So you want to build a hotel!
(...“You,” of course, being the taxpayers of Cuyahoga County and Cleveland footing the bill for the $260-million Hilton hotel slated for Ontario and Lakeside downtown. And though some of “you” may not want to build or fund or even cast a wayward glance at the comped breakfast offerings, it’s all happening.)
Here’s the gist: Cuyahoga County Executive Ed FitzGerald is pushing plans to fund a Hilton boasting 600 rooms on 30 floors - plus 55,000 square feet of meeting space. The marquee rationale is that the hotel will link up with the Cleveland Convention Center located next door and give all those people flocking to Big Events a classy place to crash. The executive (who is, of course, eyeing a shot the guvnah’s seat rather than a second term with the county) has billed this hotel as the cherry on top of the Convention Center/Med Mart
development spree. A very important cherry, he and others have said.
"Is downtown going to move forward, or are we going to wait for somebody to come and rescue us?" FitzGerald rhetorically (?) asked The Plain Dealer
last month. "We just had this property out on the market, and there wasn't one single hotel developer inquiry. Not one."
“This property” refers to the parcels now occupied by the now-vacant county headquarters. But many are pointing to private developer ambivalence as quite the tell. That’s because if the county and the city are going to sink millions of public dollars into this project, many would like at least a miniscule assurance that there’ll be a healthy return on that investment. The only private plan that approached the county was for a shitty parking garage. Thankfully, Fitz passed. But then...
There’s about $93 million in public taxes left over from the convention center sales tax hoopla, leaving Fitz and Co. shuffling their feet and wondering just what in the hell they can do with it. Via naming rights transactions, private dollars and grants, the “historic agreement” between FitzGerald and Cleveland Mayor Frank Jackson establishes a working pool of millions more. That’s where the publicly-financed hotel comes in. Hilton Worldwide will likely chip in a “seven-figure” investment, which could presumably account for just under 1-percent of the total cost.
(View a slideshow of the evolution of the county-funded hotel plans.)
Cuyahoga County will issue bonds generating $150 million for the hotel project. The funds will come by way of new bed taxes, property taxes and hotel revenues. Millions more will come from the savings, as FitzGerald describes it, from the convention center. The pie totals about $260 million, though the budget is still in flux, toward a hotel.
At the same time, look: Privately-owned and -developed hotels are cropping up across downtown. There’s a Westin (500 rooms), a Drury (180 rooms), an Aloft (150 rooms), a Kimpton (161 rooms), a Le Meridien (206 rooms), a Metropolitan (Marriott) (150 rooms) and, possibly, a Crowne Plaza (194 rooms) all setting up shop around the neighborhood. All that development was spurred in part by gimmicky attractions like Horseshoe Casino, The Cleveland Convention Center and the Global Center for Health Innovation. The word “hollow” can’t help but come to mind, but, nevertheless, the rooms are available.
“I don’t believe the taxpayers should be on the hook for a $260-million hotel,” District 1 County Councilman David Greenspan tells Scene
. “If the hotel is not profitable, the county is liable for that debt service. That’s an exposure I’m not comfortable with encumbering upon the residents of this county.” He adds that the concept - a hotel to pair with the convention center - makes sense. But now that the plan for the property is a bit more developed (via greenpointing and the looming demo of the county HQ), it might be time to pitch the improved project to private firms outright.
“I don’t believe the county should be in the hotel business,” Greenspan says.
And his concern is one that’s shared not only in Cuyahoga County, but in major metropolitan areas across the country. This publicly-funded convention center hotel deal isn’t new. It’s been tried time and time again in cities similar to Cleveland - St. Louis, Mo.; Baltimore, Md.; and currently in the works in Portland, Ore.; - with questionable results.
Heywood Sanders, a noted expert on these sorts of tax-financed matters and a public administration professor at the University of Texas-San Antonio, has spent years studying this type of public development. He’s not sold on its efficiency. And the Hilton coming to town is the epicenter of this burgeoning mindfuck here in Cleveland.
"The dynamic is that downtown hotels will vigorously compete for business," if they aren't being filled by conventions, Sanders told Tucson City Council when that city was salivating for a convention center hotel. "When there's an oversupply, rooms get down to rates that are pretty remarkable."
Just about the same exact thing happened in Baltimore. After city leaders there realized that they’d have a tough go at the convention business without a convention center hotel, they nailed down plans to fund the $301-million Baltimore Hilton. That was back in 2005, and the hotel hasn’t produced dick for the city, nor has it been able to efficiently pay down its debt service. Tens of millions have been lost. Investment advisory firm Davenport and Co. recently reported that it may take another 10 years for the hotel to see a profit.
Additional examples are strewn about the U.S.
The Palm Beach County Taxpayer Action Board, mulling over similar plans down in Florida and eyeing a Dec. 6 groundbreaking date for the convention center hotel (a Hilton), has written extensively on local plans for the publicly-financed digs. Rather than paraphrase, here’s a direct excerpt from a 2012 article
, which outlines the very same process all cities seem to undergo when planning such a thing:
The myriad cities all:
- are told by X, Y, Z trade show associations that they were not picked because of lack of HQ hotel (or their HQ hotel was not adequately sized) and are presented with videos by those associations describing how they would have picked that city otherwise
- use the same 1-3 consultants to justify their proposal to use public funds
- say that they have unique and desirable features that will bring the conventioneer to their city
- estimate a large increase in attendance based upon the addition of the HQ hotel or addition and an associated increase in employment and associated economic impact by those direct jobs and indirect spending by the visitors
- do not put measurements in place to assure that the projections are met
- do not achieve the desired outcome
- then have to ‘update’ their convention center, their HQ Hotel, their ‘City Place’ equivalent or add an arena.
That sounds JUST LIKE CLEVELAND. Suddenly the project feels less forward-thinking and more run-of-the-mill.
On the ground here, the management fee garnered by Hilton and paid via hotel revenues starts at $639,000 in the first year (beginning June 1, 2016, presumably) and reaches $1.2 million after the fifth year. At that point, inflation kicks in, upon which payments will be paced.
Incentive payments, potential above-and-beyond cash, would begin at $267,000 that first year and balloon to $616,000 by year five. Those payments kick in once the hotel construction debt service is paid down, a timeframe that remains an uncertainty.
In review, however, the fine people of Cuyahoga County front the risk, and Hilton Worldwide walks with the benefits.
The Cleveland Convention Center
Over at joints like the Cleveland Convention Center - tucked under a grassy lot on Lakeside Avenue - the numbers aren’t great; Sanders notes that “overall attendance at the 200 largest tradeshow events languishes at 1993 levels.” That very tepid market is what Northeast Ohio leaders (some in prison now, mind you) have pumped full of hundreds of millions of dollars.
For instance, last week the Cleveland Convention Center hosted Howard Hanna Real Estate Services’ biennial convention - Howard Hanna Rocks the House
, as it were - which seems like a fairly standard exemplar of what the CCC will reel in. Howard Hanna media representative Elizabeth Grepp tells Scene
that more than 2,300 people attended the event, resulting in about 800 hotel bookings.
Fewer than half of all attendees. Small potatoes.
Over at Chicago’s 2.76 million-square-foot McCormick Place - the largest convention center in the country - attendance has been cut over time by about a third, from 3.04 million in 2003 to 2.05 million in 2011, according to Choose Chicago (their version of Positively Cleveland). Still, though, the attached Hyatt hotel recently added 460 rooms, and the city announced plans for a privately developed 500-room hotel on the same block and a publicly-owned, 1,200-room Marriott Marquis on a block just southwest of the center.
In a broader sense, Manhattan Institute Scholar Steven Malanga, who also studies the convention center game, writes
: “In 2010, conventions and meetings drew just 86 million attendees, down from 126 million ten years earlier. Meantime, available convention space has steadily increased to 70 million square feet, up from 40 million 20 years ago.” The difference in numbers is stark.
“I can't stress enough how much this announcement strengthens our hand in dealing with competitors for convention business,” FitzGerald said at the announcement of the Hilton plan. “All our primary competitors have attached convention center hotels.”
The “If you build it, they will come” mentality is startlingly off-base here. But FitzGerald does hit on an important point when talking about “competition” in strictly literal terms. Cities across the country are following the same path as Cleveland, fitting our own fancy Hilton into a field of like competitors. The path to standing out and attracting convention center business is actually routing Cleveland into some sort of “let’s be Chicago” limbo.
In pursuing the convention center hotel strategium, Cuyahoga County is taking a major step toward mimicry among small- to mid-market metro areas.