Right now, leaders in Kansas City, Missouri, are eager to build a convention hotel downtown. But there is precious little information available. We know that the city has been negotiating for years with developers to build a $300 million 800-room hotel. It appears to be a 50-50 split, with $150 million coming from private investors and the remaining half will be supported by city outlays, tax abatements, and other subsides.
While we wait for hotel cost estimates and earnings projections, it is worth reflecting on previous convention hotel efforts in and around downtown. Hotel consultants have provided inflated estimates in the past.
Overland Park: Projections for their convention hotel were off by about 40 percent. A June 2010 issue of The Pitch published:
Original projections called for Overland Park’s convention hotel to earn more than $110 per available room. Actual number: $67.50.
Kansas City, MO: In 2009, when Kansas City was considering a convention hotel, the hired consultant, HVS, estimated that the average daily rate (ADR) for hotels in Kansas City in 2016 was going to be $162.72. Today it is $121.37, far short of the projection.
Kansas City, KS: The Pitch also reported on the money pit that is the Hilton Garden Inn:
The [Unified Government] hired a consultant to project how much money the hotel would make when it applied for the HUD loan in 1999. The consultant predicted that by 2005 the Hilton Garden Inn would hit $3 million from room revenues alone. Actual financial records show that the hotel has stooped below that $3 million figure. In 2006, the hotel reported only $2.2 million in room revenues. The hotel itself has always operated at a loss, and every independent audit of the hotel project since 2006 has sounded the same warning: The Hilton Garden Inn is a money loser and can’t stay afloat without subsidies from its owners.
It appears earnings projections run about 25-40 percent higher than reality. That is quite a margin of error. As we consider a downtown convention hotel, we must keep in mind that projections are rarely met.
