Is another convention center hotel really necessary?

Various details of the Judge Doyle Square project, especially the parameters of another hotel to serve Monona Terrace Community and Convention Center and the possible use of public financing to build it, may not be cloaked in quite as much secrecy as the Manhattan Project, but they are being held close to the vest.

Local hoteliers are among those who are most interested in cracking the code, not because they don’t welcome competition but because they believe building another convention hotel now makes little sense, especially if it’s publicly funded with tax increment finance (TIF) dollars.

IB recently opened the floor to three of them: Barry Perkel, director of real estate for Raymond Management Co., which develops hotels nationwide; George Wiesner, general manager of Best Western Plus Inn on the Park; and Stephen Zanoni, general manager of the Madison Concourse Hotel. All are members of the Alliance for Madison’s Future, a group of area hoteliers that opposes public funding for the hotel at Judge Doyle Square.

They also question the wisdom of building the hotel with Monona Terrace already running at over 60% capacity, much higher than the typical convention center, in the peak booking period of spring, summer, and early fall. They cite the difficulty of booking more winter events, the comparative lack of airlift out of Dane County Regional Airport, and the lack of growth in room demand, with the notable exception of the demand created by one local company, Epic.

“We’re very concerned about the competitive environment and how a subsidized hotel could affect all of our properties and affect all of us in the downtown,” Zanoni said. “If the city subsidizes it, that means it could compete with other properties on rate, and you’ve got a brand-new hotel at the same or lower rates, based on what they are projecting, than the current properties in the downtown, which makes it a very difficult competitive environment.”

Needy market

For the record, the Greater Madison Convention & Visitors Bureau has come out in favor of a second convention hotel but has not taken a position on a TIF subsidy because it’s not even part of a formal proposal. That proposal will be spelled out in a term sheet that is currently being negotiated.

Deb Archer, president and CEO of the Convention & Visitors Bureau, noted the organization has been engaged in a convention hotel development conversation for several years. Archer believes that with the hotel, the CVB will be able to expand the hospitality industry because of the additional capacity the facility would bring to the Madison destination.

“We have provided extensive data to the city and hospitality industry experts that have been hired by the city to analyze the feasibility of development of a hotel located adjacent to Monona Terrace,” she stated. “Three independent studies have been commissioned by the city, and all indicate the need for the hotel.”

In the current environment, the hoteliers disagree.

Perkel, a hotel developer, works all over the United States and has seen convention center hotels succeed and fail, depending on their own unique set of circumstances. “The fundamental issue is that the Convention & Visitors Bureau relies on essentially an oversupply to create pricing that is attractive because they are in a hypercompetitive market,” Perkel opined. “So in a city like Madison, where most of our demand growth has been driven by one user [Epic], creating that oversupply is potentially very dangerous.”

Perkel says Raymond Management opened a hotel in St. Louis at the same time a new convention center hotel went online. “That market did not have an underlying source of demand like Epic, and the convention center hotel, quite frankly, failed,” he stated. “At the same time it opened, it competed with our Hampton Inn, which is not supposed to be competitive with a Renaissance hotel, which is a full-service Marriott product.

“In markets where you have lots of growth, the addition of a convention center hotel is not often a problem because it’s absorbed.”

Perkel noted that the JW Marriott, which was recently built in Austin, Texas, is the first unsubsidized convention center hotel in 20 years. Austin, a university town, has many of the same advantages as Madison, but it also has something we don’t — accommodating weather year-round.

He and the other hoteliers do not believe private financing is unrealistic for another Madison convention hotel, as long as the market can support it. “We welcome new hotels,” Wiesner stated. “We welcomed the Hyatt Place. We welcomed the Hampton Inn & Suites. We’re going to welcome the Edgewater in August. That is the way the system works.

“Our objection is not to a new hotel entering the market. Our objection is that somehow it’s become the mission of the city to build a hotel.”

One justification for the new hotel is that the city isn’t fully exploiting its ability to secure more winter business, but local hoteliers view that as a pipe dream. Hoteliers say they have tried unsuccessfully to lure more winter business, but for a variety of reasons have found that dates from November through February are very difficult to fill. Competition for those group dollars is pretty intense, and cities like Chicago and Minneapolis have more to offer in the way of a subsidy to lure them.

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“The groups pay very little money,” Zanoni stated, “and there is no way they are going to pay rental charges for a convention center during those times because they know how much demand there is for their business. In a lot of cases, they have their conferences during that significantly slow time of the year because it’s very cheap for guest room rates. They get subsidies to bring their events there.

“We’ve figured out that it is not worth it to try and compete for that business because you just don’t make any money off it. What you need to do is compete where there is higher-rated business, so you try to take your 80% months up to 90% months.”

At the moment, Perkel believes Madison would be better off continuing to focus on building niche strengths such as the slow-food movement, which he called a “hugely appealing thing,” and promoting Madison as a sports destination, much the way Indianapolis has done.

“I tend to look at this from a competitive strategy sort of perspective,” Perkel said. “All convention cities, no matter how large or small, have a convention center hotel. As their peers get bigger, there is this spiral of, ‘I need to remain competitive and I need more rooms because city A has the rooms available,’ and the meeting planners want that pricing power to exist. And so every time this happens, there is this spiral effect. Where does Madison sit on a continuum of competitiveness for conventions?”

Transportable solution

The most sensible short-term alternative, hoteliers say, is to improve local transportation between local hotels and Monona Terrace — something hotels have already begun to do. Zanoni jokes that in terms of airport transport, Epic has “made us all become very good shuttle organizations.”

With the prospect of private-sector, commuter-train service between Madison and Chicago, the city probably will have to examine public transportation options between the train stop, the hotels, and Monona Terrace, so why not between local hotels and the convention center?

In local hoteliers, they certainly have a willing partner. Zanoni noted that the Concourse is the headquarters hotel for a number of conferences that use transportation, including the recent White Privilege Conference. “They have met in larger destinations, but we did a good job transporting people,” he stated. “It was a March group, so weather was potentially an issue, but it worked well. It’s a great example of what we are able to do as a hotel community to support convention business downtown.”

“Middleton has a trolley system working to try to increase their business downtown, so looking at some of those options could be very successful for us, not just in creating convention business but also helping State Street and so many other businesses downtown.”

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