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The Mille Lacs Band of Ojibwe, which has enjoyed major success with its Grand Casinos up north, is getting into the major hotel business. And it's starting in downtown St. Paul.

The band is buying two hotels there, Chief Executive Melanie Benjamin announced Tuesday in her State of the Band address in Onamia, Minn. She described it as "one of the boldest business moves we have ever made."

Because the deal won't be final for another month, tribal leaders declined to identify the hotels. But sources said they were the Crowne Plaza Riverfront, St. Paul's largest hotel, on Kellogg Boulevard, and the DoubleTree by Hilton at 6th and Minnesota Streets, the city's third-largest.

The Minneapolis/St. Paul Business Journal reported in August that they had been put up for sale by SP Hotels, an affiliate of New York-based Trinity Hotel Investors. City officials said they were not aware of any other major downtown hotels on the market. Trinity bought the hotels, both of them Radissons, from the St. Paul Port Authority in 2006 for $43.4 million.

City leaders, who labored last week to put a happy face on the closing of the downtown Macy's store, said the hotel purchases signaled growing interest in downtown. A couple of industry experts said they thought the city's new light-rail line, which begins running next year, might have been a factor.

"This is a good investment for the city and a sign that the downtown of 2013 is a different place from the downtown of decades past," said Joe Campbell, a spokesman for Mayor Chris Coleman.

The purchase represents a new effort to diversify the tribal economy in areas beyond gambling to achieve "economic self-sufficiency," Benjamin told more than 1,200 band members gathered for the annual speech.

The hotels will be managed by Graves Hospitality Corp., the Minneapolis-based hotel company that operates the Graves 601 Hotel in downtown Minneapolis and is owned by entrepreneur and former congressional candidate Jim Graves.

Benjamin said that the Mille Lacs Band had worked closely with Graves on the hotel deals. The St. Paul hotels have more than 700 rooms, nearly half the hotel rooms in the city, she said.

Plans for changes at the hotels won't be announced until the purchase is closed. But opening a downtown casino isn't in the works, said Joe Nayquonabe Jr., the tribal commissioner in charge of the Mille Lacs Band's corporate arm.

"There are no plans for gaming in this project," he said. "This represents for the tribe diversification away from gaming. Our long-range plan is [to become] self-sufficient external to gaming."

And Nayquonabe said this was the start of a national investment strategy for the Mille Lacs Band to build on more than 20 years of experience in the hospitality industry. "The master plan is to hold hotel assets in every major U.S. market," he said. Why St. Paul? "Assets were available, and it's obviously our home market."

The tribe currently operates five hotel properties: Grand Casino Hinckley, Grand Hinckley Inn and Grand Northern Inn, all in Hinckley; and Grand Casino Mille Lacs and Eddy's Lake Mille Lacs Resort in Onamia.

Two industry experts said they thought the deal made good sense for at least three reasons: the tribe's hospitality experience, the improving hotel industry and the proximity of St. Paul's new light-rail line.

The Mille Lacs Band doesn't "have an opportunity to develop additional assets on their lands, so it makes sense for them to purchase investment properties elsewhere to leverage their expertise," said Ted Leines of Minneapolis-based Leines Hotel Advisors Inc.

Leines pointed to a $43 million Residence Inn by Marriott that was built near the Capitol in Washington, D.C., by a partnership of four tribes, including two Wisconsin bands.

He also said that Graves will take advantage of St. Paul's strengths, its history and location. "He's very good at identifying where those opportunities are and maximizing that potential," he said.

Leines and commercial real estate expert Don Jacobson said the light-rail line might have played into the tribe's decision to move on the hotels. "You cannot underestimate the power of what that does for connecting the business district to Minneapolis," Leines said.

Benjamin, who was reelected as the band's chief executive last year, said in her address that it cannot rely on gambling forever and needed to invest in other businesses and other geographic areas. She said the tribe was building a new printing business, and opening a small business and light industry center in Hinckley.

"Our intentions are to be good neighbors, good citizens of the community, and to run our hotel business in an honorable and profitable way," Benjamin said. "This is a tremendous opportunity for band members and others."

Kevin Duchschere • 651-925-5035

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