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In theory, benefit to the city will also come as new businesses catering to Med Mart clients fill in vacant downtown office space and the businesses create new jobs. But these economic effects, too, must be measured sometime down the road.
"If they have to lower rents or give shows away for free to meet the requirements, then that is what they will have to do," Applebaum says. "But we want MMPI to make a crateload of money."
MMPI did not respond to questions about its planned rental rates, but Williams says the company is charging more than a dollar per foot for convention center space. "From what I've seen, their quotes have varied, but they are in line," he says. "We will be competitive."
That is not the case, according to one of the country's leading independent convention center experts. "With a center the size that's planned, Cleveland isn't competitive for anything," says Heywood Sanders, a professor in the public administration department at the University of Texas in San Antonio. "Almost without exception, public convention centers in this country operate at a loss."
The $10 million in taxpayer money MMPI will receive to run the facility is adequate; the Pricewaterhouse survey showed that similar centers spent an average of $9.8 million to keep running last year. But turning a profit is a different endeavor. Whatever price MMPI is asking for convention center space may not matter at all. According to the survey, it can expect to actually draw around nine cents a square foot per day.
Sanders says there are too many convention centers competing for business; therefore, most deeply discount rates or give space away for free. Any money made comes from mark-ups on sales of food and convention services, and those are not usually enough. For example, the convention center in Philadelphia loses about $10 million a year, and a new center in Washington, D.C., runs at an $18 to $20 million loss annually, according to Sanders.
On the Med Mart side, MMPI is apparently already willing to dole out rent-free space. On May 5, The Plain Dealer reported that Industrial Woodworking Corp. of Michigan was offered a free showroom for three years along with $20,000 in cash to outfit it.
Indeed, while everyone involved hopes the Med Mart will pump oodles of cash into MMPI's coffers, Boston and other cities have learned that bad things can happen when Vornado doesn't see a sufficiently handsome profit. In some cases, the company has simply walked away from its obligations.
A HABIT OF BAILING
Three years into their crater problem, Boston officials now worry that the hole in the middle of Downtown Crossing could threaten the new businesses they worked so hard to attract. The complex Vornado was supposed to build would have been the star attraction.
"It was the catalyst to get the other nearby vacancies filled," says Jessica Schumaker, spokeswoman for the Boston Redevelopment Authority. (A spokesman for Boston's mayor said he did not want to comment further on Vornado.)
Today, there is little that can be done to roust the shopping district out of its arrested development. The city has considered pulling building permits for the site in an effort to force Vornado to move forward or risk having to go through the costly permitting process again. In response, Vornado has put its hole in the ground up for sale in a move the city views as pure posturing. The company bought the site for $100 million in cash in 2007, though it is now worth less than that because the market is down and the buildings were demolished. Vornado is asking $200 million anyway.
And Boston isn't Vornado's only battleground. Fairfax County in northern Virginia is plagued by a similar nightmare brought on by the company. In 2006, Vornado bought the sprawling Springfield Mall, pledging to redevelop the 80-acre site by adding more than one million square feet of office space (about the size of the I-X Center's exhibit hall and meeting rooms), a 225-room hotel, and more than 2,000 apartments, all in a park-like setting.
But zoning delays and other hold-ups plagued the project, and in 2009 Vornado defaulted on the $171 million loan used to keep the Springfield mall open before new construction started. Industry analysts call this a "strategic default," which allows a company like Vornado to basically restructure its debt. The mortgage holder, unable to find another buyer for the mall with its increasing number of boarded-up stores, put it up for auction, but there were no takers. In December 2010, the lender gave in to Vornado, selling the property back to the company for just $115 million.
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