The Followup Hotel Study

[A couple of notes. First, Brenda scooped me, and if I didn’t hurry up and get this posted I imagine the excellent dane101 coverage would get some of it as well. Also, comments are turned off, because this is cross-posted to Muckrakers on the Badger Herald, so comment there]

Earlier in August, after a number of hotel projects were brought forward, the Mayor ordered a study of the new downtown hotel proposals, as a followup to the earlier, larger study. That earlier study identified as the number one priority for downtown hotel projects would be a large hotel attached to the Monona Terrace.

The followup report from the consultants is done. I haven’t found it online anywhere, but Rachel Strauch-Nelson of the Mayor’s office emailed me a copy within a few mintues of my request, which is here:  Final – HSP Summary Analysis of Hotel Proposals – 8-27-09 (when I find the real city home for this document, I’m going to remove my copy). It’s an easy read, and since we paid $10,000 for it, I’d encourage everyone to spend a few minutes and flip through it.

I didn’t think the study was that helpful, as they ducked the central issue of “how will these proposals affect each other”. Instead, Hunden dismisses the Apex project  as unrealistic, and doesn’t consider the Marcus project because it appears to be on hold.

As for the Fiore library/hotel project, the report notes that the earliest the hotel could open is four years from now. It also mentions that the hotel would be an extended-stay hotel, which I don’t remember Fiore saying in their meeting a month ago. From the August report:

Although the project would introduce a new hotel product type downtown, the effect on Monona Terrace and Madison overall would not be material. Instead, the project may, if timed poorly, siphon demand from new and existing hotels that are establishing themselves after the recession (and for one or two, after opening). The hotel portion of the project should not be a priority for the city at this time. Providing TIF funds to the project, even for parking, in essence subsidizes the hotel and creates a cycle of additional funding needs for both. The city has to choose carefully which projects to induce and the timing of those projects. This project would fall behind a true convention hotel, the Edgewater project, and a larger full-service project in terms of priority for City participation.

The report doesn’t consider the effect of taking the room taxes out of the financing picture for the Fiore project. With the room taxes, in the July presentation Fiore claimed their whole block redevelopment would have a 72 million dollar positive impact over 50(!) years. Without the room taxes, using their figures the project breaks even from property taxes alone in year 51.

The report reviews the basics of the Edgewater, with no new information that what’s already been widely reported. HSP takes great measure to stress that the Edgewater doesn’t materially improve the ability of the Monona Terrace to book larger convetions, and instead we should treat the Edgewater as a “Destination” hotel. The Edgewater should be thought of as a hotel you stay at when you want to visit Madison, or even when you want to stay at the Edgewater.  The Monona Terrace Hotel/Marcus Project would have been a hotel you stayed at because you’re attending a convention or conference that’s located in Madison, and things like Inn on the Park are hotels you stay at because you have business somewhere in Madison.

The August report’s thesis is that given that the Marcus Project is dormant, and the other two aren’t going to happen anytime soon, any hotel is better than no hotel, and we should abandon the public policy we adopted this past March and support the Edgewater. Making the Monona Terrace and downtown Madison more attractive for convention and conference planners should be put on hold, and revived when they won’t disrupt the Edgewater’s integration into the Madison hotel market.

There were a bunch of things I wish were included in this report. First, the original report the council adopted in March listed the following as consequences of not building a Monona Terrace-serving hotel:

  • The relative, and absolute, strength of the hospitality and tourism industry would likely decline. This would be especially pronounced when comparing Madison to its peers and competitors. Those building and/or expanding their convention, hotel and event package would penetrate the market for events at a higher level relative to Madison. As a result, financial rewards to Madison would decline in relative terms.
  • The hotel quality, capacity, and pricing power in Madison would stagnate, relatively speaking, compared to a scenario with a new, high quality, large and well-located facility.
  • Hotel taxes collected would be less.
  • Sales taxes collected would be less.
  • Fewer people would be employed, both in the hotels and from spin-off impacts.
  • The quality and quantity of meetings and events would stagnate and potentially decline.
  • The incentive for hotels to improve, renovate, and promote high service levels will be less than if a strong new competitor was introduced.
  • The existing lower quality hotels serving downtown would continue to serve downtown at similar levels of quality as today.
    Loss of a $100 million+/- development project and the jobs, taxes and impact associated with it.
  • There will be less revenue at Monona Terrace.
  • There will be more subsidy needed to support Monona Terrace.
  • Which of those still apply if some or all of these hotels opened? Some obviously still would, like the traffic at Monona Terrace, but others would not, like room tax rates. I’m interested in knowing how much the other hotels would improve if a new, high quality hotel opened downtown, but wasn’t attached to the Monona Terrace.

    There were some other major items that weren’t discussed at all in the August report:

    The report doesn’t consider the 151-room Hyatt’s on West Wash’s effect on the downtown market. This one is just inexcusable. The original, long report didn’t consider the Hyatt because they considered it hypothetical. True, it hadn’t yet broken ground, but the approval process was done when the report was drafted. However, construction was well underway when the August report was created, and I don’t understand why they didn’t acknowledge the Hyatt. This is especially puzzling since, using the original report’s figures, the hotel market took 4 years to fully absorb the 225 rooms Hilton when it opened in 2000. Obviously, another 151 rooms is going to do something downtown.

    The August report doesn’t give guidance on how long the market may take to absorb the Edgewater, given that the Edgewater is a ‘destination’ hotel. Will people actually come to Madison just to stay at the Edgewater? There’s not really any way for us to know, which is why we pay national hotel experts to tell us. I’d like to believe that they would, but then again I think Madison is just about the greatest place on Earth.

    The August report doesn’t give guidance on how a convention hotel would be absorbed in the face of other options, given the unique dynamics of a conference headquarters hotel. The August report warns us not to open a major hotel with 18 months of another major hotel (read: if you expand the Edgewater, don’t open a conference headquarters hotel until later). This just doesn’t make any sense, especially if the hotels are Edgewater/Marcus. The Marcus conference headquarters should have its use determined by how many big events can we book either there or in the Monona Terrace – those are people who aren’t coming to Madison if the conference/convention goes somewhere else. That wouldn’t be true if we were opening, say, the Edgewater and the Apex.

    The August report doesn’t consider expected room rates, and how much we can expect to pick up from room tax. Madison charges 9% of the room per night as a tax. As you might remember from the Fiore project, this can be a lot of money – far more than the property tax. Hotel rates are tricky, especially for conference hotels and national chain hotels, because no one actually pays the “posted” room rate at those places. We need some professional guidance to give us some idea of what rooms are actually going to go for a night for most visitors in order to sanity-check what developers tell us.

    Neither report ever study throwing money at the Inn on the Park. The Best Western Inn on the Park, right on the Square, is big enough and within the magic 1200 feet to be a factor for the Monona Terrace. However, to put it charitably, Inn on the Park is “not of the quality level that planners expect.” Well, what would it take to get it up to the quality level that planners expect? Could we do it for less than building a new hotel, and if it was a quality hotel, what would our needs be? Are the owners content and making plenty of money with the hotel in the shape it’s currently in, or would they be better off investing in their hotel, or would the city be better off investing in their hotel?

    Dusty, writing for Dane 101, reports that Edgewater is going back to the drawing board. That’s good for me, since I can hold up on my post on what I’d like to see at the Edgewater. However, I’m not quite done on hotels – check back later for my “Rube Goldberg designs a hotel solution for the Monona Terrace and Downtown Madison” post

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