Does Salt Lake City need an anchor hotel for convention center?
Jeffrey D. Allred, Deseret News
SALT LAKE CITY — This week's USANA International Convention and the most recent visit of the Outdoor Retailer Summer Market rekindled the debate over whether downtown Salt Lake City should build a large hotel adjacent to the Salt Palace Convention Center.
The USANA event brought in an estimated 8,500 attendees and is expected to generate nearly $7.5 million in total visitor spending to Salt Lake and the state of Utah. The Outdoor Retailer Summer Market, the state's largest annual convention, attracted 1,200 vendors, nearly 27,000 attendees and generated almost $25 million in visitor spending.
Total visitor spending figures are based on surveys of convention delegates conducted by the University of Utah’s Bureau of Economic and Business Research. Surveys conducted by the research group over the past five years indicate the average delegate spends $923 while attending a convention in Salt Lake.
Supporters say a 1,000-room “headquarter hotel” would put Utah’s capital city on equal footing with other similarly sized metros such as Denver, Nashville, Phoenix or San Antonio. However, critics argue that building a major new property should only occur if the project is undertaken by private investors with no public or government involvement.
“The concern is that there would be too much government help and public subsidization to make that new hotel work,” said Clint Ensign, senior vice president, government relations for the Sinclair Companies — which owns and operates the Grand America and Little America Hotels. “Public subsidy required for a 1,000-room hotel could range from $80 million to $120 million.”
Ensign said that the total estimated cost for such a project would be in the $300 million range. He said providing such significant financial support for a convention center hotel would be unfair to other hoteliers that built and upgraded their properties with no public funding.
He said subsidization could take various forms including property tax abatements, bonding or tax increment financing. Either way, such assistance would give the new property an unfair advantage.
“A $300 million convention center hotel would require a room rate of around $300 a night to make that project (financially viable),” Ensign said. The hotel would have to charge a room rate of $200 or less to be competitive in the market, he added.
“It’s that public subsidization that (would) make up the difference,” Ensign said. “If that subsidization is far more than what has been done for existing hotels, you create a tremendous competitive inequity downtown.”
The Salt Palace underwent a massive overhaul in the early 1990s, resulting in a facility that now houses more than 675,000 square feet of convention and meeting space — a 46 percent increase in total space. Supporters of a “headquarter hotel” claim that despite the major remodel, the building still lacks the proximity and ease of use to guest accommodations that many convention planners seek.
A 2008 study by Piper Jaffrey Hospitality Group stated that the Salt Palace ranked fourth out of 11 competitors in square footage of exhibit space. But among comparable competitors, the Salt Palace was the only center that did not offer a headquarters hotel.
From 1997 to 2008, 16 hotels with 700-plus rooms opened in the U.S. in non-gaming or non-resort areas. Only three were privately financed without public subsidies — two in New York City, along with the Grand America in Salt Lake City. All of the hotels financed after 2002 were completed with tax-exempt bonds and/or public subsidies, the study noted.
Preliminary forecasting from the Piper Jaffrey study for a four-star convention-oriented hotel estimated a total development cost of $325 million. The report estimated a 73 percent occupancy rate two years after hotel opening with a room rate charge of approximately $176 per night, less then that predicted by Ensign.
The study also stated that the lack of a sizable, adjacent headquarters hotel caused planners of major events to take their business to other cities.
Scott Beck, president and chief executive officer of Visit Salt Lake, said Salt Lake City's lack of a large convention center hotel property has cost the city many conventions.
Beck said that when a large convention like the Outdoor Retailer trade show comes to town, organizers have to contract with 34 hotels to get the needed number of rooms for their group. But in cities with a "headquarter hotel" — a same-sized group is able to contract with just 15 hotels because the overall setup is more conducive to their needs.
“If we don’t continue to improve our product (the Salt Lake market), then we will lose market share,” he said. “There are so many things that make us one of the best second-tier convention destinations in the country, (but) we may lose out on the increased opportunity to maximize the convention center.”
Beck said that while some critics worry that existing hotels would be hurt by the development of a convention center property, he said other hotels would benefit by “compression.”
“When the convention center is full, the hotels around the convention center fill first,” he said. “They 'compress' the demand out into the community — pushing the business out into those other hotels.”
He also cited a 2011 University of Denver study that he said indicated, “Every market with a convention center hotel over the last 10 years has outperformed the national average.”
He estimated that the local market loses $90 million to $100 million of convention delegate spending annually due to the lack of a convention center hotel.
Some local business leaders have also expressed conditional support for a new hotel.
In a June opinion letter on the issue, Lane Beattie, president and CEO of the Salt Lake Chamber, along with Downtown Alliance executive director Jason Mathis said a new hotel would enhance Utah's tourism industry.
“Many of our competing cities have one — Denver, Phoenix, San Antonio — and Salt Lake City should consider one as well,” they wrote. “A large, 1,000-room hotel adjacent to the Salt Palace will generate more local and state taxes from out-of-town delegates and bring more business to Utah restaurants, entertainment venues, transportation companies and retail stores. More citywide conventions filling the Salt Palace will ultimately also mean more guests spilling over to other hotels.”
The letter, however, opposed the use of government or local tax dollars to finance the project. They instead pushed for “privately led” development after diligent review of possible financing options for such a project by the Salt Lake County Council.
Meanwhile, opponents of government assistance said there is no room for outside intervention when it comes to a getting the project built.
"Salt Lake City and Salt Lake County should stay out of the business of business,” said Royce Van Tassell, vice president of the Utah Taxpayers Association. “If demand for a 1,000-room convention center hotel exists, private investors will be more than happy to build it."
The Utah Restaurant Association and Utah Hotel and Lodging Association are on the same page as the Utah Taxpayers Association.
“Salt Lake City has been rising for several years, and we did not see any of the major hotels in Salt Lake City add additional rooms to their facilities,” said URA president and CEO Melva Sine.
“Many have made improvements, but none have added additional sleeping rooms. When a 1,000-room hotel is needed and can be successful financially, the private sector will build it and that's the type of development we need in all sectors of our economy.”
"UH&LA does not oppose a privately funded convention center hotel, but it opposes taxpayer funding to support competition for our member hotels," executive director Jordan Garn said. "We welcome competition in the market place. We just want to make sure the playing field is level."
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