This column appeared online on March 15, 2017 as part of the D CEO Real Estate blog.
D CEO Real Estate: CRE Opinion: Hospitality Developments Help Cities Tap into Lucrative Convention Business
It’s no secret that conventions are big business and that the convention market is very competitive across the country. Lately, developers have seen the benefit of public-private partnerships that leverage city and county-funded conference centers as an impetus for building new hospitality properties, which in turn make the conference centers more viable and boosts regional economies. It’s a win-win.
According to the Dallas Regional Chamber, the top five most recent conventions created nearly $300 million in economic impact for North Texas. Those are major dollars that support Dallas-Fort Worth businesses and drive our economy. Convention and Visitors Bureaus spend significant sums courting conference organizers and luring high-profile events with the promise of major financial benefits. Part of their pitch includes the availability of hotel rooms in convenient proximity to exhibit halls.
In Dallas, the two-million square-foot Kay Bailey Hutchison Convention Center has played host to many large, money-making events. Many of those conventioneers stayed at the adjacent Omni Dallas Convention Center Hotel and increased the occupancy of hotels in Downtown, Uptown, and South Dallas.
The Omni Dallas was the result of a public-private partnership between the City of Dallas and developer Matthews Southwest. The 1,001-key, $570 million hotel, which was financed through municipal bonds, is a key asset when Dallas sells itself to attract conventions. By many accounts, it is indeed augmenting the use of the convention center itself. There are a number of ways of looking at the performance of the convention center and the hotel independently and together. Overall, the outlook is positive. It is rumored that the Omni Dallas provided profit sharing in the millions of dollars in excess of its bond obligation to the City of Dallas in 2016.
Many years ago, the City of Irving began looking at how to bring life to Las Colinas and the surrounding area. The city’s architecturally-striking convention center at the north end of the Las Colinas Urban Center is a major focal point for the Music Factory and the current 350-key Westin Irving Convention Center Hotel being developed by Garfield Public Private. The Westin will sit between the Irving Convention Center and the Music Factory. The three pieces together create a unique magnet for Irving that the city hopes will entice more business for its convention center. It will certainly create new energy where little has existed before.
Dallas and Irving are large-scale examples of a very attractive financial proposition for smaller municipalities who see the impact convention business brings their larger neighbors. Cities like Midlothian, Decatur, Wichita Falls, Abilene, Odessa and Baytown already have convention centers or conference centers paid for by tax dollars. Each of the aforementioned cities has engaged a developer to build hotel rooms within a few steps of their city-owned or planned conference center, which both the city and private interests believe will benefit each other.
Historically, convention centers were considered loss leaders, but today are purpose-built economic generators that draw in meeting-goers of all stripes – all with cash in hand that can be captured to support the local tax base. Visitor dollars go toward city tourism and into restaurants and caterers, shops, and businesses that support activities at the convention center.
Building new hotels, especially full-service properties that are more upscale than what exists in many small towns, is a selling point for out-of-town meeting attendees used to nicer accommodations. Adding a hotel will also be a catalyst for additional activity and mixed-use development around the convention center complex.
Some may argue that hotel capacity in small to medium-size towns can already support convention center demand and that increasing supply hurts existing hotels. A CBRE study suggests supply growth can in fact increase demand. Larger and larger conferences are attracted to existing conference centers, and as the room capacity is booked, additional development springs up to fill the need.
Often, hotels built adjacent to existing city-owned conference centers may have a small amount of meeting space themselves. Rather than competing with the city facility, the hotels support ancillary functions of a convention by providing break-out space as well as food and beverage service a short walk away from the main meeting rooms.
Conferences looking to save their attendees money may also look closely at smaller municipalities because the costs to rent meeting space and hotel rooms is typically less than in a large metropolitan area.
In many cases, cities are seeing the need to develop both a hotel and a conference center simultaneously, with a public-private partnership or not-for-profit entity kicking off the city’s investment in the meeting venue. Properties are subdivided into publicly-owned, privately-owned and shared facilities. Ownership structure varies, but often the city will own the conference center and a developer will own and operate the hotel as well as operate the conference center for a fee. This ensures the city is not in the hotel business, and that their investment will perform well in the hands of experienced development and management firms.
The case can be made that hotel development near convention facilities is a plus for large municipalities and smaller towns alike because it strengthens the pipeline for meeting business through accessibility to accommodations. This approach enhances the return on the public’s investment.
City-owned conference centers are just one target for this kind of private venture. Hospitals are another key market that will benefit from nearby hotel offerings. In the next few months, Dallas-based Gatehouse Capital will complete a 132-key full-service Home2Suites by Hilton right across the street from the Baylor University Medical Center campus on Gaston Avenue. The nearest major hotel, the Sheraton Dallas, is a mile and a half away in the central business district. Unmatched access to the hospital makes this a particularly smart investment, and will fill a need for patients, families, and physicians who need a place to rest and relax.
Hotels are designed to offer comfort and create opportunities for connections. They are also potential economic drivers that support what is around them.