Salt Lake County convention hotel: Suite deal or sour pill?
Hospitality » County can learn from other cities where such ventures have succeeded -- and flopped.
By Jeremiah Stettler
The Salt Lake Tribune
Looking for a suite deal, Salt Lake County?
More than a dozen U.S. cities already have, hoping to capture conference-goers -- and their cash -- by building high-rise headquarters hotels in the hearts of their convention districts.
These massive Marriotts, Hiltons and Hyatts are redefining the convention industry as cities from San Diego to Boston now lean on these 700- to 1,700-room accommodations as selling points for large-scale gatherings -- a trend that has reached eight of the 10 markets that Salt Lake County considers direct competitors.
And most of the time, local governments helped pay for them.
Now, Salt Lake County must decide whether to follow suit. Will it make a difference for this Rocky Mountain metropolis that, according to convention officials, has lost nearly 600,000 visitors during the past three years because of its lack of a convention-center hotel? And will Utahns sign off on a public subsidy for a largely private venture?
The Marriott Hotel near the Riverwalk in San Antonio, Texas. (Courtesy San Antonio Marriott Rivercenter & Riverwalk Hotels)
First, a word of warning for Salt Lake County: Some of these suite deals nationally have turned sour.
Consider Houston and St. Louis. Both were losing convention traffic to other cities with more hotel rooms. So both decided to build a headquarters hotel and rely, in part, on public financing to help do it.
One city found success, the other failure. The Hilton Americas Hotel in Houston has performed so well city officials are considering building a second one. Conversely, the Renaissance St. Louis Grand & Suites Hotel has failed to keep up on its debt payment and, this year, fell into foreclosure, though it remains open.
Courtesy Renaissance St. Louis Grand Hotel.
The Hilton Americas in Houston. (Courtesy of Hilton)
The question is: How can Salt Lake County ensure that its convention hotel performs like Houston's and not like St. Louis'?
Risk versus reward » The county hopes to reach that answer in coming months as a newly formed panel of government leaders, hoteliers and surrounding stakeholders weighs the financial feasibility -- and the possibility of public support -- for a project that could reach $300 million. If built, the hotel would offer more-expansive accommodations than any other lodge in the state with up to 1,000 rooms, a full-service restaurant and an estimated 90,000 square feet of meeting space.
Little America ranks as the capital's largest hotel with 850 rooms, followed by the adjacent Grand America with 775.
Scott Beck, president and CEO of the Salt Lake Convention and Visitors Bureau, argues a headquarters hotel is the next "evolution" for the state's convention industry. Its absence, he asserts, is the main reason Utah lost an estimated 13,000 delegates this year from the American Mathematical Society,
American Society of Human Genetics and Materials Research Society, all of which cited the lack of a convention-center hotel as a reason to go elsewhere.
Indeed, convention hotels are becoming as commonplace among Salt Lake City's competitors as drop-down DVD screens in minivans. Phoenix has one. Seattle has one. Denver has one. Even Reno, Nev., has one.
Only two of Salt Lake City's direct competitors -- Portland, Ore., and Albuquerque, N.M. -- haven't built headquarters hotels yet. And their convention centers are half the size of the Salt Palace.
So should Utah book its own reservation for convention hotel?
It's a high-dollar decision with plenty of risk for taxpayers, who could find themselves offering land, tax abatements or even financing for a 1,000-room downtown hotel. It's a gamble that has paid off in more than a dozen U.S. cities, including Denver; Sacramento; Austin, Texas; and Houston -- but not in St. Louis.
Hilton Austin (Courtesy of Hilton)
St. Louis' blunder » The Renaissance St. Louis Grand & Suites Hotel sank into foreclosure in early February after hoteliers failed to make the interest payment on a $98 million debt. The action reflected a six-year financial slide that turned this potential boon for Missouri's convention industry into a relative bust.
Although the hotel -- made possible with a combination of private dollars, tax-exempt bonds and $80 million in taxpayer cash -- has turned a small operating profit since opening in 2003, it has strained under heavy debt payments and lower-than-expected foot traffic. As a result, the Renaissance has exhausted the reserves once meant to protect bondholders and defaulted on its debt, according to the St. Louis Post-Dispatch .
"It has been a fiasco," remarked hotel consultant Gary Andreas, principal for H&H Financial in nearby Chesterfield.
What went wrong?
According to hospitality experts, hotel backers failed to ask a critical follow-up question of meeting planners who had chosen to take their business elsewhere. Although planners cited inadequate room space as a reason for striking St. Louis off their list, officials didn't ask whether a large-scale convention hotel would have changed their minds.
Consequently, the city opened a $265 million hotel, only to discover that the city's reputation for crime, its lack of retail and restaurants near the America's Center convention hall and its absence of tourist-grabbing attractions outside of the Gateway Arch and Cardinals baseball still kept conventions at bay.
Another ding for the Midwest metro was the price of its nearly 1,100-room headquarters hotel. The Renaissance emerged out of a historic renovation that cost developers about $266,000 per room. The resulting room rate, hospitality experts say, made surrounding hotels more attractive.
And, finally, hotel designers included just 52,000 square feet for on-site meetings -- too little, consultants say, for many large-scale conventions that desire such accommodations.
Houston's bounty » But where St. Louis failed, Houston succeeded. The Texas city built a $316 million, 1,200-room Hilton Americas hotel that has proved so profitable that Greg Ortale, president and CEO of the Greater Houston Convention and Visitors Bureau, refused to talk about it.
"I don't want to encourage anyone to build them," he said. "Why would I want to encourage more competition? Tell them [in Salt Lake City] it is a terrible idea. They shouldn't do it. They should run away from it."
Houston is entertaining plans of erecting a second headquarters hotel. Richard Campo, chairman of the nonprofit Houston Convention Center Hotel Corp., said Hilton Americas has led to a noticeable rise in convention traffic that has buoyed business at surrounding hotels. And hospitality experts suggest that the city's downtown district has only 4,000 of the 7,000 hotel rooms its convention center could support.
Randy McCaslin, a Houston-based hotel consultant for PKF Consulting, said Hilton Americas clearly made sense, and paid off.
"You really can't compete as a convention market without a convention-center hotel," he said. So, when Houston built its venue, "we became a player in the market."
Unlike the St. Louis venture, the Hilton Americas hotel was erected entirely with public financing -- an arrangement hospitality experts described as necessary after the city tried unsuccessfully for years to lure a private development on its own. The city issued bonds for the construction costs and guaranteed the debt with hotel taxes.
The result was a massive hotel linked via a sky bridge to the nearby George R. Brown Convention Center. Built in coordination with a $165 million convention center expansion, the hotel includes 91,500 square feet of meeting space and is a block from the Toyota Center (home of basketball's Rockets), two blocks from Minute Maid Park (home of baseball's Astros) and not far from the city's theater district.
Hilton San Diego Bayfront. (Courtesy of Hilton)
Selling the idea » Would a similar success story unfold in Salt Lake City? Or would a headquarters hotel fall flat like in St. Louis? That analysis has only begun.
Although a headquarters hotel would expose taxpayers to sizable financial liability, it could make the Salt Lake Valley more appealing for large-scale conventions that bring thousands of visitors -- and millions of dollars -- to the state's capital, hospitality experts say. Not only would the foot traffic bolster restaurants and retail outlets, but it also would lead to more tax dollars for government services.
Conversely, Beck fears that without a convention hotel, "we will get surpassed by the current market."
"Do we say, 'This risk factor does not make sense for our community?' " Salt Lake County Councilman Joe Hatch asked. "Or do we say, 'Wow, this risk factor makes a lot of sense for our community?' We won't know until we look at the numbers."
A taxpayer-backed hotel would be a hard sell for County Councilman David Wilde. The hospitality industry, he says, is no place for government.
"These things ought to be left to the private sector," Wilde said. "I would much prefer to see a hotel built by a private hotel company. But to absolutely, 100 percent, say no without all the information is a little premature. Somebody has got to show me that there is no way to get a private developer and hotel company to do this."
Outside of philosophical arguments about government's role in private-sector development, the track record for U.S. cities that have pursued headquarters hotels has produced far more happy endings than not, according to Robert Swerdling, managing director of the Denver-based Swerdling & Associates, which is a consultant for cities considering convention-center hotels. He doubts Salt Lake City -- with its low crime rate, its accessibility to an international airport and its tourism appeal -- would fall into the St. Louis trap.
"I am of the opinion that getting a hotel there is a good idea for the market," he said. "But that is not a decision for me to make."
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