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Kansas City's Recently Renovated Downtown Hotels Proving to be Too Small
 to Help the Refurbished Bartle Hall Attract Big Conventions

By Rick Alm, The Kansas City Star, Mo.McClatchy-Tribune Regional News

July 17, 2007 - Kansas City has a hotel problem: too many that are too small, and most with too many empty rooms any given evening.

What the visitor industry needs, according to some local experts, is another stylish convention-headquarters hotel of 1,000 rooms or more very close to recently refurbished Bartle Hall. The goal is to attract and accommodate big convention groups that also will be drawn to the Power & Light entertainment district when it opens next year.

That's the plan.

The reality is that City Hall keeps granting tax breaks to developers of small hotels and boutique properties, like the recently restored 213-room Hilton President, the 217-room Hotel Phillips or the 193-room Aladdin, that are grabbing vital market share but are too small to help the convention market grow.

Public subsidies for small hotels are "pushing us backwards, gobbling up room nights," said Bill Lucas, president of Crown Center Redevelopment Corp. and chairman of a Kansas City Convention and Visitors Association task force examining the issue. "All it does is delay demand for another 1,000-room hotel."

Analysts say the downtown marketplace must consistently post an occupancy rate of 65 percent or better before investors will consider Kansas City ready for another big hotel.

Since the doldrums of 2003, downtown's core convention hotels have averaged a 55.5 percent occupancy rate. The boutiques might not be doing even that well.

The Aladdin opened in mid-May, and general manager Frank Fry said June occupancy ran around 40 percent.

While small hotels fill a niche, they don't fill Bartle Hall -- and that, said Lucas, is where the tourism game in Kansas City will be won or lost.

Planners dread spreading out their clients, which requires them to negotiate group deals with more hotels.

"It minimizes their profitability," said Bill Bohde, sales chief for the visitors association, "and it puts us at a huge disadvantage."

For instance, a group looking for 2,000 rooms in St. Louis can usually cluster them in three hotels. In Kansas City it typically takes seven hotels. Four of the biggest hotels in Nashville, Tenn., can handle 4,000 conventioneers. A crowd of that size would require 21 hotels here.

About 2,700 out-of-town delegates begin arriving in town today for a three-day meeting of the U.S. Labor Department's annual Workforce Innovations conference at Bartle Hall. It took nine area hotels to house them, in a spread from the Argosy Casino Hotel & Spa in Riverside, the Clarion near the Truman Sports Complex and two hotels on the Country Club Plaza.

It becomes too easy, said Bohde, for planners to simply scratch from their short lists any city that can't provide at least 2,000 rooms a stone's throw from the convention center.

Kansas City has 1,994 rooms that fit that bill. At best, however, hotel operators might set aside three-fourths of their rooms for advance group bookings, holding the rest for regular transient business.

That forces conventioneers here to scatter many blocks or miles from Bartle Hall, and the walkability issue also matters -- a lot.

"Conventioneers don't like to walk," said Inge Hafkemeyer, president of the Kansas City chapter of Meeting Professionals International and meetings manager for the Kansas City-based International Association of Administrative Professionals.

Hafkemeyer said she hasn't considered Kansas City for her organization's annual convention since 1988 because hotels here can't guarantee the 1,300 or so rooms she needs for her mostly female membership that wants to be close to Bartle Hall.

When convention attendees must be booked into hotels far from the convention center, Bohde said, competitive pressures also force the visitors association to subsidize shuttle bus service to move them back and forth. And lately that tab has been running $50,000 to $100,000 a year, he said.

Kansas City's Crown Center shopping complex includes the Westin Crown Center and Hyatt Regency convention hotels, with 1,460 rooms between them. They get a lot of downtown's shuttle spillover plus their own not-inconsiderable meeting business.

Despite the formidable competition a new downtown hotel would pose, Crown Center's Lucas is almost begging city officials to quit subsidizing small hotels downtown -- at least two more appear to be on the way -- and start setting the table for another big hotel.

"We're mired down at 58, 59 percent occupancy, and they're just taking share from existing properties," said Lucas of the smaller competition.

The smaller hotels take issue.

"Most hoteliers downtown welcomed us," said the Aladdin's Fry, when the hotel opened in May.

"This was an empty building," he said, "a sore on downtown," smack in the middle of the hotel row that lines the east side of Barney Allis Plaza across from Bartle Hall.

Closed and boarded up since early 2004, the Aladdin was refurbished and restored to its original name and architectural glory with the help of $4.5 million in city tax increment financing assistance, plus state and federal historic preservation tax credits.

"We couldn't have done this project without it," Fry said of the fiscal jump-start with public funds. "We brought the building back up to code and to a situation where Kansas City could be proud of it."

He insists public investment was the right thing to do for the long-term good of the marketplace, which must have a mix of large and small hotels offering a broad price spectrum.

Still, Fry doesn't argue the growing need for another big hotel downtown.

Until it happens, however, he said the reality of Kansas City's marketplace is that "my 200 rooms helps a little bit" to pump up downtown's room count.

'Not now,' says mayor

It's not clear yet whether the City Council will agree to TIF or any other public financing for a big new hotel.

Mayor Mark Funkhouser will not.

"I don't think there's a need for another big convention hotel downtown," he said in an interview last week. "The research doesn't show that a 1,000-room hotel will drive convention business.

"And I don't see where the market can support that. The vacancy rates are already high. That's a lot of money for a risky and maybe a negative return.

"If things turn around in two or three years, I'd be happy to take a look at it," he added.

But the former city auditor -- elected mayor in March on a campaign that was sharply critical of TIF projects that drain city resources from neighborhoods and other public improvements -- said he would weigh any hotel proposal against other priorities and economic development goals.

The little-vs.-big hotel issue turned edgy at a recent visitors association meeting when chairman and Yellow Cab chief executive Bill George Jr. fired a salvo in the direction of City Hall's Tax Increment Financing Commission, where the hotel tax breaks begin.

"The stakes are too high," said George. "A lot of individuals have a lot of money invested in this industry."

The TIF Commission chairman, Peter Yelorda, said that cost-benefit analyses of the tax breaks were done in line with state law and local ordinance, and that the struggle between big and small hotels was a marketplace reality.

"They can both coexist," he said.

George earlier this year established Lucas' hotel task force and several others to fine-tune association policy positions that will unfold later this year as part of a master plan and lobbying blueprint for Kansas City's visitor industry.

"We need to be much more aggressive," said George, in pressing the industry's views at City Hall not only on hotel industry issues, but also light rail, downtown parking and the need for yet another expansion of Bartle Hall.

Cordish Co., developer of the Power & Light District, has proposed a dual condo and 150-room luxury hotel structure on the site of the old Jones Store, and at last check the company was seeking around $35 million worth of TIF assistance.

A St. Louis-based lodging group, meanwhile, appears to be positioning itself as part of the East Village urban renewal district proposed just east of City Hall.

For now, the city's future TIF policy lies in the hands of an economic development task force appointed by Funkhouser that faces an Aug. 30 deadline to present a wide-ranging series of policy options for council consideration.

Councilwoman and task force member Deb Hermann admits she doesn't have many answers yet on the hotel question.

But she won't close any economic development doors at City Hall, said Hermann, who heads the Finance and Audit Committee, which handles recommendations from the TIF panel.

"I will never say never," she said. "What I look for is the bottom-line benefit to the city. We need to keep all the economic development tools we can at our disposal."

Demand growing

The city adopted its TIF policy in 1982. The incentive typically returns to developers 50 percent to 100 percent of new sales, property or other taxes generated by the project to help pay for eligible project costs. The money otherwise would go to schools, local fire districts and other public coffers.

For the tourism industry, TIF is a double-edged sword.

Besides the effect of slowing demand for a big hotel, TIF rebates of the city's 7.5-cent tourism tax on hotel rooms have cost the visitors association a combined $3.4 million since 1996 to five hotel developers. With occupancy rates slowly rising, rebates are expected to hit a record $750,000 this year -- and that estimate doesn't include whatever the Aladdin's developers get back.

George said that the association could and would have spent the money on additional marketing to draw more conventioneers and leisure visitors who, he noted, spend an average $36 for every $1 the agency spends on advertising.

George contends that level of additional spending would generate around $2 million more for the city in bottom-line tourism taxes alone.

According to another association consultant's latest study, advertising last year in several targeted cities boosted visitation to Kansas City anywhere from 0.2 percent from Tulsa, Okla., to 14.8 percent from Springfield.

Bruce MacMillan, president and chief executive of Meeting Professionals International, thinks Kansas City is doing it right -- and maybe better than anyone else in the country.

He toured the new and improved Bartle Hall and emerging Power & Light District earlier this month while in town for a meeting of the group that represents 21,000 professional meeting planners in 20 countries.

"That's bold," he said of the $4 billion-plus in public and private investment now under construction downtown. "You literally are going to transform the guest experience for residents and visitors alike.

"A number of cities have done parts of it," he said of Kansas City's diverse list of downtown projects, which include loft housing, condos, new offices and restaurants, a big-league events arena and an expanded convention center with a new world-class ballroom.

"Kansas City has found the right formula," said MacMillan. "It's going to be a difference maker in booking conventions."

Kansas City has been debating the need for a convention headquarters hotel since the early '90s, when billionaire Ross Perot almost agreed to build one at 16th and Central on Bartle Hall's southern flank.

A few years later the council settled for its next best option and TIF-ed restoration of the Muehlebach Hotel, which had been in mothballs for a decade.

The historic downtown lodging jewel was acquired by the owners of the nearby Marriott Downtown, and today the sister facilities, linked by a skywalk over city streets, offer a combined 983 rooms next to Bartle Hall.

Also within a walkable block or so of Bartle are 388 rooms at the Radisson Hotel & Suites and the combined 623 rooms at the Phillips, President and Aladdin.

But that's it for walkability. And that's Bohde's problem.

"Another 1,000 rooms would certainly enhance our package," he said. "But our demand is not meeting our supply.

"Nobody in their right mind would build 1,000 rooms right now."

That's a fact, said St. Louis-based hotel industry consultant Isabel Brandt.

"No developer is going to do it without major financial incentives, but in this market there's clearly excess capacity," she said of Kansas City. "And there's only so many conventions out there.

"You don't build a hotel for two or three conventions a year," said Brandt.

Bohde agrees. "But if we continue at this advanced booking pace, and we can prove the demand is there, the hotel will be built. It'll have to happen," he said.

"The city is somehow going to have to take that additional risk."

To reach Rick Alm, call 816-234-4785 or send e-mail to ralm@kcstar.com.

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To see more of The Kansas City Star, or to subscribe to the newspaper, go to http://www.kansascity.com.

Copyright (c) 2007, The Kansas City Star, Mo.

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