’s Grumpy Old Men Festival by hosting a lunch prepared by a former chef at the Spoon and Stable restaurant in Minneapolis.
Carlson said that while the pandemic has made the profit model for these hotels even more difficult in some ways, it has created opportunities by making them more affordable.
“We are coming at the right price,” he said. “And we’re buying a brand that’s been around for over 100 years.”
Carlson, who has over 20 years of commercial real estate and development experience, is converting a former Duluth County jail into limited income rental apartments. He hopes to continue adding historic hotels to his portfolio.
“We’d love to go down the Mississippi and continue to choose small boutique hotels that need love,” he said.