by Joe Sullivan
It's clear that the success of Knoxville's new convention center depends, in no small part, on getting a nearby, first-class hotel to serve as a headquarters for conventions larger than any of the city's existing downtown hotels can accommodate.
But it's debatable whether the new 417-room hotel proposed as part of Worsham Watkins' downtown redevelopment plan is close enough to the convention center to meet this need. And it's also questionable whether the city can justify shelling out big bucks to acquire and shut down the adjacent Holiday Inn Select, as recommended by the Public Building Authority.
In seeking answers to these questions, Metro Pulse canvassed convention center overseers in several other cities where attracting headquarters hotels has also been an issue. We also spoke with professional meeting planners who have a lot of sway over selection of convention sites.
In Charlotte, Providence, Sacramento and Tampa, among others, city funds have recently been committed to support development of hotels to go with their convention centers. In every case, these new hotels are adjacent to the convention center itself. In Knoxville, by contrast, the $52 million hotel proposed as a centerpiece of downtown redevelopment is about four blocks away.
The hotel would be just west of new "shoppertainment" attractions in Market Square and would be linked to the convention center via a "shoppertainment" mall extending over Henley Street into the World's Fair Park.
"We want it in the middle [of the proposed downtown development] so people will walk through the shopping district in order to generate sales and sales taxes," explains developer Earl Worsham. Since these projected revenues are crucial to financing both the $250 million in private and $130 million in public investment in the development (as well as the $160 million convention center), this is no small consideration.
But meeting planners along with convention center experiences in other cities raise doubts whether Knoxville's new facility can attract as many conventions without a high-quality hotel near by.
"You're going to be at a competitive disadvantage," says Toni Sylvester of Sylvester Management, a Columbia, S.C.-based meeting planner. "There are some groups that wouldn't even look at you if you don't have a headquarters hotel with meeting space and other amenities adjoining your convention center." Most convention planners want a headquarters hotel as a focal point for delegates and for holding meetings of an organization's board and committees that typically accompany a convention, Sylvester explains.
In Tampa, the city's administrator of development, Fernando Noriega, says, "We made a big mistake when we built a state-of-the-art convention center without a hotel to accompany it." Bookings at the Tampa Convention Center have gone up 40 percent since a new 717-room Marriott Hotel started going up nearby, Noriega reports. Walking to the 521-room Hyatt Regency that stands three blocks away "just wasn't user friendly," he adds.
Officials in Providence and Sacramento recount similar experiences. In Providence, a new convention center that opened in 1993 was struggling in the absence of an adjacent, complementary hotel according to Jim McCarvill, executive vice president of the Rhode Island Convention Center Authority. "We'd thought someone would come in and develop a hotel, but when that didn't happen we decided to build it ourselves," McCarvill recalls. The result: a $65 million outlay for a 364-room Westin Hotel that the authority owns. "We did what we had to do to make it all come together, and both the hotel and the convention center are now doing very well," McCarvill says.
In defense of the PBA's recommended placement of a new hotel in Knoxville, PBA consultant (and former CEO) Mike Edwards makes the point that the city's new convention center is intended to be a catalyst for downtown revitalization and not an end unto itself. "We had 11 million people come to a World's Fair, but it didn't pull any of them into the downtown area, and we don't intend to make that mistake again," he says.
Edwards adds that the Urban Land Institute, in its landmark report on convention center and related development, concluded that, "The city will not be able to support new hotel space solely based on the convention center traffic" and that, "The plan should try to concentrate activity for convention center users in and around the downtown..." Worsham Watkins' PBA-sponsored downtown development plan does exactly that, and the proposed hotel is an integral part of a grand design in which all parts are interdependent on each other.
Edwards also points out that a hotel consulting firm (PKF Consulting) retained by PBA concluded that, "If the Holiday Inn Select ceases to exist, PKF believes that sufficient demand for a new first-class, full-service hotel, located within the downtown walking mall, would occur in July of 2002 as a result of the downtown redevelopment and the new convention center." Moreover, PKF also foresees a need for yet another new downtown hotel in 2006. And this additional hotel, Edwards suggests, could be located just across Henley Street from the convention center—perhaps on the site now occupied by the State Supreme Court, which is looking to move.
The Philadelphia-based firm SMG, which has served as PBA's convention center consultant and is expected to manage this new facility, endorses the proposed hotel location—sort of. "It's definitely an advantage to have an adjacent hotel, but it's typically not a deal maker or breaker. As long as this is an enclosed connection, all of the amenities being added in between could be a selling point," says Thom Connors, an SMG official.
When it comes to shutting down the 18-year-old Holiday Inn Select to facilitate a new hotel, the PBA's recommendation to do so at first blush seems pretty brash. Its recently-released report on convention center-related private development states that, "PKF confirmed the PBA's conclusion that the existing Holiday Inn is not suitable as the primary hotel for the convention center. To meet the typical requirements for a convention center hotel, the architects indicate that the Holiday Inn would need to acquire and utilize over 12,000 square feet of the existing convention center and would need to spend approximately $33 million for renovations and upgrades... After analyzing the existing market, occupancy levels and rates, PKF concluded that the renovation of the Holiday Inn is not economically feasible."
But it's quite a stretch to get from this conclusion to PBA's recommendation that the city should acquire a hotel and shut it down (or put it to an alternative use). The Holiday Inn Select and its garage are appraised by the Knox County Property Assessor at a little over $13 million. And shelling city money out for them would be tantamount to an indirect subsidy of the proposed new hotel as well as a sop to other existing downtown hotels, which are mightily afraid of a glut of new rooms coming on a market in which hotel occupancy rates are presently very low. Moreover, no provision for any such outlay was made in the PBA's recommendation for $130 million in city expenditures for infrastructure to support the $250 million in private development envisioned by Worsham Watkins.
Given the city's history of strained relations with the Holiday Inn's wheeler-dealer owner, Franklin Haney, an attempt to acquire his property could well lead to condemnation proceedings. Private property can only be taken for a public purpose, and if wiping out a competitor to benefit other hotels were the principal purpose, it would hardly appear to qualify. (Neither Haney nor his son Frank Haney, Jr. returned repeated calls to their Chattanooga base seeking comment.)
As it happens, though, the PBA does have other, more public uses in mind for the Holiday Inn property. Studios and an institute for Home & Garden Television and Scripps Cable System's other cable TV channels (the Do-it-Yourself and Food Networks) are prospectively the numero uno attraction for making Knoxville a more inviting destination for conventions and other visitors. While these are still under negotiation, the entire 100,000 square feet of the existing convention center has been earmarked for them. And the Holiday Inn, which sits on top of it, represents room to grow on. Moreover, in the longer run, the site also represents expansion ground for the new convention center. "Demolition of the Holiday Inn is likely to be required, and expansion of the new convention center may be required sooner than generally anticipated," states the PBA report.
Leaving aside the condemnation issue, multi-million dollar public supports or subsidies for convention center hotels are the rule not the exception in other cities that were canvassed.
"You'll see almost everyone going in getting a public subsidy in order to make it happen," says Betty Masuoka, deputy city manager in Sacramento. In Sacramento's case, the city put $8 million into the new Sheraton Grand Hotel that's going up next to its recently expanded convention center. And the hotel also got a long-term below-market lease on space in a city garage that's being connected to the hotel by a pedestrian skyscape, Masuoka reports.
In Tampa, Noriega says, "We put $15 million into the new hotel." Charlotte's city council has approved a $16 million up-front investment in a new 700-room Westin Hotel that's on the drawing boards there, according to deputy city manager Tom Flynn. In addition, the city will pay the hotel $2.4 million a year for 25 years under what sounds like a sweetheart parking space management contract for a new $16 million garage that's intended to meet the needs of both the hotel and Charlotte's convention center.
In every case, the cities involved expect to recover their investments and then some from incremental property tax, sales tax, and/or other revenue streams. Charlotte will actually share in the prospective Westin Hotel's profits, assuming it makes money.
The PBA's development plan does not include any direct investment in the proposed new hotel. But the plan does include a $25.6 million city commitment for a 1,239-space garage that would support the hotel, a 34-story office tower and a fashion retail store that would all go in the same block bounded by Locust and Walnut streets, Union Avenue and Summer Place. As for recapturing whatever gets paid for the Holiday Inn, Edwards says that leasing it out could cover some of the cost in the shorter run. In the longer run, the outlay would get rolled into city bond issues approaching $300 million, which can be paid off from retention of state sales taxes under a 1998 law that is the golden goose of the entire project.
But the goose won't be nearly so golden if the convention center fails to meet its goals for bookings on which all other revenue streams are based. In trying to kill two birds with one stone in picking the location of a much-needed new convention center hotel, the city needs to take care that the goose doesn't become a victim.
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