Cities Add Hotel Rooms to Attract Conventions

A recent piece in the New York Times described a phenomenon that’s going on in the realm of CRE development: “From Seattle to Miami Beach, cities are chasing convention hotel development, typically of 600 to 1,200 rooms. The goal is to attract groups whose members will put money into the pockets of waitresses, bartenders, shopkeepers and cab drivers — as well as the public till.”

Cities across the country are recognizing the value of large hotel developments and are stepping up to create their own version. Hotels with 800-1200 rooms have opened in the last two years in Nashville, Austin, and Washington DC, and other cities have projects in the pipeline.  A new Hilton is under construction in Cleveland, which will be the site of the 2016 Republican National Convention.

This interest in convention hotels stems from the desire to generate local income via visitors –large groups that gather for conventions and conferences and help boost the local economy. The convention sector generated $280 billion in direct spending in 2012, according to a Convention Industry Council study. That source also reveals that of the 1.87 million conventions, congresses, trade shows, and conferences held in 2012, 85% were held at venues with lodging, generating more than 275M “room nights.”

This leads cities to encourage development of accommodations sized to handle a crowd. In Kansas City, half or more of the cost for the construction of an 800-room Hyatt convention hotel is being covered with public money.

This strategy can often pay off, as large conventions go where the rooms are. Meeting planners can simplify their process if they can limit lodging contracts to 2 or 3 rather than 7 or more. For large meetings this requires big hotels, and organizers are looking for new, high-quality locations for attendees.

Some question whether public support of convention facilities is really a good thing. There are some indications that demand for convention hotel space is flat, and the amount of such space available continues to grow as cities compete for the market, increasing by nearly 20 million square feet from 2000 to 2013. This growth is not likely to be sustainable, so there is concern about potential burdens to cities that are backing convention development. Public funding can be structured in such a way that the city is not responsible for shortfalls if a project does not live up to expectations for financial performance.

In the case of Kansas City, a petition was submitted to the City Council requesting that the public be allowed to vote on whether to support the Hyatt project. The city is not including any general funds in the deal and will not provide any debt guarantee. Developers warn that the delay caused by placing the matter on the ballot could derail the project altogether. City officials are challenged to balance the interests of all involved.

While convention centers rarely turn a profit, the associated lodging and hospitality sectors benefit from their presence. Combined, these facilities draw convention visitors that inject outside revenue into the city, so most municipalities consider the investment worthwhile. Whether that continues to hold true remains to be seen, but it’s safe to say that projects underway in most major U.S. cities are changing the hotel landscape.