The Risks to the City of the Convention Hotel Gamble
At the City Council's recent business session on the proposed convention hotel, proponents kept repeating that there was no risk to the city. The risk is being shouldered by investors, supposedly. And so, really, this project is just another riskless freebie. It wasn't so long ago that City leaders were telling Kansas Citians that in a few years we'd be calling them geniuses over the Power & Light District. Even the most ardent fan of spending gobs of taxpayer money on downtown, The Kansas City Star (which received its own subsidy), isn't calling them geniuses now.
City Manager Troy Schulte says the city learned lessons from that deal; the new project makes none of those same errors. Perhaps. But the City might be making a whole new round of mistakes.
The St. Louis convention hotel project of the early 2000s was so bad that is changed the way Wall Street investors look at convention hotel investments. In a piece to The Kansas City Star, convention hotel expert Heywood Sanders put it thusly:
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.
Regarding that sale, The St. Louis Post-Dispatch reports that the new owners will invest millions in renovation and re-open them. The piece offered this observation:
“We had a shuttered building next to our convention center, and it will be alive with activity,” said David Richardson, a lawyer with law firm Husch Blackwell who advises the city on development issues.
This underscores the risk to Kansas City; will we build a huge hotel just to have it shuttered? It isn't just an idle thought experiment; we've been here before. After all, the last time Kansas City built a convention hotel—The Vista in 1985—the owners were considering bankruptcy within 18 months. A decade later, the city subsidized the Muehlebach hotel and took a loss because business was so soft. Why are these things unthinkable now? Hotel occupancy rates in downtown Kansas City have been averaging at an abysmal 50% to 55%, yet hotel proponents predict the new hotel will have a much better 68% occupancy. Are those reasonable expectations? We don't know—the reports don't explain how they reach those conclusions. But betting on them to be correct is certainly risky.
These same consultants have predicted that Kansas City convention business would almost double if we just built a hotel. Just build it and people will come, apparently. But the consultants again fail to explain how they reach these conclusions. As a result, we don't know if the predictions are reasonable.
The city may have learned its lesson from the awful plan to build the Power and Light District, but we cannot know what lessons we may have yet to learn. What is clear, however, is that projections of wild business growth seem unreasonable, and that should be enough of an alarm to those elected to protect city resources.