Baltimore is forging ahead with a proposed publicly financed convention headquarters hotel - one of the costliest projects ever undertaken by the city - at a time when the convention center's future business is sagging and new competitors are posing an increased threat.
As the city's economic development arm pushes to sell $290 million in tax-exempt bonds to finance a 750-room Hilton, convention center bookings are set to plummet by nearly half in 2006 and sink over the next several years, with just four groups signed up for 2009 - well within the booking window for major conventions.
Meanwhile, Washington's new convention center has sold more than eight times as many hotel nights in 2009 as Baltimore's. Philadelphia has booked at least 50 groups a year through 2008, a year for which Baltimore has seven. That same year, Gaylord National Resorts plans to open an all-inclusive convention resort less than 10 miles from Washington in Prince George's County.
Convention officials concede that the intensified competition both in the region and nationwide is taking a toll on Baltimore.
"Am I worried that we have only 28 conventions [in 2006]? Yes ... and we do recognize we are a little behind our booking pace," said Debra Dignan, Baltimore Area Convention and Visitors Association associate vice president for convention sales. "There is so much [space] available out there, and associations think the closer they book, the better deal they'll get."
Gaylord National Resort and Convention Center on the Potomac is viewed as an especially formidable competitor. Scheduled to open the same year as Baltimore's planned four-star Hilton, the resort - the largest to break ground outside Las Vegas - is booking events through 2014.
With a single company in control of 400,000 square feet of exhibition and meeting space, 1,500 hotel rooms, a spa, nightclub and other amenities, Gaylord can undercut competitors with package deals, particularly for customers who also book events at its other resorts in Nashville, Tenn., Orlando and near Dallas.
The latest figures from Baltimore's convention bureau show 163,192 nights in area hotels booked for 2006, down from 300,054 the year before. That dwindles to 34,039 for 2009.
The Washington Convention Center - whose exhibition space is more than double Baltimore's - has booked 160 events through 2017. For 2009, the center, which opened last year, has booked 15 groups and 284,221 nights in area hotels, a level that dips only slightly through 2012.
Philadelphia, which has a 1,400-room convention hotel, has at least 50 groups booked each year through 2008, including 15 or 16 "citywide" conventions each year, and plans to expand its exhibit space in 2008.
Even without the new Gaylord resort, competitors in the past fiscal year alone outbid Baltimore for 94 meetings that would have generated more than 250,000 hotel room nights, according to BACVA. Baltimore lost the most business to Orlando, followed by Philadelphia, Boston and Washington.
"The competition for the convention and tourism dollar is ferocious, particularly in our region," said Clarence T. Bishop, chairman of the BACVA board of directors and Mayor Martin O'Malley's chief of staff. Without a convention hotel "we definitely will not increase the number of conventions that come into the convention center."
"When we go back and ask convention [planners] why you didn't come here, consistently one of the main reasons is because we don't have a significant size hotel facility adjacent to the convention center," Bishop said. "Without the hotel, we're going to continue to lose business that we are currently losing."
Since the Baltimore Convention Center's $151 million expansion opened in 1996, Baltimore officials have consistently blamed the lack of a convention headquarters hotel for the failure to meet projections, pointing to high hotel rates here as a major reason for lost business. With higher-than average occupancy rates, Baltimore's downtown hotels have little incentive to fill rooms by committing blocks at discounted convention rates.
What's more, a project that was awarded city incentives in 1997 to be a convention hotel - the 750-room Baltimore Marriott Waterfront Hotel in Harbor East - is nearly a mile from the convention center and was never required to commit rooms for conventions. And with 80,000 square feet of meeting space and a ballroom that seats more than 2,000, the Marriott Waterfront does a thriving meetings business of its own.
Now, less than 10 percent of the Marriott Waterfront's business comes from groups booked at the convention center, said Bobby Vaughan, area director of marketing for the hotel and the smaller Marriott Inner Harbor on South Eutaw Street. The hotel, with a higher-than average 72 percent occupancy rate, generally offers block discounts only if a group books a large dinner or other food functions at the hotel, Vaughan said.
Such a room-block agreement would be included in the deal with Hilton.
O'Malley argues that a convention hotel, coupled with Baltimore's waterfront attractions and strategic location between New York and Washington, will help make Baltimore a contender for convention business.
"It's precisely because of the competition with other cities that it's important to have a convention hotel here," O'Malley said. "It's a competitive disadvantage we've suffered from ... even as we enjoy one of the highest occupancy rates on the East Coast."
Some managers at existing downtown hotels, in fact, welcome the prospect of the new Hilton because they believe it will help the city attract more convention business and benefit the overall hospitality industry.
"While it's difficult to have new supply, it will create a very competitive environment where the better hotels are likely to grow their business," said John Davis, director of sales and marketing for the Renaissance Harborplace Hotel, where convention business represents a relatively small percentage of business.
Vaughan, the marketing director for the Marriott, said the addition of the Hilton makes it crucial that Baltimore boost its convention business.
"My only fear is when you put another hotel that size in the city, you have to make sure we have enough conventions coming to the city to fill that hotel," Vaughan said. Otherwise, he continued, "we'll have a rate war on our hands. We'll be competing for the same old business vs. bringing new business in the city."
The fight for convention business comes as cities nationwide battle to win ever larger shares of the $102.3 billion-a-year convention market by building and expanding convention centers, adding hotels and deeply discounting rates on rooms and exhibit space.
By 2007, the number of meetings is expected to increase by 6 percent, while the amount of new meeting and convention space is expected to increase 9 percent, according to Trade Show Week.
"The convention center market is enormously overbuilt," said Heywood Sanders, a professor of public administration at the University of Texas, San Antonio, who tracks the convention industry. "They're giving the stuff away for free."
Sanders said cities tend to try to stay competitive by expanding convention center space, and when those expansions fail to meet projections, try to boost business by building publicly financed convention headquarters hotels.
Even if the hotels succeed in their own right, he said, they have so far failed to boost convention center business.
The 80 percent publicly financed St. Louis Renaissance, which opened in February 2003, fell short of consultants' projections and faces a revenue shortfall, Sanders said. Besides, it has failed to boost convention center business, he said. The city now expects 24 major conventions for 2004, not even half the 50 or more that were promised with the addition of the new hotel. And the city faces additional financial exposure on a $50 million tax increment bond issued for the hotel, backed by federal Community Development Block Grant funds. The city will likely end the year with about 410,000 room nights, rather than the 800,000 projected by the consultants.
Officials at the Baltimore Development Corp. are counting on the operating income of the 100-percent publicly financed Hilton to pay the estimated $290 million in bonds that will be needed for construction and other costs. The hotel is projected to have net revenue of $12.5 million in its first year, and after stabilizing in about four years, almost $21 million annually, according to Irene Van Sant, BDC project analysis director.
Meeting planners say the expansion boom means they can afford to be choosy.
In 2004, "It very much was a buyer's market, and [next year] that is going to be the case again," said Kelly Schulz, a spokeswoman for Dallas-based Meeting Professionals International. "There's a lot more [convention space] to choose from. Also, there's so much competition among our suppliers and so many deals being offered that planners have the option of what they're going to do."
Rossiter, of Gaylord, said the new National Harbor and the company's other resorts are well positioned to operate in such a competitive market.
Though he says he has never booked a meeting at a Gaylord Resort, Everette T. Shupe II, learning events specialist for Goodwill Industries International Inc. in Bethesda, says the idea of a "one-stop-shop" is appealing.
"Having a facility do everything from rooms to space, it just makes our jobs easier," Shupe said. "When you're working with a convention center vs. a hotel, a hotel can offer concessions based on [the number] of sleeping rooms required, while working with convention centers that's not always the case. Hotels have given me phenomenal concessions when I'm giving them a certain amount of rooms. When you deal with one property, you have leveraging power with one property that's better than if spread across a whole city."