First Free Story (1 of 3)Join Skift Pro
As Miami Beach considers an historic $1 billion upgrade of its convention center, the resort city also must decide how big of a bet to place on a major turnaround in the meeting business.
Increased bookings are crucial for keeping the upgraded convention center from needing even larger subsidies than are required by the two proposals set for a showdown vote by the Miami Beach City Commission on Wednesday.
Currently, the out-dated convention center counts on about $5 million a year from county hotel taxes to cover operating losses and ongoing maintenance expenses. But thanks to roughly $600 million in public funds required for construction, the cost to city and county taxpayers would increase significantly with an upgraded center, to about $30 million a year, according to a Miami Herald analysis of the proposals filed by the two development teams pursuing the project.
Those costs would be lower if rents from a privately operated hotel attached to the convention center and nearby retail outlets end up higher than forecast. Both developers — Atlanta’s Portman Holdings and a consortium known as South Beach ACE led by New York’s Tishman Hotel and Realty — expect to pay the city more than their minimum obligations.
But the public costs also could be higher if the upgraded convention center doesn’t match expectations for a significant boost in a city where hotels often balk at the discount room rates demanded by large groups. With enough public debt to rival the $550 million Miami and Miami-Dade borrowed to build Marlins Park, some city leaders are questioning whether the Miami Beach plan is too ambitious.
“The convention center should be brought up-to-date, yes,” City Commissioner Jonah Wolfson said. “Should we bury ourselves in a mountain of debt to do it? No.”
The pursuit of more convention dollars puts Miami Beach on the front lines of an ongoing national debate over tourism subsidies. Critics describe an arms race among cities spending millions to upgrade their money-losing convention centers in order to compete with rival destinations. Backers of the Miami Beach plan see the dated center as turning off top-tier corporate groups and industry gatherings.
“We’re selling a 25-year-old piece of [junk],” said Stuart Blumberg, a longtime advocate for Miami-Dade’s hotel industry and chairman of an advisory panel overseeing the center. “Conventions want to come here. This is the hottest place in the world. They say, ‘We love your city. But your hall stinks.’ End of story.”
The city estimates the convention center generates about 235,000 overnight stays a year. That is roughly 4 percent of the 4.6 million stays recorded by Miami Beach hotels last year, according to information from Smith Travel Research and the Greater Miami Convention and Visitors Bureau.
“Conventions are a very small portion of our business,” said Max Sklar, Miami Beach’s tourism director. “There is definitely a large potential for growth there.”
A top target for that growth from a new center would be deep-pocketed medical groups. As many as 20,000 members of the American Association of Orthodontists gather each year for a convention, and Miami would be a big draw, said director Chris Vranas But with the current center’s Spartan layout, Miami Beach can’t offer the selection of modern lecture rooms the group needs for the gathering.
“I won’t say we’re not rate sensitive, but for us [the main problem] is the meeting space,” he said. “If you were able to expand the lecture-hall space, then you would be opening up the Miami Beach Convention Center to a different tier of meeting.”
Both sides offer different estimates on their guaranteed rent and construction costs, but the two proposals end up fairly close in yearly estimated costs to taxpayers. Taking an average over the 30 years needed to pay back the debt, both the Portman and the Tishman plan would require about $30 million in taxes each year, according to the Herald analysis.
The guaranteed rents from the for-profit ventures in the proposal would be used to offset the tax dollars needed to pay back the city debt for the center’s upgrade. Earlier this month, City Manager Jimmy Morales asked both developers to scale back planned retail ventures near the center, which reduced projected rents for that portion of the proposal but left the hotel component intact.
Along with rent from the developer, Miami Beach would fund the public costs with a mix of city and county taxes. Miami Beach voters last year approved raising the city’s hotel tax to 4 percent from 3 percent to cover part of the costs, and Miami Beach and Miami-Dade would spend existing property-tax dollars to cover other debt payments. Jeff Sachs, the city consultant analyzing the two plans, said the fixed rents and requirement that the hotel be privately operated means most of the risk falls on the developer, not the public.
Driving the center plan is a belief that a wave of groups like the orthodontists will pay a premium to stay in Miami Beach, which typically vies with Hawaii and New York for the most expensive winter hotel rates in the country. But Sachs noted that even if they don’t, the center can retain its current groups while the developer will face the cost of weak bookings.
“We have structured this purposely to protect the taxpayers,” he said.
Still, operating costs will go up with the refurbished center and forecasts tied to the proposal are bullish on Miami Beach’s future as a convention hub.
An economic study commissioned by the GMCVB predicts spending from the convention center will more than double after the expansion and the addition of the hotel — from an average of $70 million a year to more than $180 million.
A 2011 study by the bureau’s consultant, Convention Sports & Leisure, estimated overnight stays from the center would soar from about 235,000 a year to roughly 533,000, thanks to a surge in meetings and conventions there.
Tishman’s own analysis predicts a huge increase in the number of high-spending events. A Tishman forecast submitted to Miami Beach concludes the center only produced nine “high-quality” events in 2011 — defined as conventions or trade shows that provide “significant economic impact” to Miami Beach. Once renovated, according to Tishman’s forecast, the center would on average attract 42 of those “high-quality” events a year — a nearly 370 percent improvement.
“The groups we are going to attract will pay the higher rate,” added Paul Diamond, executive vice president of Tishman. “These are groups that aren’t going to be priced out of the market.” Alex Duval, a member of Portman’s finance team, called the Tishman forecast too rosy but agreed that the new center will bring in higher-paying attendees. The purpose of the upgrade “is not to increase the number of attendees, but is to increase the dollar amount they will spend in the local economy,” he said.
Heywood Sanders, a professor at the University of Texas at San Antonio, said governments often hear similar rosy scenarios when pressured by developers and the hotel industry to spend tax dollars on money-losing convention centers. He urged
“Does it seem plausible that Miami Beach is going to double its business?” said Sanders, author of the upcoming book “Convention Center Follies.” “Developers are risk takers. They see an opportunity to make money, and they go for it.”
(c)2013 The Miami Herald. Distributed by MCT Information Services.