Hotel Subsidies Up In Downturn

As cities nationwide compete to lure conventioneers, financing for convention center hotels is drying up, and local governments are putting more public money into building them.

Even so, some question putting public dollars into a venture that private investors consider too risky. One Texas study last month suggests government-financed hotels hurt existing hotels instead of attracting new conventioneers. Others argue that any public convention center project is doomed without a headquarter hotel.

A study published last year in Economic Development Journal estimated the public sector provided nearly half of $3 billion spent to finance 20 major convention center hotels built since 1995.

In West Palm Beach, the county-owned, 330,000-square-foot convention center is scheduled to open in November. The Related Cos., the developer expected to build the adjacent $70 million hotel, has made no progress toward constructing it.

“It’s going to be almost impossible to finance that hotel privately,” said Bill Meyer, chairman of Meyer Jabara Hotels, which owns 27 hotels primarily along the East Coast.

The Palm Beach County Convention Center will suffer without an adjacent hotel. Few hotels exist nearby – only one within walking distance.

But since Sept. 11, 2001, financing for hotels of every kind has declined along with air travel, tourism and room bookings.

“2002 was probably the worst year in the hospitality industry since the real estate crash of the early 1990s,” Meyer said. “And 2003 is even worse.”

Additionally, the rates a West Palm Beach hotel can charge year-round are not enough to make a large, full-service hotel profitable because of the decreased demand during the summer, he said.

“It becomes very difficult to make a profit without public subsidies,” he said.

Across the country, cities are getting into the convention game. Within Florida alone, the Palm Beach County Convention Center will face considerable competition. Orlando is expanding its Orange County Convention Center. And those who find Orlando too pricey can soon sign up at the Osceola County Convention Center and its 800-room hotel to be built just to the south of Orlando.

In Texas, officials in Dallas and San Antonio are contemplating government-supported convention hotels. A study released last month by Citizens for a Sound Economy, a conservative think tank, concluded that the primary impact of tax-subsidized convention hotels is to hurt existing, privately financed hotels rather than to attract new conventions.

What’s more, a glut of new and expanded convention centers and a decline in nationwide attendance have made convention competition hectic, the study declared.