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Thursday, November 14, 2013

Welcome to the Hotel Cuyahoga

County and City Leaders Team Up To Bankroll a Downtown Hilton Hotel With Tax Dollars

Posted By on Thu, Nov 14, 2013 at 12:19 PM

Page 2 of 2

Additional examples are strewn about the U.S.

The Palm Beach County Taxpayer Action Board, mulling over similar plans down in Florida and eyeing a Dec. 6 groundbreaking date for the convention center hotel (a Hilton), has written extensively on local plans for the publicly-financed digs. Rather than paraphrase, here’s a direct excerpt from a 2012 article, which outlines the very same process all cities seem to undergo when planning such a thing:

The myriad cities all:

- are told by X, Y, Z trade show associations that they were not picked because of lack of HQ hotel (or their HQ hotel was not adequately sized) and are presented with videos by those associations describing how they would have picked that city otherwise
- use the same 1-3 consultants to justify their proposal to use public funds
- say that they have unique and desirable features that will bring the conventioneer to their city
- estimate a large increase in attendance based upon the addition of the HQ hotel or addition and an associated increase in employment and associated economic impact by those direct jobs and indirect spending by the visitors
- do not put measurements in place to assure that the projections are met
- do not achieve the desired outcome
- then have to ‘update’ their convention center, their HQ Hotel, their ‘City Place’ equivalent or add an arena.

That sounds JUST LIKE CLEVELAND. Suddenly the project feels less forward-thinking and more run-of-the-mill.

On the ground here, the management fee garnered by Hilton and paid via hotel revenues starts at $639,000 in the first year (beginning June 1, 2016, presumably) and reaches $1.2 million after the fifth year. At that point, inflation kicks in, upon which payments will be paced.

Incentive payments, potential above-and-beyond cash, would begin at $267,000 that first year and balloon to $616,000 by year five. Those payments kick in once the hotel construction debt service is paid down, a timeframe that remains an uncertainty.

In review, however, the fine people of Cuyahoga County front the risk, and Hilton Worldwide walks with the benefits.


click to enlarge The Cleveland Convention Center - ERIC SANDY/SCENE
  • The Cleveland Convention Center
Over at joints like the Cleveland Convention Center - tucked under a grassy lot on Lakeside Avenue - the numbers aren’t great; Sanders notes that “overall attendance at the 200 largest tradeshow events languishes at 1993 levels.” That very tepid market is what Northeast Ohio leaders (some in prison now, mind you) have pumped full of hundreds of millions of dollars.

For instance, last week the Cleveland Convention Center hosted Howard Hanna Real Estate Services’ biennial convention - Howard Hanna Rocks the House, as it were - which seems like a fairly standard exemplar of what the CCC will reel in. Howard Hanna media representative Elizabeth Grepp tells Scene that more than 2,300 people attended the event, resulting in about 800 hotel bookings.

Fewer than half of all attendees. Small potatoes.

Over at Chicago’s 2.76 million-square-foot McCormick Place - the largest convention center in the country - attendance has been cut over time by about a third, from 3.04 million in 2003 to 2.05 million in 2011, according to Choose Chicago (their version of Positively Cleveland). Still, though, the attached Hyatt hotel recently added 460 rooms, and the city announced plans for a privately developed 500-room hotel on the same block and a publicly-owned, 1,200-room Marriott Marquis on a block just southwest of the center.

In a broader sense, Manhattan Institute Scholar Steven Malanga, who also studies the convention center game, writes: “In 2010, conventions and meetings drew just 86 million attendees, down from 126 million ten years earlier. Meantime, available convention space has steadily increased to 70 million square feet, up from 40 million 20 years ago.” The difference in numbers is stark.

“I can't stress enough how much this announcement strengthens our hand in dealing with competitors for convention business,” FitzGerald said at the announcement of the Hilton plan. “All our primary competitors have attached convention center hotels.”

The “If you build it, they will come” mentality is startlingly off-base here. But FitzGerald does hit on an important point when talking about “competition” in strictly literal terms. Cities across the country are following the same path as Cleveland, fitting our own fancy Hilton into a field of like competitors. The path to standing out and attracting convention center business is actually routing Cleveland into some sort of “let’s be Chicago” limbo.

In pursuing the convention center hotel strategium, Cuyahoga County is taking a major step toward mimicry among small- to mid-market metro areas.

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