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Build It and They Will Come…or Not

Cascade Commentary

Summary

The Metro Council is scheduled to vote on a proposed Convention Center hotel in early October. This publicly subsidized project most likely will turn out to be a drastically unsound business decision, potentially wasting hundreds of millions of taxpayer dollars. When no hotel chain has been willing to build the hotel without subsidies, the market for a hotel in that location may not exist.

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Should Portland build a bigger Convention Center to attract more convention business? In 2003 Metro did just that, and the larger Oregon Convention Center (OCC) had little effect on boosting convention business. In fact, the OCC still struggles to book its new space to capacity. The total revenue from OCC operations actually decreased from $13.8 million in 2002 to $12.8 million in 2006.

What is Metro’s next idea? Build a new hotel to attract business to the Convention Center and use taxpayer money to do it. The cost of this proposed 597-room facility was estimated at $181 million in 2006. A new estimate released in June 2008 put the expense at $247 million.

After expensive research and numerous hearings, Metro still has not made a decision about building a Convention Center hotel. The Metro studies are disturbing in that each report is nothing more than assumptions. There is even a section entitled “Summary of Assumptions.” One example: Matt Springer, who works on the project for Metro, says they are hopeful that Westin, who will operate the hotel, will bring in convention business on their own. But there is no guarantee that Westin will do so.

“The Metro studies are disturbing in that each report is nothing more than assumptions. There is even a section entitled ‘Summary of Assumptions.’”

If Metro follows their elusive dream and builds the hotel, it is unknown how much of the cost will be paid for purely by the public. As a matter of fact, no financing plan even exists. (Metro hoped to have one by late August, and the Metro Council is set to vote on the proposed hotel in early October.) All that is certain is that it will take hundreds of millions of dollars to build it.

By comparison, last month a new publicly financed hotel opened next to the Baltimore Convention Center. Baltimore is about the size of Portland. The Hilton Baltimore Convention Center Hotel has 757 rooms and cost over $300 million to build. Published reports show the number of room nights booked in all Baltimore hotels for convention conferences from 2005 to 2008 dropped by more than 70%, from 254,126 to 72,231. This drop occurred despite a valiant marketing campaign.

Major conventions are booked years in advance, so Baltimore knows their future new hotel was not a draw. The debate process in Baltimore in many ways foreshadowed the debate here in Portland. Many who testified painted a rosy picture for Baltimore’s future, using the “build it and they will come” argument.

“If the Convention Center hotel project is approved, a shortfall is bound to occur between actual income and public funding….With the new construction estimates, this shortfall is bound to occur even if the hotel meets or exceeds the booking estimates.”

The convention business is very competitive, with many cities offering major incentives to attract business. From free major league sports tickets to attendees to airport transportation and even free gifts, getting conventions is big business. Many cities are more centrally located than Portland. Others like Las Vegas offer 24/7 major entertainment. Portland International Airport is at the end of the line for most airlines; and with escalating airfares and gas prices, many organizations will ask themselves if it is worth holding a meeting “way out in Oregon.”

If the Convention Center hotel project is approved, a shortfall between actual income and public funding is likely, and that is once the hotel is open for business. With the new construction estimates, this shortfall is bound to occur even if the hotel meets or exceeds the booking estimates. Why did Marriott decide to build three new hotels near the Expo Center? Simply because Marriott knew there would be enough business in that area to make building new hotels a fiscally sound business decision.

It should be a clue to Metro when no hotel chain has been willing to build a hotel near the Convention Center that the market for one may not exist. The federal government has just stepped in to bail out several mismanaged financial institutions, establishing a disastrous precedent that has no logical endpoint. Local officials should not repeat the mistake by publicly funding a project like this one.

Jeff Alan is Chief Investigator at Cascade Policy Institute, Oregon’s free market research center.

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