Heywood Sanders: Ask harder questions on KC’s convention hotel plan

The lame-duck Kansas City council appears poised to rush a deal to commit $195 million in public funds to subsidize a new 800-room convention center hotel. Before the city’s public and private leadership ties taxpayers to a long-term commitment to a hotel developer, it makes sense to ask what is being promised for Kansas City and how other cities’ investments in hotels and convention centers have fared in recent years.

Start with sunny Phoenix. That city (and the state of Arizona) committed $600 million to triple the size of the Phoenix Convention Center, which opened in late 2008. The city also got into the hotel business, selling $350 million in bonds to build a new 1,000-room hotel. Consultants promised that the center expansion, together with the hotel, would roughly triple the city’s convention business, to 375,000 attendees every year. For the 2013 fiscal year, the new venue accommodated just 188,669 attendees, and it had only an estimated 173,000 in fiscal 2014. And so for $600 million, Phoenix got almost no new convention business. Without the expected 375,000 attendees, the adjacent Sheraton hotel has struggled, with occupancy of only 51 percent in 2013 and 57.5 percent last year, obliging the city to use tax dollars to help pay its debt.

The story has been much the same closer to Kansas City. With an expanded convention center and domed stadium, consultants told St. Louis city officials they needed a big, new hotel. The 1,081-room Renaissance Grand Hotel and Suites was supposed to be filled by a wave of new convention attendees as the number of major conventions grew from 33 to 56, almost doubling the city’s convention business. But by 2008, the city garnered only 24 major conventions and fewer hotel room nights than in 1999 and 2000 — before the Renaissance hotel opened. Without new convention attendees, the hotel couldn’t pay its annual debt service and the bondholders foreclosed in 2009. They finally were able to sell the hotel, at a serious loss, in May 2014.

Then there is the saga of the Overland Park Convention Center and Sheraton Hotel, just down the road from downtown Kansas City. Consultant C. H. Johnson forecast that the new center would yield over 73,000 hotel room nights a year. But it has fallen consistently below that number, with only 41,054 nights last year. The Sheraton’s occupancy and average rate have been well below expectations, and net income last year amounted to just half of the consultant’s forecast. The city has been obliged to use citywide hotel tax dollars to pay the debt service for the hotel.

There are numerous other examples of expanded convention centers, and headquarters hotels, falling short. Why have they failed to produce the results touted by local officials and consultants? Because, as cities have expanded their convention space and added new headquarters hotels over the past 15 years, they have overbuilt the market. And when they don’t see the convention business they were promised and expected, cities from Atlanta and Chicago to San Diego and San Francisco have responded by spending millions of dollars a year in “convention center incentives,” rental discounts, and giveaways.

Kansas City may get a new building on the downtown skyline at a serious cost. Unfortunately, that building is not likely to bring any real new convention business to town.

This story was originally published July 14, 2015 at 5:08 PM with the headline "Heywood Sanders: Ask harder questions on KC’s convention hotel plan."