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You Can Build It, But Will They Come?
Florida has been no exception. Since the mid-1980s, a host of sparkling new facilities have popped up around the state.
Daytona Beach's $42 million Ocean Center opened in 1986. Miami Beach spent $92 million to add 200,000 square feet of exhibit and meeting space to its convention center in 1989. The center now has more than 500,000 square feet of exhibit space, making it one of the country's largest.
Tampa opened its convention center in 1990 and Broward's opened a year later. This year, Orlando's Orange County Convention Center will double in size, growing from 350,000 square feet of exhibit space to 733,000 square feet. Further construction will bring the facility to 1.1 million square feet by 1998.
Palm Beach County hopes to get started this year on a $60 million center, though local leadership hasn't yet decided whether to put the building in West Palm Beach or Boca Raton.
There's more. Taxpayers in Dade will cough up $50 million in subsidies to Loews Corp., which will build a $135 million, 800-room convention center hotel on Collins Avenue, just a short walk from the Miami Beach center.
Tampa is reviewing proposals from four developers to build a 700-room hotel next door to its convention center. Though city leaders hope to avoid public financing, all four initial proposals call for taxpayer involvement.
Given all this activity at a time when the number of visitors to Florida has been flat at roughly 40.5 million for five years, one might reasonably ask what return taxpayers are getting from these opulent facilities.
The answer: frequently, not much.
Though it's easy to get local tourism officials to wax poetic on the virtues of their facilities and the economic impact of conventioneer spending, it's a bit tougher to get them to talk about how many out-of-town visitors those centers actually draw, much less whether economic development dollars might not be better spent attracting higher-paying industry than tourism.
The vast majority of users at Florida's convention centers -- with the important exception of Orlando -- are locals who come for corporate events or to see auto shows, art fairs and the like. In Miami Beach, for example, 857,000 people used the center in 1995. But only 150,000 came for a convention or trade show. The rest came for local events.
These centers function more as state-of-the-art community centers than as substantial generators of new tourism. That's important to note, because it is the promise of new tourism that convinces communities to invest in centers. "Finding activity to put in the hall is easy. Finding the right activity is hard," says M. Chase Burritt, national director of hospitality services for Ernst & Young Kenneth Leventhal in Coral Gables.
Given that, why do communities insist on building new centers and expanding existing ones?
The answer seems to lie in that unhappy place where civic boosterism and economics collide. The idea that there are conventioneers out there looking for a place to go is attractive. So is the notion that one's own city is an inherently good place to do business. Never mind that corporate America has been streamlining relentlessly and may be less inclined to spring for convention junkets.
"What happens to some cities is sometimes they start to convince themselves, 'If we build this building, we're going to reverse a trend of low visitors,'" Burritt says.
If not blind optimism, how else to explain the headlong rush to open new centers? According to the publication Trade Show Week, some 23.2 million square feet of convention center exhibit space has opened in the U.S. and Canada since 1985. And since 1991, exhibit space has grown from 54.8 million square feet to 63.6 million square feet, up 16%. Another six million square feet of space will open by 1998.
It shouldn't be surprising, then, that the International Association of Auditorium Managers (IAAM) reports that the business of luring conventions and trade shows is intensely competitive -- and not very lucrative.
In fact, 67.1% of all convention centers don't earn enough revenue from rents, concessions, parking and the like to cover their operating expenses, much less pay the debt service on the bonds used to finance their construction. Just 16.4% of centers generate enough operating revenue to pay expenses and debt service, reports IAAM. That means most convention centers become wards of the taxpayers, requiring dedicated taxes and subsidies to stay afloat.
"Once you build one of these buildings, there is not a lot you can do; and if it is not a success, it is a major operating drain on the populace," says Burritt. "The populace likes a new building, but it does not like the operating budget."
Most tourism officials say convention centers shouldn't be judged by their financial performance, but rather viewed as akin to a retailer's "loss leader," an item sold below cost to bring customers in the door.
But it seems clear that most convention centers are not bringing in nearly enough visitors to town. Accounting firm Price Waterhouse found in 1993 the average convention-center occupancy rate in large markets was 41.4%. Although 70% is considered maximum occupancy because of the set-up and tear-down time trade shows and conventions require, the figure is still low. Tourism officials say a healthy center should book about 40 conventions per year. Miami Beach booked just 20 last year.
Price Waterhouse consultant David C. Petersen offers another way to look at convention center performance. He figures that each convention center visitor who spends three days in town generates enough tax revenue to pay the debt service and maintenance on one square foot of exhibit space and its accompanying support space (loading docks, kitchens). In articles for professional journals, he gives a rule of thumb: a center ought to bring one out-of-town visitor for every square foot of exhibit space, every year, to be a good investment.
Orlando's Orange County Convention Center easily passes that standard. In 1994, 499,572 convention delegates used the center's 350,000 square feet of exhibit space. But Florida's three other big centers, in Miami Beach, Fort Lauderdale and Tampa, fail the test. (For his part, Petersen says it's not always accurate to characterize convention centers that fail to meet his one-to-one ratio as unsuccessful.)
Orlando, of course, has entertainment options and top-quality hotel rooms unrivaled in Florida. Its convention center sits within walking distance of 3,500 hotel rooms along International Drive and just a short drive from Walt Disney World. Today, about 70% of the people who visit the Orange County center are conventioneers, compared to fewer than 20% of people who use the Broward and Miami Beach centers.
The reality is that Orlando, like Anaheim and Las Vegas, has tourist attractions powerful enough to entice business groups. But most cities must compete on factors other than entertainment options.
Burritt says the decision to build a convention center ought to be reactionary: a response to the number of business groups already coming to town. "It's not a tool to lure new visitors," he says.
Petersen adds that without a strong core of first-class hotels nearby, a convention center is doomed. But the reverse is not true: hotels won't necessarily be healthy because they're near a convention center. A city needs enough business traffic to keep hotels full when there are no conventions in town.
Burritt and Petersen both say cities should work to improve their business climate, hotel inventory and entertainment options before building a center. Tampa and Miami Beach both did it backwards, building centers first and then watched them underperform.
Tampa is in a real fix. Jim Clark, president and CEO of the Tampa/Hillsborough Convention & Visitors Association, says that his CVA books about 40 conventions per year into the center, a healthy number. But the conventions tend to be small. The center has 200,000 square feet of exhibit space, but the typical convention or trade show uses just 75,000 square feet, Clark says.
The center lost $1.3 million on its operations for fiscal 1995, plus the city must dip into its general revenue fund to pay the $12 million annual interest on the $140 million it borrowed to build the center.
Tampa leaders hope a new hotel will solve the problem. In 1995, the average Tampa convention filled 747 hotel rooms each night it was in town. Clark thinks that building a 700-room hotel would enable Tampa to double the average size of the center's conventions. Initial proposals call for the city to put up land, infrastructure improvements and perhaps tax breaks that could amount to tens of millions of dollars.
Miami Beach has a similar problem. Its center has 502,000 square feet of exhibition space, but drew only about 150,000 delegates to 20 trade shows and conventions in 1995, says Mark B. Ford, the Greater Miami CVB's director of trade show sales.
Merrett Stierheim, president and CEO of the Greater Miami Convention & Visitors Bureau, calls the Miami Beach center "as good as any you'll find in the world. I've never had a meeting planner complain about the convention center."
Clearly, however, the center has underperformed expectations. Miami Beach officials are "very unhappy with the utilization of that hall," says Burritt. "It is just not performing at the level they expected."
The center was expanded in the late 1980s with the expectation that a new hotel would soon follow. But the real estate market swooned and the hotel never got built. Conventioneers have been forced to stay several miles away at the Fontainebleau Hilton, or spread out among the Beach's small art deco hotels.
Stierheim is sure the new Loews Hotel will be well worth the $50 million taxpayers are going to pay to help build it. He says his convention sales force had just 39 leads during fiscal 1994, but generated 109 in 1995. "At least 65% of those leads were directly because of the Loews hotel development," he says.
Loews Corp. hopes to break ground later this year and open the hotel by late 1997. It is putting up $40 million in equity and borrowing $66 million to finance the hotel. Jonathan Tisch, president and CEO of Loews Hotels, says Dade taxpayers will get their money's worth by virtue of the hotel's impact on the convention center and its employment of 1,000 people. As of December, Loews had already booked 430,000 room-nights at the hotel.
In Broward, leaders note that their $48 million facility breaks even on its operations, a rarity. "Considering that most buildings are losing money, we feel that Broward is doing real well," says Mark Gatley, the center's general manager. But the bonds issued to build the center are being repaid with bed tax money.
Like its brethren in Tampa and Miami Beach, Broward's center doesn't attract as many out-of-town visitors as originally expected. Gatley says just 12% of the center's events are conventions or trade shows. The rest is local activity.
Gatley estimates 90,000 to 100,000 people came to Broward last year for longer conventions, out of a total of 481,000 people who used the center. Considering the Broward Convention Center has 150,000 square feet of exhibition space, it too fails Petersen's test.
Yet Broward plans to add 50,000 square feet of exhibit space and 50,000 square feet of offices and meeting space this year. Gatley says that will enable the convention center to expand existing shows and compete for more national meetings.
Into this breach steps Palm Beach County. Leaders there want to build a 400,000-square-foot facility for about $60 million, funded by new hotel taxes and possibly a food, beverage and attractions tax that would be levied on businesses within a seven-mile radius of the center. But there are no concrete plans to build a hotel with the center, or, better yet, to build the center next to a healthy hotel. Nor is it clear whether the center would end up in Riviera Beach, West Palm Beach or Boca Raton.
C. Dean Hofmeister, former head of the Greater Fort Lauderdale Convention & Visitors Bureau, oversaw construction of Broward's convention center and now works as project director of the Palm Beach convention center. He predicts the center will generate enough new tourism to pay for itself. Industry experts don't share Hofmeister's optimism, though. Burritt thinks a Palm Beach facility would be a mediocre performer. "My sense is it would be fair. And maybe that's all you need," he says.
Tourism boosters who advocate building these centers don't appear to be asking themselves tough questions. "Many of these communities have no use for a 100,000 square foot hall or a big hotel," Burritt says. "You end up using the halls for tractor pulls or flea markets. A flea market does not fuel your visitor business."
