By: James Ylisela Jr.  November 23, 2009

The chief executive officer won his post after raising campaign cash for disgraced Gov. Rod Blagojevich. The just-departed human resources director owed her job to a powerful state senator. Other top executives have long ties to Mayor Richard M. Daley’s political machine.

That’s what clout looks like at the Metropolitan Pier and Exposition Authority, known as McPier, a little-understood government entity that operates the city’s primary convention venue, the vast McCormick Place complex; the adjacent McCormick Hyatt Regency Hotel, and the lakefront tourist center Navy Pier.

But the defection of two major trade shows this month and a deepening financial crisis raise questions about how well an agency run the Chicago Way can compete with more-efficient, warm-weather convention centers such as Orlando, Fla., and Las Vegas.

Despite the high prices it charges trade groups to stage conventions at McCormick Place, McPier doesn’t make enough money to cover its operating expenses or payments on its debt. Agency officials project operating losses will grow eightfold to $28.8 million in the fiscal year that started July 1. And the state of Illinois will have to fork over hundreds of millions of dollars in the years ahead to make up shortfalls in tourism taxes that were supposed to cover McPier bond payments.

These financial woes are particularly striking in view of McPier’s extraordinary fiscal powers and valuable assets. It has direct access to taxpayers’ wallets, collecting more than $100 million in taxes annually and borrowing $2.5 billion on the state’s credit. McPier generated $211 million in revenue in fiscal 2009, mostly from trade shows, tourist spending and hotel bookings. Some 2.3 million people attended conventions at McCormick Place, while 8 million visited Navy Pier.

“We expected to lose money this year,” says McPier Board Chairman John Gates Jr., a former real estate executive appointed to the post last month by Mr. Daley. “We just didn’t expect to lose this much.”

A slumping economy contributed to the expanding losses. And it’s widely acknowledged that labor costs at McCormick Place exceed those of competing venues. But a Crain’s investigation shows McPier has deeper problems all its own.

Compounding the operating losses is a mountain of debt brought on by its massive and, some say, overly aggressive financing of the McCormick Place West Building, which opened in 2007. McPier expected money from taxes on hotels, restaurants, taxis and car rentals to cover annual debt service, which totaled $130 million in 2009. But those taxes never covered the bond payments — even during banner convention years in the middle of this decade — forcing the agency to drain a reserve fund and dip into the state’s general sales tax fund for the first time in 2009.

McPier tapped $18.8 million, and officials say they’ll need $34 million in sales taxes next year. The cumulative funding gap is expected to exceed $500 million by 2021, a sign the financing model for the $882-million expansion was fundamentally flawed.

Chicago’s chief convention rivals carry far less debt. Annual debt payments for convention centers in Orlando and Las Vegas are $74 million and $37 million, respectively.

The way out is uncertain. McPier’s credit is tapped out, which means it can’t restructure its debt and lower the payments without approval from the Illinois General Assembly. But refinancing legislation is caught up in Springfield’s political squabbles.

Without refinancing, the agency can’t stay competitive by building desperately needed hotel rooms or modernizing the oldest McCormick Place building, the Lakeside Center, which has become a financial drain.

Last week, Mr. Gates and his fellow board members took a step toward keeping their business competitive — and returning to profitability — by announcing a 20% cut in its 500 administrative staff positions through early retirements and layoffs. The cuts won’t take full effect for at least a year, and officials won’t say which positions will be eliminated.

McPier’s salaried positions, which include politically connected senior directors and managers, have actually increased in the past three years. But CEO Juan Ochoa says the cuts have everything to do with “right-sizing” during a recession and nothing to do with politics.

“Our payroll isn’t bloated,” he says. “I can’t speak to what happened before I got here. But we don’t hire that way today.”

McPier officials say the convention business is cyclical and that they will show a profit in 2011 and 2012, when major trade shows return to McCormick Place, producing more sales, hotel bookings and tourist dollars — and tax revenue.

They are considering improvements at Navy Pier to generate more revenue and are negotiating with labor unions to change restrictive work rules and high costs. And they’ll be lobbying the Legislature to give them some room to maneuver. Last week, they formed a task force to find ways to keep McPier competitive.

“We obviously have some problems,” Mr. Gates says. “We’re not saying we don’t. Everything is on the table, but we have to get our own house in order first.”

Can McPier stay viable without changing the way it funds itself? Can Chicago, a cold-weather city with a reputation for being difficult, still compete? And can the agency really kick its addiction to political clout for the sake of its own future?

All of this makes McPier a maddening contradiction, says Rob Hunden, president of Chicago-based Hunden Strategic Partners, a real estate consultancy that specializes in large convention, sports and entertainment facilities.

“It’s a matter of extremes. McCormick Place is big — the biggest convention center in the country — and it’s beautiful,” Mr. Hunden says. “Chicago is a fantastic destination. But then there’s the other extreme: onerous work rules, problems of running the place, political issues. Chicago is an all-pro city, but it has a team with problems.”

FROM BARTENDER TO $130,000 JOB

Tanya Navratil was looking for part-time work in 1994 when she dropped by the Bella Luna Café on North Dearborn Street, near her home, and asked owner Danny Alberga if he needed a bartender a few nights a week. A couple of introductions later, she met state Sen. James DeLeo, D-Elmwood Park, an influential legislator who has placed dozens in state jobs.

It’s not clear what role he may have played in Ms. Navratil’s hiring at McPier in 1996. But in 2003, he placed her name on Mr. Blagojevich’s infamous “clout list” to be the agency’s human resources director. She was making $130,435 before resigning last summer.

Ms. Navratil could not be reached for comment; Mr. DeLeo did not return calls.

A McPier spokeswoman won’t discuss Ms. Navratil’s qualifications. That’s part of the problem: McPier’s salaried workforce is really two payrolls — professionals with years of experience in the convention and tourism business and politically connected staffers with murkier credentials.

It remains to be seen which group will absorb more of the staff cuts McPier announced last week.

Crain’s examined three years of payroll lists supplied by McPier. The 2009 payroll lists 1,832 people. Of those, 1,510 are hourly workers, mostly plumbers, electricians and other union members who work the trade shows at McCormick Place. That leaves 322 salaried employees, about 17.5% of the workforce, who consume 30% of McPier’s personnel costs.

In all, the agency spent $96 million on salaries and benefits in 2008 — about 44% of its revenue. That’s far more than its chief competitors. Convention centers in Las Vegas and Orlando spend less than 20% of revenue on personnel.

McPier’s payroll has fluctuated in recent years, but the changes have come mostly from hourly and temporary workers: It employed 1,902 hourly workers in 2007. Those numbers climbed to 2,230 in 2008, when the West Building opened, and fell to 1,510 in 2009.

But in the same period, the number of salaried positions grew, to 322 from 301. The number of employees earning more than $100,000 also increased, to 54 from 48.

The two men at the top of the organizational chart reflect the professional and political sides of McPier’s payroll. General Manager David Causton, who earns $197,380, is a convention-industry executive with 20 years of experience in Chicago and Baltimore. CEO Mr. Ochoa, at $195,000, owes his post to his close ties to Mr. Blagojevich.

Mr. Ochoa, a former Marine and unsuccessful aldermanic candidate, was already well-known to Mr. Blagojevich when the then-governor appointed him in January 2007. As head of the Illinois Hispanic Chamber of Commerce and its earlier incarnation, the Mexican-American Chamber of Commerce, Mr. Ochoa generated $87,850 in contributions for Mr. Blagojevich’s campaigns from the organization, its board of directors and their companies, Illinois Board of Elections records show.

Mr. Blagojevich, in turn, awarded the chamber $1.7 million in state grants, including $400,000 in 2004 to improve the competitiveness of minority contractors. Mr. Ochoa even had his own entry on Mr. Blagojevich’s clout list, placing some 24 job-seekers at various state agencies between 2003 and 2004.

Mr. Ochoa says he turned down Mr. Blagojevich twice before finally accepting the McPier post. “It’s important to have good relationships with the governor, the mayor and other elected officials,” he says. “My career has been about empowering the Latino community. I make no apology for that.”

No one gets hired at McPier because of politics, Mr. Ochoa says, but two of McPier’s three assistant general managers hail from the patronage-heavy 19th Ward on the city’s Southwest Side. James “Skinny” Sheahan is the brother of former Cook County Sheriff Michael Sheahan, whose service to Mr. Daley dates to 1981. James Sheahan served as the city’s director of special events from 1992 to 1998 before moving over to a $165,470 post at McPier.

The assistant general manager at Navy Pier is another 19th Warder with a familiar Chicago surname. Michael Degnan, son of longtime mayoral confidante and former state Sen. Timothy Degnan Jr., has worked at McPier since 1985 and earns $141,606.

McPier employs 32 senior directors of various departments, including Nonda Harris, the brother of former Blagojevich chief of staff John Harris, who draws a salary of $153,359 as senior director of development.

Nonda Harris, a former city aviation worker, shows up on the clout list of former Blagojevich fundraiser Chris Kelly, who committed suicide in September after being indicted on corruption charges. John Harris pleaded guilty to one count of wire fraud earlier this year after agreeing to testify against Mr. Blagojevich at the former governor’s trial next year.

The salaried workforce is rife with supervisory titles. There are, for example, 47 managers and 10 assistant managers, 34 directors and 14 assistant directors, and 40 people who have the word “coordinator” attached to their job descriptions.

Among the assistant directors is Kevin Lavin, who makes $90,408. In 2003, convicted fundraiser Antoin “Tony” Rezko included Mr. Lavin’s name on the Blagojevich clout list, urging that Mr. Lavin be named an assistant general manager of McPier.

Messrs. Lavin, Harris and Degnan didn’t return calls to comment.

Citing his long service to the city and McPier, James Sheahan says, “I make no apologies for who I am. If there’s a penalty for being a Sheahan, I can’t do anything about that.”

The McPier spokeswoman declines to discuss specific employees but says the agency is committed to “building and maintaining a highly skilled workforce.”

PAYING AND PLAYING AT McPIER

Midwest Environmental Service Group used to dust Mr. Blagojevich’s office as part of its three-year cleaning services contract at the James R. Thompson Center. But the Chicago-based company didn’t pad the ex-governor’s wallet, and now Vice-president Gregory Heath wonders if it may have cost him a contract at McPier.

In March, Midwest lost out to Chicago-based Globetrotters Engineering Corp. and Philadelphia’s Aramark Corp. for a five-year, $78-million housekeeping contract, even though Midwest’s bid was $20 million lower.

“I worked on that proposal for a year,” Mr. Heath says. “Why would you pay someone $20 million more when you have someone else qualified to do the work?”

Did campaign contributions make the difference? Mr. Heath doesn’t know, but says that’s one area where he can’t compete.

Globetrotters, which specializes in architectural and engineering services, has donated about $375,000 to various political candidates over the past 15 years, board of elections records show. The company gave $54,000 to Mr. Blagojevich alone. President Niranjan Shah kicked in another $16,000 to various candidates.

Globetrotters referred calls to Aramark. A spokesman for Aramark didn’t provide a response by press time.

Midwest, for its part, made a $1,000 contribution to the 26th Ward Democratic Organization in 2008.

McPier CEO Mr. Ochoa says the agency does not award contracts based on campaign contributions. Yet McPier contractors continue to pump out donations to state and local officials.

“We’ve certainly heard from Illinois businesses that feel if they want to compete for state contracts, they have to play in the campaign contributions arena,” says David Morrison, assistant director of the Illinois Campaign for Political Reform. “When you see someone make a huge donation and then get a tangible benefit, it sure looks bad.”

McPier has more than $1 billion in contracts outstanding. Vendors include big national corporations that distribute campaign contributions liberally. AT&T Inc., for example, gave $5.6 million to Illinois politicians in the past decade. The Texas company has McPier contracts worth $2.7 million.

Globetrotters’ partner, Aramark, is no stranger to the donation game either; the company has given more than $110,000 to Illinois candidates, including $7,000 to James Sheahan’s brother, former Sheriff Michael Sheahan.

Local companies big and small also contribute. AMS Mechanical Systems Inc. in Burr Ridge makes $150,000 a year providing refrigeration and other mechanical contracting services at McPier. State records show the company has donated $70,000 in the past decade — with $31,000 going to Mr. Blagojevich. Libertyville-based Aldridge Electric, recently awarded a McPier contract, has given $129,000, including $11,000 to Mr. Blagojevich.

AT&T and Aldridge didn’t return calls.

Thomas Kelleher, a vice-president at AMS Mechanical, says campaign contributions are a way to stay in the loop about upcoming projects. “Everything we’ve done has been bid competitively,” he says. “(Donating) is a way of getting to know people.”

Even would-be McPier contractors make campaign donations. McPier maintains a pool of 141 “qualified” vendors deemed capable of responding quickly to the authority’s needs. The vendors’ qualifications are approved in advance, but they still must submit bids to win contracts; deals worth more than $10,000 require approval by the McPier board.

Shah Engineering Inc. (which isn’t connected to Niranjan Shah) is qualified as a McPier vendor, even though the Chicago company pleaded guilty in 2007 to overcharging state and municipal entities about $5.5 million. After the conviction, McPier took work away from Shah Engineering but kept it on the qualified list. Vidyadhar Mohnalkar, McPier’s director of construction management, worked for Shah until 2006, and joined the authority in 2008.

Despite the recession, McPier’s spending on outside vendors is relatively unchanged. It spent $96.4 million on direct expenses in 2008 and $96.3 million in 2009 — $15 million more than it budgeted. Even the trimmed-down 2010 budget calls for $89.4 million in spending.

Mr. Gates called McPier’s procurement process “incredibly transparent” — so much so, he says, that “we’re often a difficult entity to bid for.”

The McPier spokeswoman says agency leaders are examining the contracting process to make it more open and easier to do business with McPier. “We encourage anyone and everyone to bid on (McPier’s) contracts.”

Midwest’s Mr. Heath still wonders what happened with his bid. “I guess it’s a cost of doing business,” he says of the campaign contributions. “Now everything’s turned upside down (at McPier) and they have to lay people off. We could have saved them a bundle.”

CONVENTIONAL WISDOM

The International Plastics Showcase, held every three years, is one of McCormick Place’s oldest and biggest trade shows. In June, the convention of the Plastics Industry Trade Organization drew 2,000 companies to exhibit in about 1 million square feet of McCormick Place’s West and South halls. About 75,000 people attended from 120 countries.

Afterward, Crain’s sister publication Plastics News polled readers about whether the industry group should hold its 2012 convention in Chicago or Orlando. The Florida locale took an early lead in the online poll, but then hundreds of votes began pouring in for Chicago. After one week, 2,912 votes had been cast, and McCormick Place was the runaway winner.

Meghan Risch, public relations director for the Chicago Convention and Tourism Bureau, McPier’s marketing arm, told Plastics News she had urged member companies, bureau staffers and McCormick Place employees to vote in the poll.

Stuffing the ballot box may be a Chicago tradition, but it didn’t save the convention for McPier. Organizers of the plastics show, which has been in Chicago since 1971, last week chose Orlando for their 2012 event, after some exhibitors complained about high costs and burdensome work rules at McCormick Place.

Exhibitor Ron Kirscht of Minnesota-based Donnelly Custom Manufacturing Co. says in a blog post that he was angered by McPier’s online stunt, even though he voted for Chicago “with reservations about the shakedown and price gouging that is manifest for the exhibitors and conventioneers.”

McPier officials say they are addressing these issues. In September, they dismissed 100 of the 150 electricians who are under the authority’s control. Their message to the remaining 50 foremen: Whoever shows up to work at McPier had better have the right attitude.

“We need to improve the way we do business and focus on the customer experience,” McPier Board Chairman Mr. Gates says. “This will send a message to everyone else who works with us.”

Those changes didn’t come in time to save another major convention: the Healthcare Information and Management Systems Society. HIMSS is based here, and its owners feel a certain loyalty to their city after putting Chicago in their three-city convention rotation after Hurricane Katrina left New Orleans without a venue.

The medical trade show, which attracted 28,000 people this year and generates about $50 million in local spending, uses 1 million square feet of exhibit space, numerous meeting rooms for breakout sessions and pre-conference workshops and the entire Hyatt Hotel, HIMSS Executive Vice-president R. Norris Orms says.

But the group announced this month that it will leave for Las Vegas in 2012 after stops in Atlanta next year and Orlando in 2011.

The reason: a $200,000 bill from McCormick Place electricians.

Mr. Orms says his convention may return if McPier can get its prices in line with other venues: “Chicago is a wonderful town. We like the people. We just disliked the price.”

High prices have another big Chicago convention mulling over a move, the Chicago Tribune reported last week. A spokesman for the National Restaurant Assn., which brings more than 50,000 people and $86 million in spending to the city every year, told the Tribune its exhibitors “continue to be concerned about the costs of doing business in Chicago and at McCormick Place.”

BIG THREE FIGHT FOR BUSINESS

Chicago is losing ground to its two biggest convention rivals, Las Vegas and Orlando. While McCormick Place still holds the top spot for the largest exhibit space, the convention centers in Las Vegas and Orlando are hosting more events. McPier also carries more than six times the debt of its two rivals. McPier officials say their rivals can strike better deals with trade show organizations because their convention operations are subsidized by tax dollars.

Hotel accommodations are another weakness for McCormick Place. Orlando and Las Vegas have many more hotel rooms near their convention venues than Chicago, says Thomas Hazinski, an analyst at New York-based HVS Capital Corp. who has advised McPier on hotel expansion.

A lack of rooms near the convention center makes it harder to attract both mega-conventions and the smaller shows and meetings that are becoming the lifeblood of the industry.

“It’s a disadvantage for McPier, particularly for the smaller shows that would fit into the (new) West Building,” Mr. Hazinski says. “We’re competing with second-tier cities because they get (connected hotel rooms) in those cities. Even Milwaukee has more connected rooms than Chicago.”

Towns such as San Antonio, Indianapolis and Denver each have 4,000 hotel rooms connected to or very near their convention centers, says Mr. Hunden of Hunden Partners. The Hyatt has 800.

Mr. Gates doesn’t buy that notion.

“We don’t need more hotel rooms onsite. We need more hotel rooms in general,” he says. “With our dedicated bus lane, you can be downtown in seven minutes.”

Despite all the issues before them, Messrs. Gates and Ochoa strike an optimistic tone about McPier’s future. Mr. Ochoa points to a $10-million incentive fund passed by the Legislature that the authority can use to offer better deals to potential trade show customers.

Mr. Gates promises a stronger promotional effort from McPier.

“We’re not very good at marketing ourselves,” he says. “We’re going to demonstrate that we’ve made some big changes.”

(Correction: This story reflects a correction of an error in the original version, which incorrectly reported that Kevin Lavin is the brother of Jack Lavin.)

©2009 by Crain Communications Inc.

By William Ng

A ‘modest’ 40,000-sf exhibit-space addition highlights a new revitalization plan

also intended to make repairs.

After suffering a major setback 15 months ago when its ambitious expansion plan

was scrapped, New York City’s Jacob K. Javits Convention Center may yet again

get new exhibit space, as well as major renovations and repairs.

A far smaller effort compared with a multibillion-dollar initiative that was axed by

ex New York governor Eliot Spitzer in January 2008, the new $463 million plan

would add 40,000 sf of show space to the Javits Center. It also would replace a

leaky roof with a green structure and replenish other fixtures, such as the exterior

curtain wall system.

The new, column-free exhibition space would be housed in a new wing with

independent entry and exit points, and the wing would connect with the existing

building via a second-story concourse.

Work on the project could begin immediately upon state approval, and the Javits

Center would remain in full operation. Funds from a $1.50-per-night hotel

surcharge introduced in 2005 would pay for the project.

Job creation in a down economy is the impetus behind the latest plan. Governor

David A. Paterson and other top city and state officials said it would create 9,000

construction and related jobs. But George Fertitta, CEO of NYC & Co., the city’s

tourism marketing agency, welcomed the project as good news for business

groups, saying “a refreshed and modernized Javits Center will further elevate [the

city] as a premier convention and meetings destination.”

At 765,000 sf of total exhibition space, the two-decade-old Javits Center still ranks

among the country’s biggest convention buildings, but new and expanding

facilities in other destinations are catching up in the “space race,” according to

analyst Rob Hunden, president of Chicago-based Hunden Strategic Partners.New

York City’s enduring popularity and large meetings hotels, such as Time Square’s

Marriott Marquis, have continued to buoy the Big Apple among top U.S.

convention cities.

One prominent Javits user, Ken McAvoy, senior VP of operations for Reed

Exhibitions, and a member of a lobbying group of major Javits clients—called

Friends of Javits—has said before that Reed might have to relocate some of its

trade shows if the Javits Center’s infrastructure didn’t keep up with exhibition

needs. He said the latest plan—with its marshalling yard space, refurbishment of

key building elements, and modest space expansion— “is a step in the right

direction.”

Mayor Michael R. Bloomberg echoed that, saying it was important to move

forward on a Javits Center revitalization but adding that it must be followed by a

long-term plan to meet continuing demand for additional convention space in the

Big Apple.

Any long-term plan for the facility should include a convention hotel of 1,500 to

2,000 sleeping rooms, said Hunden. “Since they have not addressed the hotel

situation, doing a massive expansion [now] would not be prudent,” he said,

referring to the city and state agencies in charge of the facility. “Improving what

they already have is their best bet now.”

An anchor hotel was pursued as part of a major package in 2006 to push the

Javits Center’s exhibition space over the 1 million sf mark while adding

significantly more meeting rooms and ballrooms and revamping its exterior. But

from 2006 to 2008, that $1.8 billion proposal was modified continually and scaled

down until it was canceled early last year due to inflationary costs.

“New York City needs to have a world-class convention hotel with its own meeting

space that enhances what the Javits offers,” said Hunden. “The Javits is one of

the largest convention centers in the country, but it is absolutely difficult for groups

to get good room blocks in New York City.”

Hunden sees the Javits Center and New York City evolving from a bidder for the

country’s biggest conventions to a specialist for the shows that have to be there.

He cited Indianapolis’ expanding Indiana Convention Center—which will have as

much space as the Javits Center in two years, plus a multi-hotel complex—as one

example of how lower-cost destinations are narrowing the gap infrastructurally.

“While New York City is always going to be more costly, the spread between the

Javits and other venues, if not corrected, could force us out,” said Reed’s McAvoy.

Originally published April 20, 2009

But the need is real and the potential rewards are great for the city and region.

City officials should keep talking with the potential developer to try to reach a tentative deal that’s good for everybody. Any pitch for a public subsidy deserves scrutiny yet shouldn’t be dismissed out of hand.

Monona Terrace, the city’s Frank Lloyd Wright-inspired convention and community center on Lake Monona, needs more hotel rooms within a couple blocks to attract bigger conventions. A study by Hunden Strategic Partners of Chicago suggests Monona Terrace could pull in more than 100 additional events and millions more in revenue if it had a few hundred more rooms to accommodate larger groups.

After the Marcus Corp. of Milwaukee built the 14-story, 236-room Hilton Madison next to Monona Terrace in 2001, the number of conventions doubled. But the city never considered the single hotel sufficient. And now convention business has leveled off.

So the city is negotiating with Marcus to build a 320-room hotel, likely connected to the convention center by skyway or tunnel. Marcus would restore and convert the historic Madison Municipal Building into a hotel with a tower for guest rooms behind it. The tower would sit on a new parking facility with spots for the city and hotel guests.

The 450-space Government East parking garage across the street would then be demolished to make way for a multi-use project including three floors of city office space.

The outline for the project is intriguing and worth consideration. But any amount of public investment will have to be balanced against competing needs elsewhere in the city.

Downtown Ald. Mike Verveer says he’s keeping an open mind. So should other city officials and taxpayers.

More convention business would help Downtown Madison stay vibrant — something everyone in the region should want. A healthy and fun business climate Downtown can help lure top employers and good-paying jobs while deterring crime and boosting city revenue from its hotel tax.

A lot of questions remain, but so does a big opportunity.

Madison should try to move this exciting project forward in a cost-effective way.

—–

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Copyright (c) 2009, The Wisconsin State Journal

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Nov. 25–VALPARAISO — The numbers don’t lie, and they indicate a convention center, even a small one, would not be a good investment for the city, Mayor Jon Costas said Monday. Costas and other city officials met with representatives of Hunden Strategic Partners, who presented the city with a final draft of the feasibility study of constructing a convention center in conjunction with a sports arena that could become the new home of the Valparaiso University basketball team and other athletic activities.

Costas said the city will review the 228-page report with the university over the next couple of weeks and make suggestions to the consultant before presenting the report at a public meeting the second week in December.
“I think the report will be helpful for Valparaiso University because it will indicate we don’t have the demographics for a full-scale convention center, but it is helpful with regard to an arena and where it might be located, how it would be used and the costs,” Costas said. “The city wants to help the university in any way to expand its programs.”

VU spokesman Reggie Syrcle said the university had not seen the report Monday afternoon. Syrcle said a new field house addition to the Athletics-Recreation Center is in the university’s long-range plans.

Hunden was hired in March to conduct the study of the proposed facilities. The $65,000 study was funded by $10,000 from the city’s Redevelopment Commission, $10,000 from the city’s share of the county economic development income tax, $5,000 from the Valparaiso Economic Development Corp., $10,000 from the Porter County Convention, Recreation and Visitors Commission and $30,000 from donations by VU alumni.
Costas said the report’s data also will be helpful to HyettPalma, the consultant the city hopes to hire to do a phase two study of the downtown. While a convention center would be a bad financial risk, Costas said the recommendations concerning the arena will be a university concern.

“The report looks at the city and the university from many different angles,” he said. “There are a lot of good suggestions coming out of it, and it will help us look introspectively and look forward to the future of the city. We turned speculation into helpful data and realistic alternatives.”

Fueled by a $740,000 regional advertising campaign, local tourism spending went sky high even as the economy was in a free fall. According to a study commissioned by the Indianapolis Convention & Visitors Association, tourists spent $185.9 million in the local market in 2008, up from $88.9 million in 2007. The figure doesn’t include spending on conventions and corporate outings.

ICVA CEO Don Welsh credited an aggressive advertising and marketing plan for the increase. The ICVA this year partnered with eight cultural destinations, including The Children’s Museum of Indianapolis, Conner Prairie, Indianapolis Motor Speedway and Indianapolis Museum of Art, to launch the campaign here and in Chicago, Louisville, Cincinnati and St. Louis.

Several key indicators showed the initiative worked. The number of trips to the city increased from 170,182 in 2007 to 270,847 this year. Spending per trip increased from $577 to $687 and the average length of stay for tourists climbed from 2.3 to 2.7 days. “These results confirm that our reputation as an affordable destination with multiple attractions and activities continues to grow,” Welsh said.

Respondents to the study conducted by Carmel-based Strategic Marketing & Research indicated that Indianapolis was the second-most-popular destination in the Midwest, trailing only Chicago. Welsh is promising more aggressive marketing in 2009, including a sweeping branding campaign. The branding campaign will be rolled out in specialty convention and tourism publications as well as through trade shows and other tourism industry gatherings. The ICVA is interviewing ad agencies and marketing firms and plans to hire an agency within three weeks to help with the campaign. “We want to demonstrate all the great new products and amenities this city has to offer,” Welsh said.

With new amenities, including the new airport, Lucas Oil Stadium and hotel additions, Welsh said it’s time for the marketing plan to step up and match the tourism product the city offers. “A lot of cities have better marketing and a better brand than the product they have,” said Welsh, who left the Seattle Convention & Visitors Bureau in August to take his post with the ICVA. “In the case of Indianapolis right now, we have a product that is better than the brand positioning.”

The initiative to bring in more leisure spending comes as numerous cities-including Indianapolis-are building or expanding their convention centers, ratcheting up the competition for conventions and other corporate business. “You’re seeing a transition from a seller’s market to a buyer’s market,” said Heywood Sanders, a University of Texas at San Antonio professor and author of several studies on the convention and tourism industry. John Livengood, president and CEO of the Indiana Hospitality and Lodging Association, thinks ICVA’s plan to grow leisure as well as convention business is smart. “The ICVA has been doing a much better job of promoting leisure travel, which they haven’t done traditionally,” Livengood said. “As more hotel rooms come online in this city, and especially while the convention center is being built, I think it’s a very savvy strategy to diversify the efforts to bring in visitors.”

Central Indiana might actually be benefiting from the lean economy, said Rob Hunden, president of Hunden Strategic Partners, a Chicago-based consulting firm specializing in destination attractions. “There are a number of people looking for an abundance of activities a relatively short distance from home,” Hunden said. “The city’s central location and relative affordability puts it in a strong position.”

Today, they announced the leadership team that will shepherd the project through the next steps. Rick Lovan, growth coordinator for Jeffersonville, will serve as the local project manager. He will work closely with other city officials, specifically Gayle Robinson, executive director of redevelopment, and Jim Urban, director of planning and development. Jeffersonville also has retained the services of Chicago-based Hunden Strategic Partners, and Memphis, Tenn.-based Pinkowski & Co., the two firms who conducted the feasibility study.
Nashville, Tenn.-based Earl Swensson Associates Inc., the architecture firm that designed the Gaylord Opryland Resort and Convention Center in Nashville, will work with Pinkowsi on the design of the Jeffersonville facility. And Jerry Wayne, a former Floyds Knobs resident who currently serves as sales and marketing director for The Greenbriar, a luxury hotel in White Sulphur Springs, W.Va., will share insights on the hotel and meeting planning industry.

City officials, along with the various consultants, are reviewing possible sites and financing options. Lovan said the group has narrowed the list of six sites down to two: the East corner of Market and Spring streets, which is about six acres; and the intersection of Maple and Mulberry streets, including Colston Park. The park is 4.1 acres, Lovan said, but the site could be expanded to more than 14 acres.

Business First previously reported that the complex likely will need a total of 6.7 acres for the convention center, hotel and parking. Tentative plans call for the convention to include a 30,000-square-foot exhibit hall, a 17,000-square-foot grand ballroom, a 7,000-square-foot junior ballroom, 19 meeting rooms totaling 15,000
square feet and 56,000 square feet of office and event-preparation space.

The recommended hotel would include a 9,000-square-foot ballroom, a 3,300-square-foot junior ballroom and eight meeting rooms totaling 6,750 square feet. Lovan said the goal is to break ground in the third quarter of 2009. He acknowledged that there are many steps between now and then that could push back the time frame. But is confident the project will come to fruition.

“It’s not a pipe dream,” Lovan said. “This is really going to happen.”

Madison, Marcus Corp. intensify
talks on hotel to serve Monona
Terrace

By DEAN MOSIMAN
608-252-6141
March 23, 2009

City officials are speeding up negotiations with a developer on a major hotel to serve Monona Terrace — a controversial and costly proposal that would use the landmark Madison Municipal Building.

The hotel would be the centerpiece of a complicated redevelopment over two blocks that would add perhaps 320 hotel rooms, likely connect them to the convention center by skyway or tunnel, restore the Municipal Building, provide new parking facilities and deliver a separate mixed-use project with new city office space.

“We’re communicating on a weekly basis, sometimes more frequently,” Mario Mendoza, aide to Mayor Dave Cieslewicz, said of talks with Marcus Corp. “There’s a lot to be excited about, but we’re not there yet. We don’t know for sure that a deal is a go.”

While some in the hotel industry oppose any city subsidy toward another private hotel, a new study says a hotel close to Monona Terrace is vital to ensuring its long-term success.

“If another hotel isn’t built, we’re concerned about falling further behind our competition,” Monona Terrace Director Jim Hess said. “It’s critical for the future of Monona Terrace and Downtown Madison.”

Marcus, based in Milwaukee, opened the 14-story, 236-room Hilton Madison at 9 E. Wilson St. next to Monona Terrace in 2001 and has first option to build across the street in a parking lot behind the Municipal Building or the adjacent Government East parking garage site. But that hotel has never been viewed as big enough to consistently draw large conventions to Monona Terrace.

‘A complicated deal’

Marcus officials could not be reached to comment for this story but have confirmed the company’s interest in a new Downtown hotel project. Mendoza said the biggest challenges are financing and figuring out how the city and hotel would share a parking garage. The hotel and parking portions of the project alone are worth an estimated $78 million; the city hasn’t estimated the value of the mixed-use project across the street.It’s not clear if or how the city might help Marcus make a project economically viable, Mendoza said.

The city could reduce the cost of the property, appraised at $11.7 million, or use tax incremental financing (TIF) to help with the parking garage or skywalk.

“It is a very complicated deal,” Mendoza said, adding that the sides should know if a project is feasible in the next few weeks.

If the city and Marcus can’t make a deal, the city would likely move ahead with planned improvements for the Municipal Building, keeping it for city employees, and build a municipal parking garage behind it.

If a deal is struck, the redevelopment could start in 18 months to two years, Mendoza said.

Losing business?
City officials and others in the business community contend the $67 million convention center, based on a Frank Lloyd Wright design and opened in 1997, is losing business because it can’t offer enough hotel rooms nearby.

A new study by Hunden Strategic Partners of Chicago and funded with $40,000 in room tax money supports that view.

The study said Madison’s current hotels don’t meet the needs of convention planners or match what they can get from competitors. Just two hotels — the Hilton and Best Western Inn on the Park — are within the industry standard of 1,200 feet of the convention center, it said. The number of conventions at Monona Terrace doubled after the Hilton opened in 2001 but have stagnated at about 70 per year, Hess said. The new study estimates that since 2001, the city lost 81,000 attendees with an economic impact of $50 million due insufficient hotel space near Monona Terrace.

Hunden recommended a 400-room hotel, which it estimated would result in 117 more events at Monona Terrace, 200,000 more attendees, $8.2 million more in net revenues, and $4.6 million more in room taxes between 2012 and 2016. Site constraints forced negotiators to scale that back, but the impact is still likely to be significant, backers say.

“It’s been one of our key issues,” said Deb Archer of the Greater Madison Visitors and Convention Bureau, which supports a new hotel but is neutral on the question of a public subsidy.

Public money questioned
Marcus was able to secure public financing for the existing $31.2 million Hilton — a move that was controversial then for the same reason the new proposal is today. Marcus got $9.5 million in TIF support and $1 million for a pedestrian bridge between the hotel and convention center. Stephen Zanoni, general manager of The Concourse, 1 W. Dayton St., the city’s biggest hotel with 356 rooms, said he worries a city subsidy through land or TIF would unfairly draw customers from existing facilities.

“We’re not against the hotel being built. We are against the city subsidizing it,” Zanoni said, noting that the Concourse recently made $3.5 million in renovations.

Ald. Mike Verveer, 4th District, who represents the core Downtown, said he supports the concept of a new hotel but has heard from operators who oppose a subsidy.

“I’m opened minded,” Verveer said of a subsidy. “I would hope it’s not necessary.”

City Council President Tim Bruer said that while the city may be reluctant to directly finance the hotel, there are parts of the development where the city and Marcus have a mutual interest that may merit subsidy.
This could be an invaluable spark plug,” Bruer said. “The city absolutely needs to completely explore every avenue.”

Possible phases for a new Downtown hotel:

• Marcus Corp. would acquire the Madison Municipal Building block, appraised at $11.7 million.
• The city would build a parking garage behind the Municipal Building. Early talks called for an 800-space ramp (600 for the city and 200 for the hotel), but negotiators may now be discussing something smaller.
• The city would move employees from the Municipal Building to a temporary location.
• Marcus would refurbish the Municipal Building, a neo-classical revival style building built in 1927 and on the National Register of Historic Places. Marcus would use it as the main hotel entrance and locate ballrooms, meeting space and perhaps some guest rooms there. A hotel tower would be built above the new parking garage and would likely be connected by skywalk to Monona Terrace.
• The city would demolish the 450-space Government East parking garage across the street and build a multi-use project including three floors of city office space.