Monona Terrace Community and Convention Center
Cities are increasingly stepping in to build convention center hotels, because private developers aren't.
Heywood Sanders has seen this pitch before.
The narrative goes something like this: cities build a downtown convention center in hopes of luring visitors who will spend lots of money in downtown restaurants, bars and shops. But the visitors don't quite come in the numbers consultants promised, so the city decides it needs to build a grand headquarters hotel nearby, which will make its facility much more attractive to organizations holding conventions.
It's the advice that C.H. Johnson Consulting of Chicago is now giving to Madison officials. Its study, released earlier this week, recommends Madison build a 400- to 500-room hotel on Wilson Street, across from the Monona Terrace Convention Center. The company projects this will bring $78.8 million in spending, $31.3 million in earnings, and support 787 full-time equivalent jobs. "A new hotel," the report says, "is needed to sustain Monona Terrace operations and unlock significant market potential."
Sanders, a professor of public administration at the University of Texas at San Antonio, says he's never seen that scenario play out as the consultants promise. Charles Johnson could not be reached for comment, but his firm will give a presentation on the study Monday at 5 p.m. in the Municipal Building.
"What you're getting is advice that tells you to do what everybody else is doing," he says. "They're busy in Jackson, Mississippi trying to build a convention hotel, because that convention center isn't meeting expectations either."
Sanders has been studying the boom in convention center construction over the past several decades. And he's been challenging the notion that if you build it, they will come. Because in city after city, he says, they haven't come.
The problem with trying to cash in on the convention business is one of simple supply and demand.
The number of conventions and people attending them has declined in recent decades. Meanwhile, just about every city in the country is building fancy new convention centers and hotels, fighting to lure a limited number of conventions.
According to Sanders, in 2000, the United States had 52.1 million-square-feet of available exhibition space. In 2011, the space had grown to 70.5 million-square-feet, a 33.7% increase.
"It's very clear that on the demand side, attendance is below where it was in 2000," he says.
Chicago's McCormick Place -- the largest convention center in North America -- has seen a steady decline in convention attendance, from 2001, when 1.3 million people attended, to 2011, when 768,000 people did. Attendance at public events at McCormick is also down, from 1.7 million in 2001 to 1.2 million in 2011. In 2007, McCormick Place expanded to try to attract more conventions, but attendance continues to fall.
Johnson doesn't mention these trends in its study. Instead, it predicts that in just a few years, Madison will double its convention business by constructing what would be the city's largest hotel next to Monona Terrace.
According to the study, a new hotel will increase occupancy at all downtown hotels from 74,382 in 2012 to 143,866 in 2019. Sanders finds this "laughable."
"There is no substantive indication why or where those numbers come from or how it could conceivably double," says Sanders, who has reviewed Johnson's report. "Is it plausible that adding a hotel would double Monona Terrace's business? They prove it's not."
The proof can be found in Johnson's own report for Madison, which looks at business done in Fort Worth, Texas and Baltimore after those cities added a headquarter hotel to complement a convention center.
Fort Worth built a 614-room Omni hotel in 2009. The number of events immediately dropped, before picking up slightly in the 2011-12 season. Hotel bookings have hardly budged. In the 2011-12 season, there were 249,853 room "nights," according to Johnson's report, not even 9,000 more than before the new hotel was added -- roughly a 3% increase.
Baltimore built a massive 757-room Hilton next to its convention center in 2008 in hopes of snagging more conventions. The payoff has been dismal. Attendance at conventions (according to Johnson's study) has dropped from 544,682 in 2006 to 435,992 in 2009. It has since rebounded slightly, to 488,469 attendees in 2011, but is still well below attendance before a hotel was added.
"It doesn't boost demand at all in these two cases, let alone double it," Sanders says. "Where is there a case that a convention center added a hotel and doubled demand?"
Cities are increasingly stepping in to build convention center hotels, because private developers aren't. "They're too risky. So you find cities literally going into the hotel business."
In Baltimore's case, that gamble hasn't paid off. The city-owned Hilton is millions in the hole and its bonds were downgraded in 2011 by Moody's. Johnson's study doesn't mention this.
Now, Baltimore officials -- on the recommendations of a consultant (PDF) -- are contemplating expanding their convention center, building a $500 million sports arena nearby, and another hotel in hopes of attracting more conventions.
Sanders notes that this is in Baltimore's Inner Harbor, one of the most charming, historic districts in the country, packed with museums, stores, restaurants and clubs. It remains a popular tourist attraction, but there's been no boom in conventions with a new hotel.
"It's a nice place," he says. "You'd think it would succeed."
Madison officials seem convinced the same playbook will work here.
"The [Johnson] study reaffirmed my understanding of the hotel market, in particular the need for additional room blocks to serve Monona Terrace," says Ald. Mike Verveer, who sits on the Monona Terrace Community and Convention Center Board. "It's been pretty much widely recognized that Monona Terrace needs more room blocks to compete effectively."
Diane Morgenthaler, vice president of marketing and strategic planning at the Greater Madison Convention & Visitors Bureau, says she hasn't yet read the consultant's report in detail.
But she says, the people who hold conventions regularly tell the bureau Madison doesn't quite have what they need. "What we've heard really coming from the marketplace is people telling us we don't have the hotel space."
Verveer recognizes that many other downtown hotel owners don't like the idea of the city subsidizing a business that will compete with them. Officials estimate the entire Judge Doyle Square development, of which a hotel is just one part, will need $25 to $50 million in public aid. "That's going to be the huge question facing the mayor and the next city council. It will be a significant expenditure in future capital budgets and will be thoroughly debated."
But he says all downtown businesses will benefit from nurturing the convention market.
"Anecdotally, there are constantly people streaming around the Square and up State Street, with these lanyards around their necks, who are clearly there because of Monona Terrace," he says. "Whenever I'm in Monona Terrace, there are often multiple functions going on at once. Sometime it's packed to the rafters."
The center does get some conventions. From 2007 to 2011, it hosted an average of 29 conventions a year and 39 conferences a year. It does much more brisk business in smaller, community events. It averaged 244 banquets and 211 meetings a year during that period. Those aren't as sexy because they're attended largely by people who live in the Madison area, not visitors who are sleeping in hotels, dining out and browsing stores.
Madison funds the center using proceeds from its hotel room tax, which is estimated to bring in $10.5 million this year. Of that, Monona is slated to get almost $5.9 million -- including roughly $1.7 million for debt payments, $2.9 million for operating subsidies and $1.3 million for capital purchases.
The city will likely always subsidize Monona Terrace in some way, Verveer says, and that's okay. "I think it has proven its worth convincingly over time."
Johnson's report goes to considerable length to flatter the city as being special and unique. A quote highlighted in the city's press release on the study, is that "Madison is a very robust meeting and convention market and competes at a tier above its position, as opposed to smaller markets."
Although Sanders has never been to Madison, he doesn't doubt that it is special. But that doesn't mean conventions will flock here if the city builds a hotel.
"To the extent that Madison is distinctive community, why would you try to compete by doing exactly what everybody else is doing?" Sanders asks. "Especially as in the case of Baltimore and Fort Worth and others, it doesn't seem to work."
Read the complete study.