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Adding Tax-Payer Financed Hotels Not the
 Cure-all For Convention Centers
By Dan Tracy, The Orlando Sentinel, Fla.
Knight Ridder/Tribune Business News

Apr. 17, 2005 - HOUSTON -- This south Texas metropolis has what Orange County wants: a new, upscale hotel attached to an expanded convention center.

Built at a taxpayer cost of $250 million, the Hilton Americas-Houston is a luxurious 24-story hotel sporting 1,200 nicely appointed rooms, a glass-enclosed rooftop pool and a magnificent view of the city skyline.

Connected by an enclosed walkway to the 862,000-square-foot George R. Brown Convention Center, the Hilton is the cornerstone of Houston's efforts to revitalize its slumping convention business.

But the city, which also spent $165 million doubling the size of the Brown center, did not buy itself a quick fix, at least according to 2004 results.

Attendance at the center actually dropped a bit to fewer than 150,000, if events open to the public -- which typically attract many local residents -- are excluded. And the Hilton Americas on average had almost as many empty rooms as filled ones -- just like the rest of the hotels downtown.

That performance and the spotty records of similar subsidized hotels in other cities -- such as Myrtle Beach, S.C., and St. Louis -- have not stopped proponents from insisting that posh hotels are key to Orange County's long-term success.

Tom Ackert, who runs the two-building convention complex in Orange County, said his operation will stagnate without two or three new hotels. He said delegates don't like to ride buses or walk far to attend an event. So if they can't get a room close to the center, they will go to another city with better arrangements.

"If land [next to the North/South Building] sits vacant for 20 years, we're not going to see increases," he said.

The Hyatt and Hilton chains own land on either side of the expansion and had announced plans to connect new luxury hotels to the facility when it opened in 2003. Now, neither company will say whether or when new hotels might be built or why the plans were changed. Many observers, as well as a 2003 analysis of the local hotel market commissioned by the convention center, say the money is just not available to finance convention hotels costing $250 million or more.

"There is extremely limited new-hotel capital available, especially for large convention hotels," the report said.

That conclusion is not news to Martin Belz, chairman of the group that owns the Peabody Orlando, the luxury hotel just a few hundred yards west of the convention center's new expansion. He is seeking tax money to guarantee a plan to more than double the Peabody's 891 rooms. The request has generated little support, at least so far.

"The problem right now is the cost to produce a hotel of that level is more than you can get on the return from the average daily [room] rate. . . . That's why you have to be creative [in financing], " Belz said.

Two other large resorts are supposed to be built near the center, but neither will connect to it. The most ambitious project encompasses 1,800 acres about a mile northeast of the complex. Named "Universal Boulevard Orlando," it calls for more than 5,000 hotel rooms, 6,000 rentals and high-end commercial development. No timetable has been set for completion.

About a mile south of the center is Harris Rosen's Shingle Creek Resort, which, when complete in late 2006, will offer a golf course and a 14-story hotel with 1,500 oversized guest rooms and suites and more than 250,000 square feet of meeting space. But guests would have to take a shuttle bus to get to the center.

Though there are nearly 33,000 hotel rooms on International Drive today, fewer than 8,000 are within a mile of the complex, according to the Orlando/Orange County Convention and Visitors Bureau. Orange County's top competitor, Las Vegas, has more than 60,000 rooms in just 18 of the largest hotels on the Strip. Most are within two miles, or a short walk or monorail ride of the center.

Bill Peeper, who runs the Orlando/Orange Convention and Visitors Bureau, attributes the loss of 37 shows since 2000 -- a total potential attendance of more than 520,000 -- on the shortage of convention hotels.

Among those heading elsewhere is the Academy of Orthopedic Surgeons, which brings about 30,000 to its annual meetings. Physicians are coveted by convention centers because of their high incomes.

Sue McSorley, the academy's convention director, said the group met at the Orange County center in 1995 and 2000 but will not come back. The surgeons, she said, want the amenities and attention not found at many of the moderately priced properties on International Drive.

"For families, they are great, but for a convention there just aren't enough full-service hotels," McSorley said. Her group is meeting in Washington, D.C., New Orleans and San Diego during the next three years.

So to remain competitive in an overbuilt industry and attract the large groups its center was designed to house, Orlando may need to change tactics. Peeper advocates tax incentives of some sort to encourage construction, possibly similar to what has been done in Houston and nearly 40 other cities that have built or are planning a convention hotel with public money.

But Rich Maladecki, president of the Central Florida Hotel & Lodging Association, is against any tax breaks.

"Free enterprise should be maintained in the Orlando market," he said.

After a dozen years seeking a private developer, the Houston City Council finally agreed in 2001 to use a variety of taxes to pay for the Hilton Americas. It opened in late 2003.

Both the hotel and convention center have struggled much of the time, reflecting the plight of many smaller centers. That also has happened in places such as Myrtle Beach and St. Louis, each of which put tens of millions of tax dollars into convention hotels. Myrtle Beach had to refinance its debt because of poor performance, while St. Louis saw its bond rating drop.

The number of people traveling to Houston for trade shows and conventions has dropped almost 70 percent from 1999 to 2003, from 503,796 to 156,699. The 2004 count, excluding events open to the public, was 146,057.

"It's tough," said Ric Booth, the center's assistant general manager. "We don't have Disney. We don't have gambling. We don't have the French Quarter."

What Houston does have is thousands of new hotel rooms, nearby professional-sports facilities, a large theater district and a newly expanded convention center.

All that's lacking is more delegates.

Jim Leusner of the Sentinel staff contributed to this report.

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To see more of The Orlando Sentinel -- including its homes, jobs, cars and other classified listings -- or to subscribe to the newspaper, go to http://www.OrlandoSentinel.com.

Copyright (c) 2005, The Orlando Sentinel, Fla.

Distributed by Knight Ridder/Tribune Business News. For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail reprints@krtinfo.com. HLT,

 
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