NYT | Looking for Conventions, Cities Add Hotel Rooms

Looking for Conventions, Cities Add Hotel Rooms - The New York Times

9/16/15, 10:41 AM

Looking for Conventions, Cities Add Hotel Rooms Photo

The new Hilton Cleveland Downtown is under construction in Ohio. Credit Michael F. McElroy for The New York Times

KANSAS CITY, Mo. — When Kansas City failed to make the cut for the 2016 Republican National Convention, some officials chalked it up to politics.

What wasn’t to like? Over the last 25 years, $6 billon has poured into downtown to build an entertainment district, the Kauffman Center for the Performing Arts, Sprint Arena, Bartle Hall Convention Center expansions, housing and other amenities.

But Michael Burke, a development lawyer and a former board member of the Kansas City Convention and Visitors Association, knew that the decision stemmed from a lack of downtown hotel rooms. It was an excuse that he had heard from other groups that passed on the city, and it was one that had helped drive away the National FFA Organization, once known as the Future Farmers of America, which had met in the city http://www.nytimes.com/2015/09/16/business/looking-for-conventions-cities-add-hotel-rooms.html?ref=commercial&_r=0

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Looking for Conventions, Cities Add Hotel Rooms - The New York Times

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for 70 years until 1999.

This summer, the City Council approved using public money to pay for half or more of a new $308 million, 800-room Hyatt convention center hotel. With expectations of a groundbreaking early next year and an opening in 2018, the hotel has already helped the city land a handful of new events in recent days, including the Shriners International 2020 convention.

Photo

A rendering of a Hyatt convention center hotel being planned in Kansas City, Mo. This summer, the City Council there approved use of public money to pay for half or more of the hotel. Credit HNTB Corp.

“We’ve had a great renaissance downtown,” said Mr. Burke, who is part of the team developing the Hyatt. “Meeting planners come here and they love it. They say: ‘Things http://www.nytimes.com/2015/09/16/business/looking-for-conventions-cities-add-hotel-rooms.html?ref=commercial&_r=0

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Looking for Conventions, Cities Add Hotel Rooms - The New York Times

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are so much for the better. But where do my people stay?’”

Kansas City is not the only place meeting planners are asking that question. From Seattle to Miami Beach, cities are chasing convention hotel development, typically of 600 to 1,200 rooms. The goal is to attract groups whose members will put money into the pockets of waitresses, bartenders, shopkeepers and cabdrivers — as well as the public till.

The 800-room Omni Nashville Hotel, the 1,175-room Marriott Marquis Washington, D.C., and the 1,012-room JW Marriott Austin in Texas have opened in the last couple of years, and convention hotel construction is either underway or about to start in Chicago, Portland and Houston. In Cleveland, which the Republicans chose for their 2016 convention, a Hilton is under construction.

Locales weighing plans to build convention hotels include Miami Beach, Broward County, Fla., and Pittsburgh.

Strong news about the lodging industry and improving exhibition and trade show business are helping to drive the developments. Hotel occupancy nationwide hit an average of 73.5 percent in July, the highest level recorded by the lodging industry researcher STR, whose corporate headquarters are in Hendersonville, Tenn.

Similarly, average revenue per available room, a measure of profitability, reached $93.61 in July, a year-over-year increase of 8.3 percent, according to STR. According to the Center for Exhibition Industry Research in Dallas, an organization that has tracked trade shows nationally since 2000, 68.9 million people attended exhibition events in 2014. That was up 12.8 percent from the bottom in 2009 and slightly above the previous peak attendance in 2006.

The need to stay competitive is behind the buildup, too. That means not only boasting about ample room supply, but also simplifying the lives of meeting planners by giving them two or three lodging contracts instead of seven or eight. http://www.nytimes.com/2015/09/16/business/looking-for-conventions-cities-add-hotel-rooms.html?ref=commercial&_r=0

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Looking for Conventions, Cities Add Hotel Rooms - The New York Times

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“Meeting planners are under pressure to get high attendance, so they want to make sure that attendees will be accommodated in big, new, nice hotels,” said Lauro Ferroni, senior vice president and global head of research for the hotel and hospitality group at JLL, a real estate services firm in Chicago. “Luckily, we’re in a growth cycle.”

With a few exceptions, public money is flowing into the convention hotels. Either local government authorities own the properties, for example, or private developers are tapping citywide occupancy or tourism-related tax revenue, future property and sales taxes generated by the hotels’ operations, and other sources.

Such subsidies typically set off debate over whether public financing of hotels is a good policy. But cities that have invested heavily in convention centers and supporting amenities — often to foster urban renewal — have few alternatives if they want to stay on the radar of a group that selects its locations years in advance, says Tom Baker, corporate managing director for the hospitality group at Savills Studley, a real estate services firm in McLean, Va. “It becomes almost a dog chasing his tail: How do you keep up with the demands of the clients to ensure your spot in the rotation?” he said. “There need to be incentives that goose the returns for these projects, or they won’t pencil out financially.”

Heywood T. Sanders, a professor of public administration at the University of Texas at San Antonio, challenges the notion that convention centers contribute to urban economic development and criticizes a consulting industry that he considers far too optimistic when projecting the financial payoffs of convention centers and hotels.

Among other questions, he wonders whether the demand exists to justify the amount of convention space in the country, which by his count increased to 71.2 million square feet in 2013 from 52.1 million square feet in 2000.

Largely gleaning publicly available data and excluding local events like consumer shows, meetings and banquets, Mr. Sanders has tabulated attendance at individual convention http://www.nytimes.com/2015/09/16/business/looking-for-conventions-cities-add-hotel-rooms.html?ref=commercial&_r=0

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Looking for Conventions, Cities Add Hotel Rooms - The New York Times

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centers over several years and generally has found demand to be flat or flagging. The nation’s largest convention center, McCormick Place in Chicago, drew more than 1.5 million attendees in 2003, for example, and bottomed in 2011 at 769,000. In 2014, only about 882,000 attended events there, he said.

He also cites struggling convention hotels like the 757-room Hilton Baltimore, a $300 million city-owned project that opened in 2008. It reported a loss of $5.6 million in 2014, although bond issuance documents in 2006 forecast a $21.6 million profit.

“We know that the amount of space is growing and that cities are adding hotels and other amenities to compete,” said Mr. Sanders, author of “Convention Center Follies” (University of Pennsylvania Press, 2014). “So if everybody is essentially doing the same thing, is anybody likely to get ahead?”

Thomas A. Hazinski, a managing director for the convention consulting firm HVS in Chicago, argues that Mr. Sanders fails to consider nonconvention hotel demand, which varies from market to market. He added that Mr. Sanders’s critique of the Hilton’s performance in Baltimore versus projections, which were based on HVS’s feasibility study, was skewed.

“It takes the performance out of context of what happened in the overall economy — there was a collapse of the market,” said Mr. Hazinski, who was a co-author of a review of Mr. Sanders’s book for HVS. Local resistance to using tax dollars to fund convention hotels without a public vote has cropped up in some markets.

In Kansas City, a political action committee, Citizens for Responsible Government, is trying to force the Hyatt project onto the ballot. A hotel owner in Portland unsuccessfully tried to put the planned $213 million Hyatt convention hotel before voters over its $78 million in subsidies.

For their part, Mr. Burke and a spokesman for Kansas City’s mayor, Sly James, maintain http://www.nytimes.com/2015/09/16/business/looking-for-conventions-cities-add-hotel-rooms.html?ref=commercial&_r=0

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Looking for Conventions, Cities Add Hotel Rooms - The New York Times

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that aside from a complex 15-year, $62 million catering contract tied to the project, Kansas City is not on the hook if the convention hotel does not live up to financial performance expectations. It’s a lesson the city learned after guaranteeing bonds for the Power & Light District entertainment area downtown. Kansas City has had to make debt payments to cover the district’s revenue shortfalls.

“All of the public dollars funding this hotel are gained by people either staying or using our hotel, staying at other hotels, or using the convention center,” Mr. Burke said. “They are funds that are exclusively used for conventions and convention-related facilities, not funds that can be used for police, firemen, potholes or pensions.”

Correction: September 15, 2015 An earlier version of this article misidentified Lauro Ferroni of the real estate services firm JLL. Mr. Ferroni is the senior vice president and global head of research for the hotel and hospitality group, not the senior vice president and global head of the hotel and hospitality group.

http://www.nytimes.com/2015/09/16/business/looking-for-conventions-cities-add-hotel-rooms.html?ref=commercial&_r=0

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