Cities keep squandering money on hotels and meeting facilities

[finehoe]

Convention Wisdom

Cities keep squandering money on hotels and meeting facilities.

For two decades, American cities have used public dollars to build convention center spaceâ€"far more than demand warranted. The result has been a gigantic nationwide surplus of empty meeting facilities, struggling convention centers, and vacant hotel rooms (see “The Convention Center Shell Game,” Spring 2004). Given the glut, you’d think that cities would stop. Instead, many are spending hundreds of millions of dollars to expand convention centers and open yet more dazzling hotels, arguing that whatever convention business remains will flow to the places with the fanciest amenities. If this dubious rationale proves wrong and the facilities failâ€"it’s telling that the private sector won’t build them on its ownâ€"taxpayers will wind up on the hook, as usual.

The convention business has been waning for years. Back in 2007, before the current economic slowdown, a report from Destination Marketing Association International was already calling it a “buyer’s market.” It has only worsened since. In 2010, conventions and meetings drew just 86 million attendees, down from 126 million ten years earlier. Meantime, available convention space has steadily increased to 70 million square feet, up from 40 million 20 years ago.

Boston exemplifies double-down madness. The city shelled out $230 million to renovate its convention center in the late 1980s. After the makeover produced virtually no economic bounce, Boston concluded that it needed a new $800 million center, projecting that it would help the city rent some 670,000 extra hotel rooms a year by 2009. The new center, which opened in 2004, fell far short of expectations: the actual number of room rentals that it generated in 2009 was slightly more than 300,000. Now Boston tourism officials are proposing to spend $2 billion to double the center’s size and add a convention hotel, to boot. The officials optimistically predict that the expanded facilities would inject $222 million annually into the local economy, including an extra 140,000 room rentals a year. Despite these bullish projections, officials claim that the hotel needs $200 million in subsidies.

Boston is far from alone. Hoping to help its limping convention center, Baltimore paid $300 million to build a city-owned convention hotel, which opened in 2008. The hotel lost $11 million last year and has barely been able to pay its employees or its debt service. Yet Baltimore is now considering a massive $900 million public-private expansion that would add a downtown arena, another convention hotel, and 400,000 feet of new convention space. The projected cost in public money: $400 million.

Convention-hotel mania has swept Texas, too. Dallas just opened a convention hotel financed with $388 million in Build America Bonds, and Arlington and nearby Irving are both proposing new hotels to boost tourism. These facilities will compete with alternatives in places like Austin, which opened a massive 800-room convention hotel in 2003 after a study predicted that it would generate more than 300,000 room rentals annually for the city. But Austin has yet to exceed 200,000 per year.

Perhaps recognizing this weak economic record, convention and tourism officials have been changing their sales pitch. Convention and meeting centers shouldn’t be judged, they now say, by how much business they bring to local hotels, restaurants, and local attractions. Instead, we should see them as helping to establish a tourism brand for their cities. The director of Boston’s convention center, for instance, boasts that it brings the city “tourism impacts”â€"purportedly an economic value beyond whatever dollars the convention industry manages to attract.

The main value of such nebulous concepts seems to be to obscure the failure of publicly sponsored facilities to live up to exaggerated projections. As far as city officials are concerned, that failure is nothing that hundreds of millions of taxpayer dollars can’t fix.

http://www.city-journal.org/2012/22_1_snd-convention-centers.html

[thelakelander]

Interesting read.  Something that Jax shouldn't ignore as we kick around our own convention center issue.

[Tacachale]

Very interesting. Though I'd argue that a new convention center in downtown Jacksonville would have the potential to generate benefits beyond just dollar amount - specifically, bringing more people and dollars downtown than the current center can do.

[reednavy]

You want to see what building a new convention center can do, look at where I live, in Nashville. It's not only sparking tremendous hotel and retail development nearby, but also growing and extending downtown further south. Just this week another 300-400 room hotel has been proposed.

[dougskiles]

We would be much better served investing that money in our education system.

[thelakelander]

I just want to get the convention center out of the old terminal before we ruin our chances of creating a workable transportation center.

[Captain Zissou]

We would be much better served investing that money in our education system.

Doug, firstly I agree with you.  My question is what do we do about the significant brain drain we experience from young people moving to DC, ATL, Charlotte, and NYC??  I know the benefits of education help to stabilize the community, safety, families....etc. If everyone that benefits from our expensive new education system moves away, that's not that helpful either.

As for the convention center, I think there are definitely right ways and wrong ways to build it.  Other than freight elevators, the actual boxes for the halls, and some utility areas, I think the building should be paid for by private money.  Wrap the center in retail, have a lobby paid for by the restaurants that are housed within, and partner with a private hotel chain to reduce buildout costs.  However, based on how the courthouese, the transit center, the equestrian center, and countless other City Funded monstrosities around town were built and financed, I doubt that's how we'll build the convention center.

[TPC]

Why doesn't the city look to attract a Gaylord Palms or something similar?

[tufsu1]

because the City already heavily invested in a large hotel (the Hyatt) that is right next to the proposed convention center location

[finehoe]

Needed: Better Benchmarks for Convention Investments

State and local governments regularly invest in sports stadiums, arenas and convention centers. Although these facilities don't make money, the idea is that they more than pay for themselves by generating tax revenue, creating jobs and spurring private development by attracting visitors who would otherwise spend their money somewhere else.

But how do we know if the strategy is working? The convention industry provides perhaps the best example of the need for objective benchmarks to determine whether past projects have succeeded and to inform future public investment decisions.

Rising Supply, Falling Demand

The national supply of convention exhibit space has increased by more than 70 percent over the last 20 years, but the past decade hasn't been kind. According to the now-defunct industry publication Tradeshow Week, attendance at conventions, trade and consumer shows decreased from 126 million in 2000 to 86 million in 2010.

Even such industry leaders as Las Vegas, Orlando, Atlanta and Chicago saw business decline after completing expansions in recent years, according to Prof. Heywood Sanders, who tracks the convention industry. Some opened their expanded facilities during a recession, but all saw business drop.

With hotels--particularly the large, moderately priced kind convention planners favor--proving increasingly difficult to finance, many industry insiders are blaming the downturn on a shortage of rooms proximate to convention centers. The response has been a spate of publicly owned or subsidized hotel development.

But that hasn't cured what ails the industry. Convention hotels in Baltimore, Austin and Phoenix are doing poorly, and St. Louis' convention headquarters hotel is in foreclosure.

Nonetheless, a 1,167-room headquarters hotel just opened in Washington, D.C., and Philadelphia recently unveiled a $787 million convention-center expansion. Convention and/or hotel expansions are also underway in Dallas, Detroit, Indianapolis, Nashville and Orlando.

'Tourism Plus'

The traditional measure of convention center performance is hotel-room nights--the number of nights people stay in hotels as a result of conventions. But in March, Massachusetts Convention Center Authority Executive Director James Rooney told the Boston Globe that measuring success "strictly on the notion of how many hotel room-nights are generated" is "narrow-minded thinking." For months, Rooney has been touting less-tangible benefits of conventions such as the importance of "place making."

A 27-member "Convention Partnership" has been appointed to make recommendations to the state legislature about expanding the Boston Convention and Exhibition Center and building a publicly subsidized headquarters hotel. Though still falling far short of projections, the BCEC is doing better than most these days.

In November, an academic from Great Britain made a presentation to the Convention Partnership on "The 'True' Value of Business Events." Prof. Leo Jago's message was that tourism-based measures such as room nights grossly underestimate the value of business conventions.

The Massachusetts authority hired a local economic-development consulting firm to look at how to measure the impact of this "Tourism Plus" strategy. The firm convened a focus group of business and academic leaders, who agreed that new benchmarks should be added to (rather than replacing) traditional measures of convention performance such as hotel-room nights.

Betting the Farm

But realistic metrics proved elusive. Among the new ones proposed were counting complementary events held in conjunction with conventions and the number of second homes bought in the area by VIPs who attended Boston conventions--not exactly the kind of data on which you base a decision to bet the farm.

Still, the torrent of convention-center expansion and publicly subsidized hotel development continues, with price tags that sometimes top $1 billion--all in a market that almost no one denies is overbuilt.

Achieving consensus over realistic convention center performance measures would help public officials see the market more clearly as they make decisions about current expansion proposals. But it's even more important that the ones that go forward do so with objective performance goals. They might at least prevent some proponents from coming back a decade later and saying that the problem was that they didn't expand enough.

http://www.governing.com/blogs/bfc/better-benchmarks-for-convention-investments-needed.html

[JeffreyS]

OK let's just put a Casino/ Convention center at the Hyatt.  Turn Jacksonville Terminal (aka Prime Osborn) into a big multimodal transit center.

[ChriswUfGator]

LMAO it's basically a recap of the debate lake and I had, just in article form.

[simms3]

There's a difference between having the state kick in for a 1.0M sf + convention center and the city kick in for a 1,500 key flagship hotel...and the state and/or city kicking in for a 400,000 sf concention center with a 500 key hotel (which the city already has times two).

Sure for most cities having more than 500,000 sf is a waste, but having less than 150,000 sf for a city of 1.5 million people in FL on the water with a good climate and decent airport is also a waste.  There is an appropriate balance of what would actually be beneficial.

On top of this, if Jacksonville would kick its visitors bureau budget into higher gear and advertise more often, perhaps it could ramp up some tourism and benefit from a bed tax.  Right now I think the city obviously has a bed tax, but I doubt it benefits greatly from it as there aren't very many rooms and what the city does have is overbuilt and underoccupied.

I think Jacksonville lags the rest of the state in advertising itself.  I believe St. Augustine doubles or triples Jacksonville's budget in that regard.  Being a tourist mecca is not an excuse as Jacksonville is still MUCH larger than PVB or St. Augustine, and so should be able to spend more to put itself out there as a place on the map.

[simms3]

Furthermore, the BIG conventions are going to go to Orlando and Las Vegas.  The big conventions are going to go to Atlanta, Chicago, Washington and San Diego.  The decent-sized conventions are going to go to the rest of the top 15 or so metros with perhaps Nashville and San Antonio included.  Finally the rest of the conventions will go to anywhere that offers 200,000 SF of exhibition space or 350,000+ sf of overall meeting space, etc.  Whether or not the industry is growing or shrinking, there is a pecking order and a certain amount of conventions that will go to any top 40 or top 50 metro that can support that convention.  Right now, Jacksonville can't really support any convention.  The city doesn't and shouldn't compete with the top 15-20 metros, Austin, Nashville and San Antonio, BUT it should try to compete with the rest of the top 40/top 50 because it doesn't have to do anything "special" to get that added business besides building a normal sized convention center.

The example of Boston is an outlier.  Boston is historically a major money waster and probably 5 of the top 10 largest wasteful projects ever in municipal/even state history have occurred in Boston.  Boston will never compete with Orlando, Las Vegas, San Diego, DC, Atlanta or Chicago in the convention arena, but is spending money like it will.  To ask Jacksonville to spend far less money on a completely normal sized convention center that already has a 966 key hotel NEXT DOOR is not asking too much and is not a waste.

Surely the difference here is easy to see.

[thelakelander]

LMAO it's basically a recap of the debate lake and I had, just in article form.

No it's not.  My point then and now is still the same.  You can place and design a convention center to be an economic positive on the businesses surrounding it.  In no way have I vouched for a convention center being the best ROI for public investment in downtown.  In fact, my position has always been investing less in large expensive gimmicks and more on small business growth, urban connectivity, and clustering complementing uses within a compact setting.