News for the Hospitality Executive
|By Kathleen Vereen Dayton, The Sun News, Myrtle Beach, S.C.
Knight Ridder/Tribune Business News
Mar. 30, 2004 -- Smarter marketing and more realistic performance expectations will help the city-financed Radisson Plaza Hotel make it through its second year without the major money woes that put it in default during its first 12 months, leaders say.
But critics say the city shouldn't be on the hook for the hotel's success, criticizing city leaders for backing the project using a funding formula that's had its share of failures across the country.
Using public money for convention center hotels and expansions has become a popular way for cities to try to revitalize downtowns or stimulate economic activity. But many of these cities, including Myrtle Beach, are facing financial troubles instead of celebrating an infusion of dollars.
"It's a disaster," said Heywood Sanders, a political scientist at the University of Texas at San Antonio. "Every city in the country of any size is doing it. But the system has already begun to collapse."
Myrtle Beach City Council is set to decide Tuesday how it will bail out the Radisson. There are two choices: a five-year loan, or bond refinancing using hospitality fee revenues as back up. That will delay other big-ticket projects including Rivoli renovations and downtown redevelopment for up to two years.
Regardless of the decision, a technical default will go on the books Thursday after the city dips into hotel reserves to make the scheduled $2.6 million debt payment.
The city has struggled since November to decide what to do.
"I think [Tuesday's meeting] is a chance to put the Radisson behind us and let the Radisson concentrate on operations," said Councilman Randal Wallace, who supports refinancing the bonds. "[The hotel] is here now, so we need to make it work." The Radisson brought a new niche to Myrtle Beach's leisure-dominated market: a high-end hotel armed with AAA's four-diamond rating aiming to put the area on the meetings map.
Hotel leaders discovered it's not easy trying to lead the way.
Inflated performance projections, somewhat snobby advertisements and higher prices than the beach's usual afford able rates posed challenges.
"There was a steep learning curve there," said Walt Stand ish, a local banker who is chairman of the Hotel Board Corp., which oversees the hotel's finances for the city. "But it's over now, and we know what to expect going forward. The numbers are getting better." Already, the Radisson has become a case study for other cities considering building their own convention center hotels.
As many as 60 cities and counties across the country are eyeing a headquarters hotel, convention center or center expansion, Sanders estimates.
Among them are Raleigh, N.C.; West Palm Beach County, Fla.; Tampa, Fla.; New Orleans; Detroit; Houston; Washington, D.C.; Dallas, Denver and Baltimore.
"They need to be very deliberate," Myrtle Beach City Councilman Phil Render said. "Caution is the word."
Myrtle Beach wanted a headquarters hotel for its convention center to attract larger groups that could filter dollars to other hotels, restaurants, stores and gas stations.
Radisson supporters say they've learned lessons in the past year that will help the hotel avoid a second-year struggle.
They say they better under stand how to market Myrtle Beach and are smarter at balancing operational costs with revenues.
Other cities have faced similar struggles. About 158,000 fewer people attended conventions in San Jose, Calif., in 2003 compared with 2000, Sanders said. Hotel occupancy in St. Louis fell by 4 percent in 2003.
There's enough meeting business to go around, even with the building boom, said Jeff Sachs of Strategic Advisory Group, Myrtle Beach's consultant.
"It's a very stable industry," said Sachs, who is working with 20 other cities on convention center and hotel projects.
Others aren't so sure. In June, officials in Irving, Texas, suspended development of the city's planned 350,000-square-foot convention center and headquarters hotel because of the rough economy.
Columbia leaders voted last week to let a private developer build its convention center hotel instead of the city backing it.
"Public financing is risky," Columbia Mayor Bob Coble said. "With everything that occurred in Myrtle Beach ... the council decided it would be best to go back and take another look. This same battle is being played out nationally." In recent weeks, West Palm Beach County, Fla., Boston and Raleigh have moved forward on their center and hotel plans.
West Palm Beach is reviewing four proposals. Crews in Boston could break ground as early as next month on a 17-story Westin, viewed as a crucial component of the success of its new convention center.
Raleigh officials are drafting development agreements for its downtown convention center and adjacent 400-room Marriott, a project set to debut in 2007. The N.C. capital needed an economic boost because its current center is too small and is losing business to newer, bigger centers, City Manager Russell Allen said.
Raleigh and Wake County leaders knew of the Radisson's struggles, but that didn't deter them. They've done their due diligence and are armed with conservative projections, Allen said. He envisions the center becoming a regular spot for regional and state associations.
Sanders cautions cities not to jump on the building bandwagon without careful consideration. "I think any city ought to look at the track record to date," he said.
Unrealistic projections amplified the Radisson's first-year problems.
From March 2003 through last month, the hotel finished nearly $1.9 million in the red.
Revised forecasts considering current market conditions predicted the hotel would have had a $409,000 loss during that period -- a nearly $1.5 million difference.
"We realize the numbers that were kind of thrown around were very bloated," Radisson General Manager Mike Roddy said. "Now we are dealing with better numbers." New management has focused on controlling costs.
Sales Director Craig Smith expanded his staff. He's forged partnerships with Air Tran, Gucci and even the Radisson's competition, the Marriott Resort at Grande Dunes. The changes have made a difference.
The hotel's best monthly earnings came last month when the Radisson made $107,000, it's second profitable month since opening in January 2003.
And the bookings pace has picked up considerably, with a string of months that have met or exceeded the monthly 6,800 room reservation goal.
Add that to what the beach already can offer convention-goers -- the ocean, restaurants, golf courses, malls and entertainment -- and Myrtle Beach has what it needs to fend off competition from the many other centers sprouting up, Standish said.
"I'd much rather be in Myrtle Beach doing that, in spite of the struggles in the first year," he said.
STRAPPED MYRTLE BEACH, S.C.-FINANCED HOTEL SEES GOOD BOOKINGS
Bookings at The Radisson Plaza Hotel for the past six months have exceeded targets by 20 percent, the hotel's general manager, Michael Roddy, said Monday.
Roddy also said sales booking trends are significantly up compared to last year.
The news comes at a critical time for the city-financed hotel, which today should learn how city council plans to avoid default on the $40 million hotel's original bonds.
The hotel, which fell behind initial projections, would have no choice but to dip into reserves to make its next $2.6 million payment. City council wants to refinance the bonds or take out a five-year loan.
On the brighter side, the hotel had its best month in February, with more than $107,000 in earnings compared with a loss of $247,800 in February 2003.
The Radisson has hired two more full-time staffers for its sales and marketing depart ment. And Roddy said the facility is currently at more than 110 percent of budgeted group rooms for April, more than 90 percent for May and more than 95 percent for June.
In April, the hotel expects to get its share of more than 30,000 visitors expected to attend a citywide familiarization tour sponsored by the Myrtle Beach Area Chamber of Commerce and the Convention and Visitor's Bureau.
"I want to affirm to the Myrtle Beach community that we want to be proud of this hotel," Roddy said.
Until now, the hotel's performance has been lackluster, which Roddy attributed to a combination of factors including over-zealous projections and less than favorable economic conditions.
When it opened in January 2003, the hotel and travel industry had just been through one of the worst years in decades.
Peter Krause, a New York City investment banker who closely follows the travel industry, is confident that better times are already here.
"There is a very positive outlook after a very difficult period for the hotel and travel industry," Krause said.
It could take awhile for The Radisson to build its reputation, he said.
"It takes three, four, five years for a hotel to stabilize," Krause said. "Once the customers have a good meeting there, they'll come back next year. That's the good thing about a convention hotel. Once they like you, they're coming back year after year."
--By Dawn Bryant
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