Viewpoint: Convention centers can be opportunities for economic development
By Roger Zampell
A properly conceived convention center district can have enormous economic effects on its host city by creating thousands of jobs and generating millions of dollars in earned income and tax revenues, created by a lively tourism and entertainment-oriented district. The converse is true for poorly conceived convention center districts.
Convention centers are part of a symbiotic web of public and private business that cannot survive without the successful operation of all. The most critical relationship in the web is between the convention center and the headquarters hotel. To capitalize on that relationship in the current investment environment, convention center headquarters hotels require some sort of municipal investment. However, over the years, we’ve heard a lot of the same questions and concerns from stakeholders about public-private partnerships (P3) for hotels construction. The following attempts to answer and clarify some of the major concerns.
How does a hotel P3 work?
We like this definition from a recent article in Urban Land by Sandy Apgar and Tony Canzoneri: “[public-private partnerships] are ventures formed jointly by a government or quasi-governmental organization with one or more privately owned and operated organizations. Their aim is to meet public needs that either partner has identified but neither can meet by acting alone because of insufficient funds or inadequate capabilities. Successful partnerships have four defining characteristics: the partners share responsibility for policy making, but the private partner manages implementation; the partnership uses property that is or will be owned by the government; the partners share in the risks and rewards of the project; and the public agency bases its selection of private partners mainly on qualifications rather than price.”
What is a private developer’s approach to this relationship?
The P3 offers a variety of solutions for any capital project and can be structured creatively to meet the needs of the capital markets, as well as public and private stakeholders. The best solution will depend on partners’ objectives and preferred phasing of the convention center. The success of the P3 strategy depends on the prioritization of several factors, including ownership and control, risk mitigation, “off” versus “on” balance-sheet transaction structures, federal tax law, state law, financial returns, public funding mechanisms and capacity, certainty of execution and cost effectiveness.
Why does a convention center need a headquarters hotel? There are other hotels in town.
An adjacent large scale, purpose-built hotel is a necessary element for the viability of the convention center. Research from the Strategic Advisory Group shows that 73 percent of meeting planners cite an adjacent headquarters hotel, large enough to accommodate all attendees and supplemental events, as a key factor in location selection.
Is it worth it?
Headquarters hotels generate longer stays and greater average spending. According to the U.S. Travel Association, four out of every 10 dollars spent on business travel in the U.S. can be attributed to meetings and events. And, the construction and operation of a 1,000-room headquarters hotel can create thousands of jobs, generating hundreds of millions of dollars in income for workers before the doors open, according to the Bureau of Economic and Business Research, University of Utah.
An increased visitor base generates significant tax revenue. Once stabilized, the hotel can bring in several hundred thousand new visitors and hundreds of millions of dollars, as noted by the University of Denver/STR.
Finally, it is important to remember that a key factor in successful P3s is a municipality with the political will and leadership to move forward with the intended project. Without that, projects will stall or never come to fruition.