Can hotel revive Convention Center?

Sun Staff

Baltimore expects conventioneers to fill as many as half the 750 rooms of its proposed convention headquarters hotel, giving the flagging Convention Center a boost in business.

"From my perspective, it is the primary goal," said Irene E. Van Sant, who is managing the hotel project for the Baltimore Development Corp., the city's quasi-public development arm.

The Baltimore Convention Center "has not lived up to its potential. There are many reasons, but we believe a major reason is the lack of a convention hotel in close proximity," she said.

Some experts question whether the new Hilton will be as much of a magnet for convention business as promised.

"I can't find a case where a hotel has saved a convention center," said Heywood T. Sanders, professor of public administration at the University of Texas, San Antonio, and a nationally recognized expert on convention center development.

"If the Convention Center is under-performing, the answer is, 'Let's build an expansion.' Then it's: 'Let's build a Convention Center hotel.' What has tended to happen in other places is the hotel can work if there is sufficient need, but there is no evidence that it will boost the convention center business."

Robert L. Johnson, founder of Black Entertainment Television, has been awarded exclusive negotiating rights to build Baltimore's headquarters hotel just north of Oriole Park at Camden Yards, through his firm RLJ Development LLC of Bethesda and Quadrangle Development Corp. The goal is to open the hotel, expected to cost about $200 million, in the spring of 2007.

Plans for a second phase, adding 250 rooms, have been scrapped.

Despite Sanders' negative research conclusions, Baltimore's planners and their hotel consultant believe the Convention Center hotel would be better positioned than most to succeed.

Strong demand

"There's strong demand, and hotel rates are relatively high," said Thomas Hazinski, managing director of HVS Convention, Sports and Entertainment Facilities Consulting in Chicago, which did the feasibility study for the city's hotel.

"Baltimore is different from a lot of destinations - 60 percent of the demand in the market is group business. Baltimore is a proven group meetings market. In terms of competition, we believe it will do well."

The average daily hotel rate in Baltimore is the highest of any city that has undertaken public financing of a hotel, Van Sant said.

And city planners hope that the hotel will enable the Convention Center to recapture about 100,000 room nights that are estimated to be lost each year when conventions choose to go elsewhere.

The reasons include the fact that Baltimore doesn't have a convention headquarters hotel or requires visitors to use several hotels in the region.

For instance, in the fiscal year that ended June 30, Baltimore lost 41,000 room nights based on the lack of a headquarters hotel alone, according to the .

The proposed Baltimore hotel is expected to help the Convention Center by guaranteeing a block of up to 600 rooms for conventioneers.

If the convention bureau could not book those rooms within a defined period of time, the hotel sales staff would have the chance to fill them with other customers. The exact number of rooms and guidelines of the agreement haven't been completed.

Despite Baltimore's advantages, a headquarters hotel will not happen without public financing, city officials say.

"After three [requests for proposals] we were not getting a privately financed hotel next to the Convention Center," said Van Sant, the Baltimore development official. "The costs of building these hotels is just so high, because of the amenities you have to have. Those costs are just more than what the private capital market will bear."

But Baltimore's strong hotel market should offer definite advantages when it comes time to finance the project, Hazinski said.

"Baltimore is in a better position than other cities that have undertaken these projects," he said. "They'd have to put themselves at less risk. Some cities have made very significant upfront cash investments as well as taking a higher risk than we think is necessary here."

For instance, in Denver, the city appropriates $8 million annually to pay debt service, Hazinski said.

Without an exact price tag on the proposed convention headquarters hotel here, it is difficult to know what the costs to the city will be, Van Sant said. Those numbers will not be available for two months, she said. "Our goal would be to keep it as minimal as possible."

Sanders warns that before embarking on a publicly financed convention center hotel, Baltimore needs to understand the potential risks to its credit rating, to bond issues tied to hotel occupancy taxes or other visitor-related revenues.

An influx of new rooms can push down occupancy levels and rates resulting in lower tax revenues and hurting the hotel business in general.

Many rosy projections fail to materialize. For example, St. Louis expects 24 major conventions for 2004, far below the 50 or more projected with the addition of the new hotel, Sanders noted.

Overland Park, Kan., developed a convention center simultaneously with a publicly owned 412-room Sheraton hotel that opened in December 2002. The convention center was host to five conventions rather than the projected 14 and therefore received only 40 percent of the anticipated room bookings, he said.

In the city of Sacramento, Calif., a new 500-room Sacramento Grand Sheraton was built with $92.8 million in bonds backed by operating income from the hotel and an adjacent garage. But the hotel has not had nearly the impact on the city's convention business that was expected, Sanders said.

Impact falls short

An initial consultant study projected that the Sacramento hotel would boost convention business by more than 60,000 hotel nights, but the actual impact has been 15,000 to 20,000, Sanders said.

Even if Sacramento didn't meet projections, the hotel is paying its debt service, Van Sant said.

Hazinski notes the success of a hotel that recently opened in Austin, Texas, which he says has increased convention business by 50 percent.

"The tech bust hurt them, but in terms of what it's doing to help the convention center, they've been very pleased," Hazinski said.

Robert Hodge, president of the nonprofit ownership entity for the hotel and director of the Austin Convention Center Department, said that although the hotel will ultimately be owned by the city, the deal is unusual in that Austin has no obligation should the hotel fail.

The hotel, an 800-room Hilton, opened in December across the street from the convention center. The $278 million hotel was financed by the sale of $243 million in tax-exempt revenue bonds, $20 million in private placement bonds with the hotel developer and management company and a $15 million construction grant to be repaid from the convention center reserve fund, Hodge said.

"I think everyone who's built one since, has had to guarantee something," Hodge said. "We have no obligation."

New business

Sixty percent of the hotel's bookings represent business that is new to Austin, Hodge said.

The hotel will end its first year with an occupancy rate of about 67 percent, compared with a projection of about 70 percent, Hodge said. Visitors have booked about 195,640 hotel room stays of the 204,400 projected, he said.

"This was a downtrodden lot," he said. "Now it's got a magnificent hotel that has generated 600 jobs. It's the best thing that's happened here in a long time. It's done everything it was supposed to do."

Hodge notes that the hotel was the final piece of a three-prong plan to promote conventions in Austin. The city first built a new airport and doubled its convention center meeting space. The hotel wouldn't have been so successful if the other pieces of the plan had not been implemented, he said.

As he notes Austin's success, Hazinski acknowledges that many publicly financed hotels have failed to meet their projections.

"I think a lot of these have under-performed, and that's largely due to market circumstances," he said.

He said critics such as Sanders have not taken into consideration what would have happened in any given market if the hotel had not been built.

Baltimore convention bureau officials say the new Hilton will give them new marketing options.

"It opens the door to a lot of other groups that really wouldn't even talk to us without it," said Debra Dignan, associate vice president of convention sales for the Baltimore Area Visitors and Convention Association.

"What this hotel is going to do is allow us to attract bigger conventions. I think almost every group that comes into the city is going to want to use that room block as their first choice for citywide conventions."

If Baltimore's new hotel succeeds in its own right, as the Baltimore Marriott Waterfront Hotel has in Inner Harbor East, but fails to boost business at the Convention Center, they will not be happy, city planners say.

Given the proximity of the proposed hotel to the Convention Center, they would be incredulous if new headquarters hotel failed to boost business at the center.

"How could it not?" said M.J. "Jay" Brodie, president of the Baltimore Development Corp. "If that happens, it would be disappointing. That's not what we're working toward."

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