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Wednesday, July 30, 2014 |  Madison, WI: 76.0° F  A Few Clouds
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MADISON.GOV

A new hotel wouldn't necessarily solve Monona Terrace's problems
Build it and they might not come

Conventions would double at Monona Terrace if a new hotel were built, says a consultant.
Credit:Peter Patau
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Charles Johnson, a consultant hired by the city, told a committee Monday evening that the convention business is a healthy one that Madison could do more to cash in on.

But he added a caveat: "It's a mature industry, so you have to fight more."

In his new study, Johnson is urging Madison to enter the ring by subsidizing a 400- to 500-room hotel downtown across from the Monona Terrace convention center. It would be the city's largest hotel. Johnson projects this will generate "approximately $78.8 million in total direct, indirect and induced spending, $31.3 million in earnings and support for the equivalent of 787 full-time jobs...."

But that assessment is at odds with reality, says Heywood Sanders, a professor of public administration at the University of Texas at San Antonio.

Sanders says that the number of conventions and the number of people attending them have declined, even as cities around the country spend millions expanding their convention centers and building headquarter hotels, like the one proposed for Madison.

"What you're getting is advice that tells you to do what everybody else is doing," he says. "They're busy in Jackson, Miss., trying to build a convention hotel, because that convention center isn't meeting expectations either."

Johnson has refused to answer Isthmus' questions about his $25,000 study. When approached after Monday night's committee meeting, he said he's been told not to speak to the media, though he would not say by whom. Then an assistant - Johnson's son - asked if Isthmus would submit questions in writing. When told no, Johnson offered to answer questions Tuesday morning in a phone call. But when a reporter called at the appointed time, he was unavailable and did not call back.

The evasion doesn't surprise Sanders, who says convention consultants tend to gloss over negative trends.

"There appears to be substantial pressure to provide the answers that local folks want to hear," he says. "And the politics of convention centers these day are such that the consultant studies provide a seemingly analytical, expert justification for doing these things. But the fundamental question is, do they make sense?"

For Sanders, who has been studying the boom in convention center construction over the past several decades, the answer is clearly no. 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.

A buyer's market

The problem with trying to cash in on the convention business is one of simple supply and demand.

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. But, he says, convention business has declined.

"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 -reports a steady decline in attendance at all events, from 2001, when more than 3 million people attended, to 2011, when just over 2 million people did.

Johnson doesn't mention these trends in his study. Instead, he predicts that in just a few years, Madison will double its convention business by constructing a luxury hotel. According to Johnson, 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?"

Johnson's study uses Fort Worth, Texas, and Baltimore as examples of how a city can add a headquarters hotel to significantly boost convention center business. But the figures Johnson provides contradict those claims.

After Fort Worth built a 614-room Omni hotel in 2009, the number of events at its convention center 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. The payoff has been dismal. Attendance at conventions has dropped from 544,682 in 2006 to 488,469 attendees in 2011, according to Johnson's report.

"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," Sanders says. "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 Moody's downgraded the city's hotel bond rating in 2011. Johnson's study doesn't mention this.

Sanders notes that the convention center 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."

Anecdotal evidence

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."

At Monday's committee meeting, nobody asked any skeptical questions about Johnson's presentation. One member asked what options they'll have in 15 years when the hotel is presumably booked to capacity.

At the moment, the city has difficulty marketing the convention center. Diane Morgenthaler, vice president of marketing and strategic planning at the Greater Madison Convention & Visitors Bureau, says the people who hold conventions regularly tell the bureau Madison doesn't quite have what they need. "What we've heard coming from the marketplace is people telling us we don't have the hotel space."

From 2007 to 2011, Monona Terrace hosted an average of 29 conventions a year and 39 conferences a year. It does brisker business in smaller community events. It averaged 244 banquets and 211 meetings a year during that period. Those events 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.

Verveer recognizes that many other downtown hotel owners don't like the idea of the city subsidizing a business that will compete with their own. Officials estimate the proposed Judge Doyle Square development, of which a hotel would be just one part, will need $25 to $50 million in public aid. "It will be a significant expenditure in future capital budgets and will be thoroughly debated," Verveer says.

Madison currently funds Monona Terrace using proceeds from its hotel room tax, which is estimated to bring in $10.5 million this year. Of that, Monona Terrace 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.

Johnson's report goes to great lengths to flatter the city as being unique. "It is easy to fall into a trap of visualizing the city as small, and trying to compete at a tier below where the city should compete," the report states. "However because of its assets, Madison is special and among a handful of cities that are able to compete against larger metropolitan areas."

Although Sanders has never been to Madison, he doesn't doubt that it is special. But he says that doesn't mean conventions will flock here if the city builds a hotel.

"To the extent that Madison is a 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."

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