June 26, 2023

A Sioux Falls-based hotel operator that aimed for years to own properties in its hometown has taken a big step in that direction.

KAJ Hospitality recently acquired five Sioux Falls hotels:

• Hilton Garden Inn Sioux Falls South: a full-service hotel offering 103 guest rooms, a restaurant and lounge serving breakfast and dinner and 4,000 square feet of flexible meeting space with full-service catering.
• Courtyard by Marriott Sioux Falls: a select-service hotel with 102 guest rooms, a lobby bistro restaurant and bar with breakfast and dinner service and four individual meeting rooms.
• SpringHill Suites by Marriott Sioux Falls: an all-suites hotel featuring 84 oversized studio suites all with sofa sleepers, complimentary breakfast and one meeting room.
• Residence Inn by Marriott Sioux Falls: a hotel catering to guests staying an extended period of time. All 66 suites feature an apartment-like layout with a fully equipped kitchen, living area and complimentary breakfast.
• Fairfield Inn & Suites by Marriott Sioux Falls: offering 60 guest rooms and complimentary breakfast.

Each property also has an indoor pool, whirlpool and fitness center.

“This is home base for us, and we’ve been trying to get into this market for a while,” CEO Aaron Johnson said. “It’s fun to have a presence in your own market, and Sioux Falls in general as we all know is a very healthy market and a great place to invest, for sure.”

The deal makes KAJ the sole manager of the four Marriott hotels on the campus of The Empire Mall.

While that wasn’t originally the plan, as the company worked to acquire two of the hotels, the other two became available, Johnson said.

“We’ve been trying to get into Sioux Falls so long, and a flood of opportunities became available.”

The five hotels are within blocks of the company’s corporate office at 4424 S. Technology Drive.

“They’re great brands — Marriott and Hilton are a core focus for us,” said Bryan Ahlers, vice president of sales and revenue strategy.

“From a sales standpoint, I’m excited to have that portion of the market cornered — literally — and it’s a great area to be in. The mall is a huge tourist draw, so I see a ton of potential. Guests can just walk to everything and don’t have to be in a car, and I see that as a huge selling point.”

The hotels also are near The District, which increasingly brings in concert tourism, and they’re a good fit for youth sporting events, he said.

“It’s our community, and we’re excited to take some of the core values with KAJ that we’ve been bringing to Fargo and Omaha for years and bring it to the Sioux Falls team, volunteering and working with teams and making an impact,” Ahlers said.

KAJ acquired the Residence Inn and Fairfield from Aimbridge Hospitality, which is the world’s largest hotel management company. They originally were developed by a Fargo company. The other three hotels were managed by Sioux Falls-based Hegg Cos.

All the hotels will receive renovations, with some potentially starting this year.

“There will be a full renovation at the Hilton Garden Inn, the Residence Inn and Fairfield Inn,” Johnson said. “The Courtyard and SpringHill just had an exterior renovation, so the renovation there will focus on the interior.”

The deal grows KAJ to about 515 employees — adding about 140 people.

All four members of the KAJ leadership team – Ahlers, Sara Lussman, McKenzie Schelhaas-Hettich and Diane Hanisch – have served as general managers of properties in the market, including some of the properties being acquired. Additionally, each member of the local support team also has served in varying roles at local properties.

“We’re excited to get the onboarding done and getting the staff situated,” Ahlers said. “I think they’re pleasantly surprised by the family and culture we have and the support they’re getting from KAJ.”

KAJ Hospitality was founded by Johnson’s father, Kevin, in 1993 in Mitchell. With the new acquisitions, the company manages a portfolio of 15 upper-midscale and upscale hotels in South Dakota, North Dakota, Nebraska, Wyoming and Kansas, with additional hotels in the pipeline. Brands represented include Marriott, Hilton and InterContinental Hotels Group.

Overall, 2023 has “been a very good year,” in terms of occupancy, Johnson said. “Sioux Falls is exceeding by a good portion the pre-COVID level. Sioux Falls is incredibly strong, and that’s a mix of corporate and leisure.”

His company previously had considered investing in Sioux Falls and was days away from breaking ground on an Aloft hotel at Lake Lorraine when the pandemic began. Today, it tends to make more financial sense to acquire existing hotels than it does to build new, and the company’s strategy is steady but strategic growth, Johnson said.

“We’ll continue to observe and see if the market imbalance works itself out over the next year or two,” he said. “We’re definitely interested in additional investment in Sioux Falls and in particular Lake Lorraine.”