The continuing saga: As Kansas City flirts with a convention hotel, consultants turn on the seduction

Ten years ago, city officials in Overland Park decided to become innkeepers. They went to the bond market to finance the construction of a hotel next to the convention center that the city was building.

Deals of this nature involve risk. The Overland Park City Council had reason to feel confident, however. A consulting company named HVS had predicted that the hotel would operate comfortably in the black.

Wrong. Operated by Starwood Hotels, the Sheraton Overland Park Hotel is not doing as well as expected. The city was forced to find $2.4 million last year to keep the bondholders quiet.

Officials from HVS were back in town last week for a visit on the other side of the state line. This time, city leaders in Kansas City, Missouri, were the ones listening as an HVS rep described how a new convention hotel makes sound economic sense.

At the May 24 meeting of the city’s convention hotel steering committee, no one mentioned what had happened with the Overland Park Sheraton. This was not a surprise. When it comes to convention facilities, Kansas City tends to put the skeptical part of its brain on sleep mode.

Hans Detlefsen, a Chicago-based managing director of HVS, made the presentation. In his estimation, Kansas City could capture 15 big conventions a year if a swank, 1,000-room hotel materialized next to Bartle Hall.

City officials have been mulling the idea of a convention hotel for three years. Planning started even before politicians, downtown interests and tourism boosters had a chance to toast the $150 million renovation of Bartle Hall that was completed in 2007 (“Transparently
Awful,” May 6).

Like a lot of cities, Kansas City has piled on debt in an attempt to remain attractive to convention planners. The competition for convention business is frequently portrayed as an arms race. The proposed convention hotel represents a $315 million missile.

A number of cities have deployed 1,000-room hotels in recent years. Strangely, though, Detlefsen did not base his conclusions on how the convention business changed in those cities with the arrival of a big, new Hyatt or Hilton.

Instead, he used surveys. Detlefsen came up with his number of “lost” conventions by looking at information collected by the Kansas City Convention and Visitors Association.

The visitors bureau asked convention planners why they did not choose Kansas City for their annual wearing o’ the badges. From these answers — “reason codes” in industry parlance — Detlefsen determined that not having a 1,000-room hotel cost the city 61 conventions over a four-year period.

Detlefsen put a dollar amount on the lost visitors: $124.9 million annually in direct and indirect spending.

The message was clear: Kansas City would be a fool not to build the hotel.

Of course, that’s usually the message from the “experts” who work in the hospitality field. Otherwise, none of this stuff would ever get built.

In reality, the supply of convention facilities — exhibit halls, hotels — is growing faster than the demand. This is why
Kansas City keeps losing big meetings (Wal-Mart, Sam’s Club) in spite of the fact that the city’s downtown tourism district has grown like the Blob.

Detlefsen described the convention industry as “matured” when I chatted with him after the meeting. I stopped Detlefsen because I wanted to ask why his projections were built from theoretical bookings instead of, you know, actual ones. The answer: small sample size. Detlefsen said not enough cities have built convention hotels for him to be able to rely on the data.

I found seven cities — Houston, Austin, St. Louis, Denver, San Antonio, Phoenix and Baltimore — that have built hotels with 750 or more rooms. Seems to me that looking at the bounce in the tourism trade in these places might yield something significant. But what do I know?

It’s possible that HVS did not use real-world data because the real world sometimes looks like bankruptcy court. A convention hotel that opened in St. Louis in 2003 went through foreclosure last year.

It’s hard to shake the feeling that Kansas City is being led by its nose. The convention-hotel discussion looks like something out of a playbook titled How to Convince People a Convention Hotel Is Good for Them.

Another example: City leaders in Tucson, Arizona, are also thinking about investing in a convention hotel. Naturally, they’ve brought in experts to help them.

A company called Convention Sports and Leisure International performed an economic impact analysis. HVS did a hotel market study. An investment bank, Piper Jaffray, offered a preliminary means of financing the deal.

Care to guess the names of the consultants Kansas City has retained to help city leaders puzzle out the convention hotel?

Convention Sports and Leisure International.

HVS.

Piper Jaffray.

These consultants are not impartial observers. HVS plays both sides of the street, advising municipalities and hotel companies.

HVS worked with developer Ron Jury when he was trying to muster taxpayer support to renovate downtown’s President Hotel. More recently, Jury was successful in pitching the Kansas City Power & Light Building as a site for the new, 1,000-room convention hotel. Tidy!

And, get this: HVS has created a division to help
hotel owners fight their property-tax bills. The company, it seems, has one hand in cities’ wallets — Kansas City has appropriated $500,000 for convention-hotel consultants — while the other hand punches them in the face.

Armed with consultant data, supporters are going to make the case that a convention hotel will generate enough economic activity to justify its existence. Kevin Collison, The Kansas City Star‘s development reporter, is already assisting in that effort, using HVS’ $124.9 million figure in the first sentence of a May 18 story.

But what will the city have to spend for just a chance to attract that kind of activity?

The co-chairs of the convention hotel steering committee, Councilwoman Cindy Circo and transportation company owner Bill George, keep talking about wanting to find the best deal for the city. But no developer is going to put a lot of equity into the project. It’s too risky. The city can expect to provide 100 percent of the financing — just as Denver, Phoenix and Overland Park did.

Really, the city is looking for a developer in name only. The “private” half of any public-private partnership will serve more as a construction manager than as an investor. So if the convention hotel underperforms, taxpayers can expect to shoulder the burden.

Which is what’s happening in Overland Park.

Original projections called for Overland Park’s convention hotel to earn more than $110 per available room. Actual number: $67.50.

In the hospitality field, this is just an annoying detail.

In Tucson, the real-estate firm Garfield Traub has a contract to develop the convention hotel. Garfield Traub worked with Overland Park on the Sheraton.

Not the ones having to square up with the bondholders, Garfield Traub officials feel pretty good about their Kansas experience. Company reps recently presented the folks in Tucson a letter of recommendation from Don Pipes, the Overland Park city manager who retired in 1999.