Local in Ann Arbor

All about a new letter from Valiant Partners LLC  and what it means about the conference center

At the January 21 meeting of the Advisory Committee (RFP for the Library Lot), the committee chose to continue with both proposals for conference centers.  As reported by the Ann Arbor Chronicle, there were some serious reservations voiced by the city’s deputy treasurer, Mike Pettigrew, and assistant city attorney Kevin McDonald. Both expressed concern about the contingency built in by Acquest that the city would have to build a conference center so that they would build the hotel, and about the risk that the city would assume in the Valiant proposal.   Valiant called upon the city to subordinate payments toward the city bond (a full-faith and credit bond issued by the city and payable by the taxpayers) to a first mortgage private lender.  In other words, if there was not sufficient money made by the project, the bank would be paid before the city.

Evidently the committee must have sent some questions or comments to the two developers, though that is not shown on the city RFP website.  Valiant Partners recently sent a letter to the committee.

The letter seeks to reassure the committee that Valiant is ready to collaborate.  Much of the letter is an unadorned sales pitch. “This is a unique economic time and the Library Lot is a unique location, which can serve to stimulate economic development in our community…A Hotel and Conference Center on this location is a perfect fit.”  But the real meat of the 2 1/2 page letter is in some adjustments they are making or willing to make:

• They will hire a hospitality firm, HVS Consulting, to do a “demand study,” to be completed in three weeks (the letter is dated January 28).
• They are flexible on the design.  They offer to consider reducing the conference center from 32,000 SF to 25,000 SF.
• They recognize the concern about risk to the city and actually offer to make the city’s claim on proceeds equal to or before a mortgage lien holder.  (Note that this might affect their ability to get financing.)  They have other thoughts about this, including TIF bonds  (those would not be issued by the city as with their current proposal).

Notably, they concede in the letter that hotel occupancy in the area is already low.  According to a local expert in these matters, Chuck Skelton,  Ann Arbor hotel occupancy is in the low 60% range and ADR  (average daily rate) is around $99.  He also says that full-service hotels need to have occupancy in the 60-65% range in order to break even. (See interview with Sabra Briere.)  The Valiant partners say, “We particularly want to stress that the existing hotel market for Ann Arbor is limited, and that the only way a new hotel can be supported is through the new demand to be created by the Conference Center”.  In other words, without new traffic to a conference center, the hotel would only take business from hotels already in the area.

There have been many studies and reports in recent years that conference centers are often losing propositions for cities, and are not guaranteed draws.  Looking at one list of criteria, Ann Arbor doesn’t seem to be very well-placed.  In “If you build it, will they come?” the author asks,

• Is it a retreat, to get away from where they normally are?
• Is it to get together in a convenient place, centrally located?
• Is there any unique draw to your community?
• What are their alternatives (i.e., who are your competitors)?
• Why would they come to you instead of them (the competition)?

One would have to point out that, as nice as Ann Arbor is,  it is not really a destination as some cities are. The weather is bad a number of months of the year, it is not centrally located and getting here from Detroit Metro is not particularly convenient.  As to a unique draw, though we have the UM, it does not offer tourist-type activities.  So for Ann Arbor to compete for new business (as apart from conferences that were already going to be here because of the UM) seems questionable.  Ann Arbor or Chicago? or Denver? or San Diego?   Think about it.

Valiant also returns to the argument that a conference center is much desired by the community.  “The need for a downtown conference center has been in discussion for more than 40 years, and now is the perfect time to plan for the building of Ann Arbor’s first Conference Center.  That demand is seemingly clear to all in the business and University community…  Our program and pro formas so far have been based on the evaluations and desires of local institutions, such as AACVB, the University of Michigan, and SPARK, as well as many members of the community.”

But according to Mary Kerr, President of the Ann Arbor Area Convention and Visitors Bureau, the CVB board has not taken a position on a conference center, and Jim Kosteva, the community relations liaison for the University of Michigan, has repeatedly stated that the UM takes no position on a conference center built in the city.  A search of the SPARK website does not reveal a position on a conference center.  Oddly, Valiant does not reference the Ann Arbor Chamber of Commerce although we know that former Chamber president Jesse Bernstein was very influential in behind the scene talks with Valiant.

In any event, is the key point that some people might sort of like to have a new conference center?  Or is the point to make a good business decision that will not cause more grief  (debt for the city, competition for existing local businesses) than benefit (unproven assertions of economic development benefits)?

The Advisory Committee meets again on February 16.  It’ll be interesting to see how they address the information in this letter.

UPDATE: Today (February 16) a group of citizens and one reporter (Dave Askins from the Chronicle) were met by a city staffer at the conference room where the Advisory Committee meeting was supposed to be held.  We were told that the meeting had been canceled at the behest of the chair, Stephen Rapundalo.  No explanation – no new date.

SECOND UPDATE: Hotel business in Michigan continues to show signs of stress.  See the recent article in the Free Press about first-line hotels like the Hyatt Regency Dearborn (a conference hotel) going into default on their debt.

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This entry was posted on February 11, 2010 at 7:17 pm and is filed under Business, civic finance. You can subscribe via RSS 2.0 feed to this post's comments. You can comment below, or link to this permanent URL from your own site.