Why the Astrodome Hotel is a terrible idea
We have called attention previously to the ongoing debate over what to do about the decrepit Astrodome (here and here).
A proposal that has generated some buzz is the notion of converting the Astrodome into a second convention center hotel, a proposal supported by the editors of the Chronicle if it can be done at no expense to taxpayers.
Bruce H. Walker wrote an op-ed for the Chronicle a little over a week ago that explains why the idea is terrible, whether taxpayers foot the bill or not. The problem, he argues, is that demand for convention space (and accommodations) is down nationwide, even though supply remains steady (and recently increased in Houston with Hilton Americas). The addition of more such space in the form of a refurbished Astrodome would devastate the already struggling Houston hotel industry.
Further, there's already some danger to taxpayers, even if the Astrodome Hotel idea is shelved. Tucked away in Walker's op-ed is this ominous line:
Because Hilton Americas' rate of earnings is currently about half the rate the city must pay on its bonds, the project will probably not be able to cover its bond obligations, resulting in a cash drain for Houston. Consequently, Houston hotel occupancy tax receipts will probably have to be used for the cash shortfall, resulting in little or no marketing funds left to promote Houston!
Most worrisome to hoteliers in the downtown area is that all the market gain in room nights sold has gone to the new public Hilton rather than to privately owned hotels. The promise that major new convention volume was on the way has not happened.
So, what's in store for downtown?
Even without an Astrodome hotel, a dismal 47 percent occupancy rate is expected through the first half of 2005, meaning red ink will prevail. Look for hotel closures or conversions to residential usage.
It's outside the scope of Walker's editorial, so he doesn't mention the fact that Mayor White's revamped pension deal with municipal employees involved collaterizing their pension plan with the Hilton Americas hotel (which could turn into a problem if assumptions don't pan out), nor does he mention that depressed hotel receipts could lead to additional funding issues regarding Houston's three new sports arenas.
Taxpayers should ignore developers' promises regarding the virtues of an Astrodome Hotel and insist on a fiscally responsible solution, even if that means tearing the obsolete structure down.
Incidentally, Walker is not identified in the online version of the op-ed, but he is president of Source Strategies Inc., which calls itself a hotel development consulting firm. We have reproduced his op-ed below, since the Chronicle does not archive its outlook section. We think, as William Dyer argued in a similar instance, that this use is consistent with the "fair use" doctrine of copyright law.
Astrodome dream is a nightmare
1,000 new hotel rooms would mean certain doom for George R. Brown center, many downtown hotels
By BRUCE H. WALKER
Houston's downtown hotel industry is vulnerable to a devastating financial hit if the proposed 1,000-room Astrodome renovation project is approved by Harris County Commissioners Court. The city's hotel industry is already oversupplied and will not correct itself for years.
If they approved such a project, Houston City Council county leaders would be ignoring economic realities and jeopardizing the viability of all the hotels in the downtown area.
The Houston hotel market is typical of what is happening in cities around the country. There are more hotel rooms than occupants to fill them. In Houston, aggressive hotel growth plans were caught by a national economic recession. Since 2001, the downtown room count has grown by almost 130 percent, from 2,200 to more than 5,200 today. Occupancy levels, however, plummeted from 79 percent in 2000 to 47 percent today, well below the break-even mark. This uncontrolled supply growth is responsible for today's hotel depression.
This glut of new rooms was caused in large part by the city of Houston when it built the 1,200-room Hilton Americas next to the George R. Brown Convention Center with public funds, and offered tax abatements to entice hoteliers to build another 1,258 new rooms. Simply put, an additional convention center hotel like the proposed Astrodome would cannibalize the already struggling private and publicly owned downtown hotels.
The city had good, but misplaced, intentions when it entered the hotel business to attract more and bigger conventions. The rationale for Houston putting on its capitalist hat was that a new headquarters hotel adjacent to the existing convention center would make the city better able to compete for conventions.
However, the evidence shows otherwise.
Low convention demand
First, current national demand for convention space is about half of what it was through the 1990s. Convention attendance has been deeply depressed for the past four years, with few signs of a recovery. Trade Show Week reported an average of 111 million convention/trade show attendees per year from 1995 through 2000. Today, that number has been cut in half.There are a number of reasons for this, and the economy is only one of them.
Others include a fundamental change in how business does business. Improving teleconferencing and other trends in technology and supply chain management all contribute to lower demand for conventions. For example, Home Depot and Lowe's have largely replaced local store owners; consequently, the need for conventional hardware trade shows has lessened.
Second, local governments all over the country keep adding convention space, worsening the oversupply. Since 1990, some 80 cities have significantly expanded their convention center space and added convention hotels.
Third, the evidence so far is that adding a convention hotel does not increase a city's demand for convention space.
What worries hoteliers
Because Hilton Americas' rate of earnings is currently about half the rate the city must pay on its bonds, the project will probably not be able to cover its bond obligations, resulting in a cash drain for Houston. Consequently, Houston hotel occupancy tax receipts will probably have to be used for the cash shortfall, resulting in little or no marketing funds left to promote Houston!Most worrisome to hoteliers in the downtown area is that all the market gain in room nights sold has gone to the new public Hilton rather than to privately owned hotels. The promise that major new convention volume was on the way has not happened.
So, what's in store for downtown?
Even without an Astrodome hotel, a dismal 47 percent occupancy rate is expected through the first half of 2005, meaning red ink will prevail. Look for hotel closures or conversions to residential usage.
Lesson in earlier mistake
Many cities have the naive notion that if you build it they will come. But, city leaders need to consider the overall impact that development will have within the city.Private operators knew the Hilton Americas hotel was a probable failure and so would not develop it. The addition of another convention center hotel next to a private convention venue would mean certain doom not only for the city's George R. Brown Convention Center and the attached Hilton Americas, but for the majority of the privately owned downtown hotels.
For the city of Houston, what should have been a straightforward analysis has turned into a costly mistake.
It is one local leaders shouldn't make again.
Posted by Kevin Whited @ 10/17/04 12:11 PM | Print |
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