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Strange Bedfellows

Baltimore Prepares to Venture into the Hotel Business, Despite Concern From Experts and Council Members

Frank Klein
JUST CALL HIM THE CAUTIOUS COUNCILMAN: Keiffer Mitchell wants the city to slow down its plans to finance a hotel to boost lagging business at the Baltimore Conference Center.

By Stephen Janis | Posted 6/1/2005

The old business axiom “Don’t throw good money after bad” is as often stated as it is ignored. But according to a widely published convention center expert and several members of the Baltimore City Council, that may be exactly what the city is about to do.

Before the City Council is a bill to authorize the issuance of a $305 million dollar bond, the proceeds of which will be used to finance a 752-room convention center “headquarters” hotel on a site currently occupied by a parking lot on West Pratt Street adjacent to Camden Yards. In April a 63-page feasibility study was presented to the City Council by HVS International, a Chicago-based consulting firm that suggested that a hotel could be the cure for lagging attendance at the Baltimore Convention Center. The study noted that a large “on site” hotel could give the center a much-needed boost.

On April 11, Baltimore Development Corp. President Jay Brodie announced that the city would have to step forward to finance the hotel and that the financing proposal would be going before the City Council. “We’re doing this to improve the performance of the convention center,” he said at a press conference on the matter. The hotel, which has since been touted as a way to both boost convention center traffic and business on the city’s west side, would be managed by Hilton but owned by the city of Baltimore.

But not everyone in city government is as enthusiastic about the proposal as Brodie. Some members of the City Council, including Councilman Keiffer Mitchell (D-11th District), are worried about the massive expenditure the cash-strapped city would be committing to if it approved the financing plan. The councilman has introduced another bill that calls for an advisory board to evaluate the plan before the bond is approved—a move that Mitchell says Mayor Martin O’Malley, who supports the hotel plan, is not pleased about.

“Obviously I’m not in good graces with the administration over this,” he says.

Meanwhile, Heywood Sanders, a professor of public policy at University of Texas at San Antonio and a 1970 Johns Hopkins University graduate who fought alongside community activists in the late 1960s to save Fells Point from demolition to make room for a proposed Interstate 95 artery, has also gotten involved in the discussion. Sanders says that it could be a costly mistake for the city to get involved in a hotel just to prop up its sagging convention center.

“The current premise that adding a hotel will cure the ills of an underperforming convention center is specious,” he says. “It hasn’t worked anywhere else. There’s no evidence that it works.”

The Baltimore Convention Center, which was expanded in 1997 from 425,000 square feet to 1.2 million square feet at a cost of $151 million, has experienced a decline in business over the past several years. According to the center’s internal figures, attendance has dropped 28 percent, from a peak of 250,000 visitors in 2001 to 175,000 visitors in 2003—a figure roughly equivalent to those before its 1997 expansion. The Maryland Stadium Authority, which financed the center’s expansion, acknowledges in its 2005 budget analysis that convention centers, in general, are not moneymakers: “Virtually all convention centers nationwide function as loss leaders,” the analysis noted. Yet cities like Baltimore invest in them anyway.

Leslie Doggett, president and chief executive officer of Baltimore Area Convention and Visitors Association, said in an April 12 Sun article that declining attendance at the Baltimore Convention Center can be attributed to 120,000 lost room bookings “because of the lack of a convention hotel connected to the city’s convention center.”

The Baltimore Development Corp.’s Brodie insists that city financing is the only option for getting the proposed hotel built, but Mitchell wants time to explore other possibilities. The Baltimore Development Corp. says in its paper arguing for the hotel that since 1996 three separate requests for proposals have been put out for a private developer to build on the site, but none has been acceptable. The city has already received three bids from builders to begin construction on the city-owned hotel. Mitchell thinks the plans for the project are moving too fast.

“We need to slow this process down,” he says. “I find it hard to believe that this is the only way. . . . There needs to be more than one perspective on this idea.”

Mitchell’s resolution, which was introduced to the council on April 18, calls the hotel a “money loser” and cites experts, including Sanders, who have sounded a “cautionary note” about the city’s involvement in it. The resolution refers to a paper by Sanders published in January by the Brookings Institution called “Space Available: The Reality of Convention Center as Economic Development Strategy,” which says that many convention centers fail to attract high attendance not due to lack of on-site hotels but due to competition from other cities vying for the same limited convention business. Since 2000, he says, 19 cities have built brand-new convention centers, including Houston, Pittsburgh, and Washington. In addition, 34 cities have expanded already existing convention centers despite declining trade-show attendance. Convention attendance was down 3.2 percent in 2003 for the top 200 conventions held in the United States. Sanders calls the convention center construction trend an “arms race” for the shrinking market.

“Over the past decade alone, public capital spending on convention centers has doubled by $2.4 billion annually,” Sanders’ article notes, “increasing convention space by 50 percent since 1990.”

“It’s irrational,” Sanders tells City Paper in a phone interview. “It’s a poor use of public money. Cities that have built headquarters hotels have not boosted their convention business.”

Sanders points out several convention center projects around the country that have either underperformed or are in serious trouble. In St. Louis, for example, the Renaissance Grand Hotel, which opened in February 2003 to boost convention center business, has had an occupancy rate of 52 percent—far less than the 68 percent projected for 2005 by HVS, the same consulting company that completed Baltimore’s hotel-feasibility study. Business is also down in Boston, Denver, and Dallas, all cities that have either expanded convention centers or built hotels to increase convention business.

The convention center construction boom is being driven by what Sanders calls “a very small group of consultants who are very effective on talking about how well the hotels will do.” He cites the projections from the Baltimore feasibility study that predicts an average room rate of $187 per night for the proposed Hilton, which the city hopes to see open in 2008. The average room rate in Baltimore is currently $167 per night, Sanders says, and points out that flooding the market, which already has 4,700 hotel rooms, with even more rooms is unlikely to drive rates up. He calls the notion “absurd.”

Though Mitchell has used Sanders’ study to support his resolution before the City Council, he is not entirely opposed to adding a hotel to the convention center complex. He says he’d just like to see the city use more caution before it dives into the project.

“I support the idea, I just don’t think Baltimore City should be buying a hotel,” he says. Because real estate near the Inner Harbor is extremely valuable, he says he does not think it would be difficult to attract an investor to take up the financing of the project. “The site is near the water, Camden Yards, it’s prime real estate,” Mitchell says. “I think we can find private financing.”

Normally, a bond-related bill would go before the council’s Taxation and Finance Committee, which Mitchell chairs, for authorization. But since he introduced his resolution, it has been moved by City Council President Sheila Dixon to the Committee of the Whole, which means the resolution will go before the entire council for review before it can be passed. Mitchell is afraid that Dixon’s shifting of the bill out of committee does not bode well for him, or for the bill.

“It’s obvious the administration is not happy with me,” he says.

Chris Williams, spokesman for Dixon’s office, denies that the bill was moved out of Mitchell’s committee for political reasons. “President Dixon decided that such an important bill should have input from all members of the City Council,” he says. “She wants a comprehensive and all-inclusive review.”

Irene Van Sant, project manager and point person for the Baltimore Development Corp., does not think Mitchell’s task force is needed to guide the project.

“We don’t support the task force in principle, we don’t think it’s necessary,” she says, adding that the city has been diligent in hiring consultants to offer an accurate picture of both the hotel’s financing and prospects. “We believe we have the best feasibility consultants in the business.”

But should the city end up financing this construction, it has more at stake than just the $305 million it will take to build the hotel. The city has also pledged 25 percent of its hotel occupancy tax, the money it collects from guests who stay in city hotel rooms, to make up for any underperformance of the hotel. In 2004, the city collected $17.2 million from hotel occupancy taxes. Given that hotel occupancy was down last year from $17.7 million in 2003, that 25 percent is a large slice of a shrinking pie.

Van Sant acknowledges that there are risks associated with the project and that “not all our competitors [in the convention center market] have been successful.” But she says the Baltimore hotel market is stronger than in many other cities. “We have an extremely healthy market,” she says. “This is a viable project.”

Dixon spokesman Williams says nothing is scheduled to happen with the hotel until “after the budget process is finished in June.”

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