Campaign begins for convention hotel in Charlotte

A new convention center hotel with 800 to 1,000 roomsand paid for at least in part with taxpayer money looks more and more like an inevitability in uptown Charlotte.

Informal discussions among political, tourism and business executives have taken on greater urgency of late. Next week, City Council is expected to approve funding for final design and preparations that would set the table for a $110 million makeover of the Charlotte Convention Center— a project due to be finished in 2021 and one expected to increase the need for a second major hotel uptown.

Charlotte’s largest hotel is the 700-room Westin. It opened in 2003 near the convention center, built for $143 million, including $16 million in local government funding. Industry executives told CBJ that public money typically accounts for 30% or more of construction costs for convention hotels.

Assuming a price in the range of $350 million for a 1,000-room property — in line with current industry trends — taxpayers would be faced with a likely investment of $100 million or more.

The argument for subsidies goes like this: Hotels with anywhere from 600 to 1,000 rooms sacrifice some profitability as convention hubs because those properties guarantee blocks of rooms, often at lower rates, to help lure conferences, meetings and trade shows. Meeting planners want the convenience of being able to put attendees in one or two hotels, reducing possible logistical snags. And tourism executives in Charlotte and other cities crave the certainty of knowing they have enough rooms to pursue large-scale meetings and events without having to scramble to find hotel rooms.

Tom Murray, CEO at the Charlotte Regional Visitors Authority, told me Wednesday during an interview in his convention center office that a large-scale hotel like the one being discussed is unlikely to open for four or five years. But, he said, now is the time to start analyzing how a public-private partnership might be configured. Hotels and developers have expressed curiosity and interest in building a large-scale property here, but no one has made serious overtures to date, Murray told me.

Ambitious expansion and upgrades in peer cities, including Austin, Texas; Louisville, Ky.; and Indianapolis, have gotten the attention of Charlotte’s tourism sector.

“We see they’re winning this race a little bit,” Murray said.

Adding smaller hotels gives business and leisure travelers more options, but tends to shift bookings from one place to another around town rather than create additional demand, Murray and others in the industry told me. In that sense, the 500 rooms added uptown this year among the Embassy Suites, SpringHill Suites and other new properties, will not make much difference when it comes to conventions and conferences.

And, according to STR statistics, the number of sellout nights is rising across uptown hotels. That, in turn, industry executives said, limits the sales potential for the city. In 2014, there were 34 nights when uptown occupancy reached 95% or above. After dipping to 15 nights the following year, it reached 54 nights at 95% occupancy or greater in 2016. Through July of this year, there were 37 nights when 95% or more of the uptown hotel rooms were filled.

There are 5,000 hotel rooms in uptown, including the 500 opened so far this year. By early 2018, another 500 will be added, including the 216-room boutique Kimpton in Third Ward.

Though occupancy rates have dipped slightly with the additional hotels opened in recent months, tourism executives said the market remains healthy. And they pointed to consistent growth in the number of uptown residents and office buildings and tenants as factors that will sustain those increases. About 70% of hotel rooms citywide are filled, on average, a pace that remains well above occupancy that hovered in the low- to mid-60s for much of the 2000s.

Last month, at a trade group meeting, Murray looked on as Heath Dillard, the visitor authority’s director of business insights, made a presentation to local hotel executives outlining why a convention hotel is needed. The underlying message: Even if industry tax money paid by those same hotels winds up being used to help pay for a competitor to add as many as 1,000 rooms in uptown, it would be worthy because of the new events and business that would come with a new convention hotel.

Dillard’s presentation, using industry data from STR, pointed to market-wide gains in Austin, Nashville, Tenn., and Baltimore as examples. In those cases, to varying degrees, long-term trends showed gains for hotels across the board in room occupancy and an industry measure calculating revenue from each available room.

A portion of existing tourism tax money, special tax districts and other funding options are likely to be considered.

James Mitchell, a Democrat who leads the council’s economic development committee, told me Wednesday he is optimistic the city will find a way to attract and fund a new convention hotel.

“I look forward to that discussion,” he said. “We have to look at how Charlotte can remain competitive.”

Jeff Appelbaum, a Cleveland lawyer, has worked with local governments across the country on convention hotels, including a 600-room, $275 million Hilton in downtown Cleveland paid for and owned by county taxpayers. Appelbaum told me there are a number of ways to finance mega-hotels, but noted that attracting one without some form of public subsidy is exceedingly difficult.

Both of Charlotte’s mayoral candidates — Republican Kenny Smith and Democrat Vi Lyles — told CBJ on Wednesday that the upcoming investment in renovations at the convention center will create additional need for another major hotel. They both offered support, with caveats due to the lack of detail about a prospective negotiation between the city, the visitors authority and private developers.

“The question is, how do we pay for it?” Smith said. “It is hard to speculate on a deal that I’m not looking at. And then, if we put public dollars into a new hotel, how do existing hoteliers feel about helping their competition? I don’t see that going over.”

Vince Chelena, executive director of the Charlotte Area Hotel Association, the group that heard the visitors authority’s pitch, couldn’t be reached for immediate comment Wednesday. Earlier this summer, he told CBJthat a large block of rooms like those guaranteed by a convention hotel would be a draw, helping increase the overall amount of hotel business.

Others in tourism and hospitality said the industry would support a convention hotel, but only if it does more than just add room inventory.

Mohammad Jenatian, who runs the Greater Charlotte Hospitality & Tourism Alliance, said a convention hotel paid for in part by using industry tax money works only if it is large-scale enough to add meeting and conference space, too.

Lyles said she generally favors investments in tourism projects. “Anything that brings more bread and butter to our convention center, we ought to participate,” she said. “That kind of an investment makes a real difference. And it’s something we can measure.”

Similar arguments have been made in a number of other cities, where subsidies have partially or entirely helped land convention hotels. Discussions and negotiations for similar projects are underway in Broward County, Fla., Des Moines and Kansas City, among others.

Austin opened a 1,000-room JW Marriott in 2015 and, later this year, another 1,000-room property, the 37-story, $370 million Fairmont Austin, will follow. The Fairmont illustrates what Jenatian, the Charlotte trade group leader, has in mind: it will include 112,000 square feet of meeting space.

A CBRE study of Charlotte’s response to the opening of the Westin found that, despite the hotel’s 700 rooms increasing uptown inventory by 21%, occupancy kept growing in center city hotels until the recession arrived in 2008.

Nashville, like Austin, poses bigger and constant threats to Charlotte in competition for conventions, trade shows and other major events. In 2013, a new $623 million convention center opened in Nashville. Known as the Music City Center, it covers 2.1 million square feet, nearly four times the size of the 550,000-square-foot Charlotte Convention Center. According to The Tennessean, the new convention center failed to reach initial projections, raising questions about the public investment.

For rival cities in the Southeast, including Charlotte, the rise of Nashville has made it harder to recruit events, a circumstance exacerbated by the opening of a $270 million, 800-room Omni convention hotel in October 2013. Close to half the cost, $128 million, will be borne by taxpayers.

Louisville, another comparable city to Charlotte, is also upping its convention game with a two-year, $200 million overhaul of the city-owned convention center.

Erik Spanberg
Charlotte Business Journal

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