by Joe Sullivan
Knoxville is going to squander the city's $162 million investment in a new convention center unless it gets a top-flight headquarters hotel adjacent to the new facility.
That's the message from numerous other cities that have recently built or are building new convention centers—all of which have closely-connected new hotels. This list includes Austin, Texas, Columbia, S.C., Omaha, Neb., Raleigh, N.C., Savannah, Ga., and Wichita, Kan.
"If you don't build an ad-jacent hotel, your convention center is never going to be successful," says Steve Camp, president of the Midland Regional Convention Center Authority in Columbia. "Meeting planners want to know you have one before they will even consider you."
In Columbia's case, a new 300-room Hilton Hotel is going up in conjunction with its new convention center, one that's considerably smaller than Knoxville's. In Raleigh, the city is in the process of selecting a developer to build a 450-room hotel to support a much larger convention center that's on the drawing boards. A feasibility study for that new facility by the consulting firm KPMG stressed that "construction of a new convention center must be accompanied by location of a new convention headquarters quality hotel...."
In every case, it's taken public sector backing to make these new hotels feasible. "Except for Las Vegas, financing of a new, full-service hotel simply isn't feasible without some form of public participation," says Tony Peterman of Strategic Advisory Group, a Duluth, Ga.-based firm that's served as a consultant to Raleigh and many other cities on convention hotel planning.
Lack of a suitable headquarters hotel is the biggest single reason Knoxville's new convention center is floundering at great expense to taxpayers. Debt service of $7.3 million and an operating loss of $2.7 million are projected for the current fiscal year, and convention bookings for future years are skimpy. Of the 138 organizations that belong to the Tennessee Society of Association Executives, for example, only a handful have meetings scheduled in Knoxville's convention center over the next four years.
In an effort to alleviate the drain, the city's Industrial Development Board is evaluating three proposals for building a new hotel along with two others for enhancing and enlarging an existing one.
The three proposals for new 400-room hotels in the $60 million to $80 million cost range all call for taking advantage of the emerging trend in convention hotel financing: namely, city ownership of the hotel in order to get low-cost financing through use of its tax-exempt borrowing authority. However, the debt incurred to finance the hotel would not be general obligation bonds of the city and its taxpayers. Rather, the bonds would be backed by the hotel's revenues with a city guarantee of a portion of the debt service in the event the hotel's revenues fall far short of projections.
By contrast, the two existing hotels that are proposing to expand are both seeking subsidies from the city that would come directly out of taxpayers' pockets. The Downtown Holiday Inn Select wants upwards of $20 million over 20 years in the form of tax abatements to finance a 110-room addition (to a total of 403 rooms) via acquisition of the adjacent State Office Building. The Hilton is asking for $10 million toward covering the $16 million cost of a 100-room addition that would give it 417 rooms in total.
At the same time it's seeking a big subsidy, the Holiday Inn is leading the push for a referendum on an ordinance that would prohibit the city from providing any form of backing to a new hotel, while still allowing for tax abatements. In soliciting the 15,000 signatures on a petition it will take to get this proposition on the ballot, the Holiday Inn's propagandists would have voters believe that a new hotel would be built at taxpayer expense, when such is not the case.
It's true the city has contemplated outlays of $15 million for a garage to support a new hotel and $5 million or acquisition of its site. But the chairman of the IDB, Alex Fischer, has been steering any new hotel development plan toward covering these costs from proceeds of the revenue bond issue that would also fund the hotel. In that event, there would be no up-front city outlays.
What the city would derive is the additional tax revenues resulting from more conventions coming to Knoxville. The city's hotel consultant, Donald Hunter, has projected that a new headquarters hotel would beget 50,000 more room nights spent in downtown hotels. If each of these overnight visitors spends $185 a day while in Knoxville, as estimated by the Knoxville Tourism and Sports Corp., that adds up to $9.2 million in annual expenditures subject to some combination of local sales, hotel/motel and beverage taxes. Assuming that those incremental outlays are subject to state sales-tax recapture that the convention center was intended to generate, and without getting into all of the arithmetic involved, the city stands to gain over $700,000 in annual tax revenue. As a further benefit to taxpayers, a new hotel's spur to convention center bookings should help reduce the facility's operating deficit.
Beyond that, all of the new hotel development proposals before the IDB envision annual hotel profits of $1 million or more that would flow through to the city. And once the hotel debt has been paid off, the city would own a hotel that developers claim could be worth as much as $100 million.
Granted, those rosy claims should be viewed with some skepticism, and the risks to the city have to be weighed in relation to the rewards. Moreover, it's debatable whether the city should be using its low cost financing capabilities to compete with existing hotels who are claiming they would be damaged as a result.
It's clear, however, that a new, high quality hotel would be most beneficial to the convention center, and taxpayers are likely to benefit from it as well.
September 18, 2003 * Vol. 13, No. 38
© 2003 Metro Pulse
| 
