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Our Shining City on a Hill

March 11, 2010

About the University of Michigan transportation forum of March 10, 2010, and what it said about the relationship of the UM and Ann Arbor.

The University of Michigan presented a thought-provoking look into its future on March 10 (see here for AnnArbor.com’s coverage of the event) by combining a student project with presentations both from vendors of alternative transportation and by people who are actually operating such systems.  But the evening also demonstrated how the UM is really another city or state, not part of Ann Arbor at all.  How will its future affect that of our city?

I love going onto the UM campus.  The very air is different, as though of a different ionization state.  The campus sparkles and is thronged with students preoccupied with the bigger issues.  The buildings are monumental.  And when we townies are allowed to participate in some of its events or lectures, the result is so stimulating.  Of course some of this almost somatic reaction of mine is due to my own history as a child of a college professor who became a college professor.  Until I moved to Ann Arbor, I was always part of a college campus in some role or another.  But I think that even those without this personal history can feel the magnetism and power of this institution and this campus.

It is almost as though the UM were part of an alternate reality.  Let’s suppose that we are still living in the Michigan of before September 11, 2001.  Our manufacturing sector is still strong.  The tech boom hasn’t yet faltered.  And local and state governments still have plenty of money for infrastructure and programs, enough to make grants and other investments in the future. The Federal budget is even in surplus!  In that auditorium, breathing that air and listening to the student presentation, I could almost believe.

As described by the forum’s moderator, Jim Kosteva, the forum was forecast by UM President Mary Sue Coleman last fall (a video interview is here and a discussion is here) when she said that she wanted to get in the cutting-edge, best thinkers on transportation.  She also acknowledged (rather perfunctorily) an interconnection with the city on transportation issues.  In the interview, she also says that the UM began to seriously consider the Fuller Road Station (also called the Fuller Intermodal Transit Station, or FITS) when they acquired the Pfizer campus on Plymouth Road, now called the North Campus Research Center (NCRC).  (The city webpage has a list of documents describing FITS;  the Ann Arbor Chronicle reviewed one of the public meetings about the station.)

Acquisition of the NCRC has nearly completed a necklace chain of campuses that make UM cut a swath through the heart (slightly displaced to one side) of Ann Arbor.  Beginning with the East Medical Campus in Ann Arbor Township at the corner of Plymouth and Earhart Roads, to the NCRC on Plymouth Road and then to North Campus (between Plymouth and Fuller Roads), the Medical Campus (Fuller Road to near Geddes Avenue), the Central Campus (near downtown, extending down State to Hill) and then to the Athletic Campus (between Main and State, and parts on South State), there is a nearly continuous crescent of UM property and facilities.

The students taking Industrial and Operations Engineering 424 were tasked last fall with applying their training to constructing (in concept)  a transportation system that would unite these campuses.  They worked in several teams to apply their training (which was not previously in transportation) to come up with fully-fleshed plans.  The class voted to use a monorail system for their plan.  (This eliminated several other possible choices, including buses, commuter rail, streetcars, and autonomous vehicles.)   With the monorail (an elevated system), the entire system would be traversed in a 24 minute round trip, with 9 stops.   There would be three high-capacity stations, at Fuller Road Station, CC Little in Central Campus (this looked to be compatible with recently announced plans for a transit center in this area), and Pierpont Commons on North Campus.  That would leave six lower-capacity “intermediate” stations scattered along the route.  All was very tightly calculated and scheduled, with different teams coming to similar estimates of time for the route.  Some dollar estimates were provided; the monorail system to cost $434 million (construction) and the stations $31-50 million.  It was stated that operating costs for the bus system could then be reduced.  (Different teams provided estimates for their own sections but there was no unified budget presented.)  One group did explore funding options, which included Federal funds: formula funds ($1 million), New Start money ($225 million) and another grant program (something about electrical transmission)for $10 million.  They estimated $421,000 annually from advertising and $1-2 million from parking revenues at NCRC (using the current parking lots, which require no new investment).  Mention was made of a “funding gap” with the AATA – apparently to pay the cost of the UM’s agreement with the AATA for connection with city buses.

Students were the major expected customer class, and a number of them were interviewed for the study. But the team also looked up zip codes for UM employees and found that most of them live north and west of Ann Arbor.  Accordingly, they made some regional transportation recommendations, including a connection between AATA buses and WALLY, a new freeway exit at Nixon Road, and a commuter shuttle bus between Ann Arbor and Ypsilanti using the old Norfolk Southern railroad right-of-way.

The rest of the program including some eye-opening technologies and some examples of functioning systems.  The Cleveland Bus Rapid Transit system was impressive.  (Michael York, who spoke on behalf of the Euclid Corridor, noted that it has “train-like” properties and that it required total reconstruction of its route. ) The Minneapolis Hiawatha Line is a classic light rail application.  There were also funitels and automated people movers by Bombardier (their representative was so well prepared that he showed a stop at FITS on one slide).   My favorite of all was the Unimodal Personal Rapid Transit vehicle (a gondola-style maglev).  These typify what you would expect to see in a city of the future – what we used to call the 21st century.

But all these dazzling notions were brought down to earth when public comment began with a couple of speakers from the Center for Independent Living inquiring about access for the disabled. (One of the forum presenters pointed out that AATA provides paratransit service but the gondolas include a special ADA vehicle that is dispatched on request.)  Most of the public were speaking from the viewpoint of residents of Ann Arbor rather than UM students or employees.  Alice Ralph asked about the social impact of an elevated system vs. a ground-based system.  She pointed out that much of the talk about density in Ann Arbor over the last few years has focused on the notion of a vibrant street scene.  What is the impact of removing people to a system that isolates them from the street?  She concluded that “as a double community, we should talk about that”.  Another speaker, who identified himself as a “citizen who is part of the silent majority”, said that the point seemed to be only how to connect the UM corridors.  He pointed out that a lot more people use Plymouth Road and State Street besides UM-related travelers.  He asked whether the passenger numbers that were being used to plan the system included other consumers in the community and challenged the planners to look a little further – “is it good for the community?”.  Kosteva responded that “we are in partnership with the DDA and AATA to do signature corridor analysis and fully recognize the importance of the broader impact” (on the community at large). (He was referring to the Ann Arbor Connector Study; the Ann Arbor Chronicle’s comprehensive history is here.)  Richard (Murph) Murphy asked at the end how the planning was addressing different groups of users.  Part of the system will be carrying hospital visitors and much of it campus traffic.  How will the technology differentiate between those (and, I will add, other users)?

Peter Allen’s comment was one of his typically scintillating overviews and futuristic visions.  Allen nearly threw off sparks as he noted the gleaming future with the North-South rail (WALLY), the “game-changing” East-West rail (the Ann Arbor – Detroit project being managed by SEMCOG), the need to take into account the “bike agenda” and “walking agenda”, and the expected increase in Ann Arbor’s population as a result of the 5 years of analysis following the Calthorpe report.  He said that we would be adding 20,000 to 30,000 people to Ann Arbor’s population and reminded us that he teaches TOD (transit-oriented development) and spoke of the “sidewalk excitement” around the NCRC, with people living, shopping, and recreating in the new areas created by a state-of-the-art transit system.  But he had a somber assessment of the likelihood that Federal funds would be available to pay for the new system.  Instead, he said, we should look to the “excess” land around the stops and use it to create income to pay for the transit.  In other words, create dense development along the system line.  (Allen and his students have been advancing proposals for heavy development associated with FITS.)

Allen’s comments highlighted an uncomfortable inference I made months ago.  It appears that much of the city of Ann Arbor’s planning has been guided by the needs and plans of UM.  As I reported earlier, the city has engaged with the UM to plan FITS at a final estimated cost to completion of $40-45 million.  The memorandum of understanding was adopted by council in the summer of 2009.  But it appears that the major point of both FITS and the connector study (discussed in my earlier post)  would be to enable the UM transportation system.   As I also noted in another post, the city has engaged in a number of planning exercises that seem to be pointed at establishing TOD along “signature routes” as defined by the Ann Arbor Transportation Plan Update.  Two of the important signature routes are those highlighted in the UM plan, Plymouth Road and State Street.  Apparently, some invisible hand has been guiding city policy to fit the UM’s long-term plans for some time.  When the Area, Height and Placement public meetings were being held in the summer of 2009, one city planner was pushed repeatedly to explain why the pressure to pass these changes seemed to be so intense, given Ann Arbor’s current slow population increase.  He finally acknowledged that it was partly the UM’s expected employee growth. Put the UM’s expansive vision of its future together with the local wish to make a source of wealth available through development, and you have TOD and signature routes.

But what is the benefit to the city of Ann Arbor of these visions, increasingly being clothed with flesh?  When I say “the city of Ann Arbor”, I mean the civic body itself (the government and all its agencies), its residents, and its local businesses, as well as that group identity that makes us a community.  First, if these transit plans can be realized in any substantial part, will they be usable by the community at large?  The picture presented on Wednesday night was mostly that of an internal connection within the UM family of campuses.  Will advanced technology and signature routes make the life of the non-UM employee who lives in Ann Arbor any easier or better?  Will a UM monorail system (for example) even be accessible to non-UM personnel?  (To my knowledge, only UM students and employees can use their bus system.)

The second concern is the cost to our city and transportation budgets of realizing this vision.  The way FITS is materializing is troubling; we have committed to a fair proportion of its costs, and the funding thus far has come directly from our own infrastructure accounts.  But it seems unlikely that in its earliest form (as a mostly UM parking structure), it will benefit city residents.  Meanwhile, we read depressing headline after headline.  No more mowing in the parks.  Police and fire personnel being laid off.  Loss of trash removal a possibility.  Stadium Bridge is falling down. Our city grows shabbier and more and more down at the heels.  (I learned in January why my street is no longer cleaned after leaf pickup.  The street cleaners were shifted to another fund and they don’t do that kind of cleaning any more.  So I have leaf compost blocking the spring runoff.)  How do we afford supporting the UM’s needs or wishes, especially since they don’t pay taxes even on the new NCRC research facilities (which apparently will be hosting start-up companies).

All this seemed rather petty when sitting in that fine auditorium.  The UM’s vision makes a lot of sense from its own viewpoint.  It is an internationally recognized university with a far-reaching vision that is being realized successfully.  Our poor little shabby town has become something of an awkward appendage to this shining city within a city.   And even as a momentary guest in it, briefly I could believe.  But I still live here in the other city.  I hope that someone is watching out over us, too.

————–

Note: the phrase, “a shining city on a hill” has a long history.  My picture of it was always as a dazzling promise of wonders to be aspired to, but where all may not enter in.

Categories: civic finance, Sustainability, Trends

Comments: 11 Comments

Young Talent, Innovation, and the Growth of Ann Arbor

March 7, 2010

Introducing a meditation on the underlying themes in a discussion of  the future of Ann Arbor.

Concentrate, the online magazine that has a strong pro-development stance, recently (March 4, 2010)  sponsored a speaker event called “Downtown Development – a Generational Divide”.  The intro on the website was ominous. “Who decides what Ann Arbor’s downtown looks and feels like? Are we making it a place where young and talented people want to be? Is density good for our community?”  Many of us who are tired of being called “NIMBYs” for supporting neighborhood integrity and historic preservation found ourselves on the defensive, since it seems to imply that the old folks better get out of the way and let development blossom, because that’s what the young want.  (Some of the comments on AnnArbor.com’s story reflected this defensiveness.)  But the talk wasn’t like that, and the panel, which consisted of two “younger generation” and two “older generation” types, avoided all the pitfalls and pointed the way to a number of discussions that we are having and should continue to have.  The evening also highlighted the need to examine the underlying assumptions that are guiding much of the talk about Ann Arbor’s future.

Dan Gilmartin, executive director of the Michigan Municipal League, was the speaker.  He has apparently been giving the same talk all over Michigan.  (The MML is an educational organization that promotes the causes of cities.)  His message is blunt: Michigan is sinking fast, and it’s never going to be the way it was.  We have to change.  But much of this was predicated on the loss of the auto industry, less of an issue for the Ann Arbor area.  (We are the company town for the University of Michigan, which looks as though it is staying put.) Still, he made an important point.  It is important for a city, including ours, to attract and retain young people who will bring their vitality and creativity to bear on making new kinds of economic opportunity.

Gilmartin was supporting a campaign that has come out of Detroit, called Let’s Save Michigan. A handout passed out at the talk had the following bullets, not visible yet on the website.  I wish they had done a little copyediting before putting it out.

What We’re For

  • Attracting and keep (sic) a talented/educated workforce by offering livable communities, green jobs, vibrant downtowns, and arts and culture.
  • Targeted economic incentives by bringing jobs to cities and urban areas.
  • Improved quality of life by promoting bars and restaurants, parks, and museum in walkable, mixed-use neighborhoods.
  • Innovative job creation by incentivizing entrepreneurship and small business.
  • Smart city redevelopment by rebuilding downtowns and repopulate mixed-use areas.
  • Sustaining and improving existing infrastructure by maintaing (sic) and improving public transit in urban areas.
  • Appropriate taxation policies that reflect our modern economy and promote better use of existing infrastructure.

The language is garbled and sometimes opaque on careful reading, but the theme is a familiar new urbanist one with a strong dose of “Cool Cities” (what the points about economic incentives indicate are a mystery).

Gilmartin’s talk was easier to understand and well-presented.  He started right off by saying that there was a cultural and attitudinal divide in discussions of Michigan’s future.  “Michigan is in such a funk.”  Everyone in Michigan is, he said, basically managing the decline, right down to the municipal level, where we talk about how many police and firefighters to lay off this year or next (sound familiar?).  He urged us to change the conversation.

Much of the talk was around the idea that Michigan has to move beyond the old paradigm of a one-industry state where people could get a good job without a college education to one that entices the young talent to stay here and create a new economy.  In 2008, Gilmartin said, Michigan was 37th among the states in per capita income.   Meanwhile, the young Millennials (defined here as young adults under 35) are not staying; 46% leave Michigan after graduation.

Now here is where we get to the crux of his thesis.  He says they are not leaving because they don’t have jobs, but because they don’t find the experience of living here sufficiently enticing.  While in the old paradigm, people moved to where the jobs are – now (young) people move to where they want to live, then create the jobs.

“Place attracts people.”  With the global economy, knowledge-based industries are the future and people can work anywhere because of the Internet and general connectiveness.  So young people will choose where to live first, then look for work. They are choosing urban centers.  Citing a study in Fast Company magazine, he said that the young innovators choose “fast cities” like London, where one out of eight work in a “creative industry”.

What this means about jobs is that we are relying on these young innovators to create them. “We need to measure job creation in ones and twos instead of thousands.”  So for job growth, we have to bring the creative innovators here, where they will make the jobs.

And what do the young creative innovators want?  A sense of place. An urbanized area where they run into lots of others like themselves (but not too much like, they treasure diversity).  Open space. (Hooray for the park on the Library Lot!) Museums and cultural opportunities.  Walkable communities. Cafés. Bike paths. Informal “third places” where they can gather (Commons, anyone?). Green design.  They want communities built around happiness and well-being, that aim for excellence, not mediocrity.  Accessibility.  Sociability.  Much of this is about what commentator Alice Ralph later characterized as “density of experience”:  what Gilmartin called “1000 nights” worth of activities.  (That’s two nights a week for 50 weeks a year for 10 years, after which the Millennial gets married and moves to the suburbs.)

Except maybe for the 1000 nights concept, there is little here that any thinking sensitive person would contest, and it seems that Ann Arbor already fills a lot of those criteria.  But then we launch into a new discussion: the role of density in achieving all this.  As Gilmartin said, we hate two things: sprawl and density.  “You gotta figure that out.”

It was clear that moderator Jeff Meyers and the institutional host of this talk, Concentrate, wanted to make the discussion about density and development, though that was not the major focus of the talk.  The panel, Anya Dale (a planner who works for Washtenaw County), Ray Detter (of the Downtown Citizens’ Advisory Council), Richard (aka Murph) Murphy, (a founder of Arbor Update and until recently the Ypsilanti city planner), and Alice Ralph (a civic activist who most recently wrote the Commons proposal) neatly side-stepped most of his efforts to make the subject contentious on a generational level, as the title implied.

In answer to a question about whether the Millennials felt too entitled, the panel agreed that we need a diversity of options for all ages, including more housing choices (other than, as Dale said, single-family houses or expensive downtown condos).  Meyers then asked who gets to define the character of a neighborhood (and, he added, is this question too focused on aesthetics);  he interrupted Ralph to ask whether that should be current or “future” residents.  The panel generally answered that the “neighbors” (current residents)  should decide, regardless, as Murphy said, of age and tenure (he left the operational question of contacting future residents aside).  Detter also made the point that increased downtown density should not extend to the near-downtown neighborhoods that come under the Central Area Plan, where scale and character were considered important by the plan and the residents alike. (This was not a direct answer to the question but met the implied challenge, since much of the recent controversy has been about the near-downtown Germantown area, where one of Concentrate’s principals has an interest in the Moravian project.)  Ralph made the insightful comment that the presentation was about encouraging a positive social development, not about encouraging business, commercial and development interests to create more of what they already have. Murphy observed that some near-downtown neighborhoods (the Old Fourth Ward) already were quite dense (density being defined as number of housing units per area) and that other near-downtown neighborhoods could help meet the challenge of increasing density without altering scale or character by allowing accessory apartments.  This would acknowledge that many households are quite small now (1-2 people) and allow more people to live in that area.

Meyers then asked if you couldn’t have medium-size buildings in between, but Dale said that is not how a successful community works; the solution is transit.  There was then a turn of the discussion to improving transit, so that (young) people can live many places in the area (not just downtown) and get places they need to go efficiently.  Murphy mentioned that there are areas elsewhere besides downtown that could accept a lot more density (State Street/Eisenhower being an example); if good transit systems exist, this is a good workable solution.  All four panelists agreed that regional transportation as well as local transportation was important.

So the panel was able to show pretty fair unanimity on this question: how do we create more diverse housing and greater residential density in our community?  But some of the underlying questions were not addressed.

1. Does the thesis put forth by the speaker that we can and should intentionally create a community that will draw young talent to Ann Arbor in order to provide for a future economic benefit make sense?

2. If so, is residential density at all part of the strategy?

3. What is the current state of that demographic in our city?

4. How does this idea fit into our overall hopes for Ann Arbor’s future and where we go from here?

UPDATE: Jeff Meyers, the editor of Concentrate, wrote a lengthy comment and rebuttal to much of this post, which I have posted below under comments.  (It was sent to our gmail address after he was unable to post a comment in the ordinary way on the site.)  I won’t comment on his statements except to acknowledge that I was evidently in error regarding Newcombe Clark’s current involvement with Concentrate, for which I apologize.

SECOND UPDATE: Crain’s Detroit Business has a story about 20-somethings who have come back to Ann Arbor – for the quality of life, among other things.

Categories: Basis, Business, Neighborhoods, Sustainability, Trends

Comments: 19 Comments

Economics of an Ann Arbor Conference Center II

March 3, 2010

As we explained in the first of this series, this blog discussion is slightly modified from a white paper prepared by a subcommittee of Public Land – Public Process. The authors are Vivienne Armentrout, Nancy Kaplan, Eric Lipson, and Leslie Morris.

Editor’s note:   In many of these discussions, there is some conflation of conference centers and convention centers.  There is probably a good numerical definition out there somewhere, but basically it is a matter of scale.  Convention centers (think McCormick Place in Chicago) are able to handle many thousands of participants and are typically the site of trade shows and political conventions, for example.  What is being contemplated for Ann Arbor’s Library Lot is much smaller, intended for small specialty conferences and meetings.  But many of the points under discussion are similar.

II. Experiences of Other Cities

There have been numerous studies of publicly subsidized conference centers over the last decade, and most of them carry an unambiguous message: these facilities are a financial drain on the governmental units that sponsored them.  A 2005 study by the Brookings Institute notes that localities have been in an “arms race” to build convention centers (44 in construction as of that year) and that most were losing money at that time despite dedicated taxes.  Testimony before the US Congress (Domestic Policy Subcommittee) in 2007 stated that localities were being forced to offer special discounts and incentives in order to compete in an expanding supply at a time that travel is actually declining.  (Note that these reports predate the economic slowdown that began in 2008.)

The 2007 study also noted that localities rely most often on revenue bonds paid for by hotel guest taxes.  (This funding option is not available to Ann Arbor; the Accommodations Tax is paid to the CVB and Washtenaw County.)  It has a number of examples in which rosy market studies were based on “quite simple models…more craft than science…While consultant market and feasibility studies for these hotel projects indicate little public risk, with hotel operation forecast to generate sufficient net income to pay for debt service, those forecasts have almost invariably proven incorrect.”  Not only do the centers lose money and fail to make their debt payments, the jobs promised often fail to materialize.  And the study makes a point that is familiar in that it describes the Valiant proposal: “some communities used tax-exempt municipal bonds to build a hotel, most often through a non-profit corporate ownership arrangement. These hotels bear the name of a major national brand under a long term management agreement, but the equity investment and ownership risk is largely or entirely public.”

Clearly, cities like Ann Arbor need a careful analysis before gambling on public subsidy of a conference center. Steven Spickard’s 1998 summary (titled “If you build it, will they come?”) is to the point.  He offers a number of cautionary notes about the business of conference centers.

  • Public investing for economic impacts is like any other leveraged investment. There is the possibility of negative leverage as well. Economic impacts can be less than zero.
  • It takes more than a meeting facility to get conventions and conferences to come to your city.
  • Contrary to a popular misconception, convention and conference centers are designed to lose money.

Spickard goes on to say that communities may legitimately decide to build a conference facility, but should be clear-eyed about their abilities to attract this business and should understand what their expectations can realistically be.  Otherwise, the city may be burdened with debt service for many years to come, and a facility that loses money.

Some points especially relevant to Ann Arbor in its ability to attract conference business:

  • 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?

In other words, will events be scheduled in Ann Arbor because it is a destination in its own right?  Or is it especially convenient from a geographical and travel nexus viewpoint? A recent article (2009,  in Governing Magazine) makes this point with contrasting tales of a Denver convention center (successful) and a St. Louis facility (failure).  The existence of a center alone does not draw business.

Ann Arbor has several negatives as a destination. One is the relative difficulty of getting here by air. The travel from Detroit Metro is relatively lengthy and inconvenient, and winter weather can affect both the airport and travel on I-94.   Another is the lack of any particular attraction other than the UM. Are there any special reasons that travelers from, say, Indianapolis or Ithaca would especially seek to come here?  There are seasonal problems.  An Ann Arbor facility would doubtless be hampered by certain “blackout dates” including the significant fall football weekends and Art Fair, when crowding and competition for hotel rooms would make it difficult to schedule a meeting.  Winter months would be problematic because of the weather, which is cold, gray and unpleasant at times, unpredictable, and can make travel difficult.  An Ann Arbor conference center/hotel might be unused (for conferences) for significant periods.

Editor’s note:  Our recent blog post mentions that feasibility studies have been mentioned in several contexts.  This post also has some information about the city’s bond indebtedness that is relevant to the discussion of public/private partnerships for the purpose of building a conference center/hotel.

Coming soon: discussion of possible economic benefits to Ann Arbor’s downtown and economic status.

Categories: Business, civic finance

Comments: 2 Comments

Economics of an Ann Arbor Conference Center I

March 1, 2010

As noted earlier, the notion of building a conference center on the Library Lot appears to be live and well.  With the city bringing on a consultant, and with the two proposers (Valiant and Acquest) suggesting studies, it appears that the discussion will hinge to a large extent around the viability of a conference center/hotel as a business venture.  Since under most scenarios, return on an investment by the city would hinge on whether a conference center would pay off in increased business for the hotel and the area’s economy, it is worth examining what we can determine about its likely success.

The posts will be as follows:

I.    What is the demonstrated need?
II.  What is the experience of other cities with subsidized conference centers?
III. What is the likely effect on the area’s economy?

These posts are slightly edited sections of a white paper prepared by a committee of the citizens’ group, Public Land – Public Process (see statement of principles on the group’s blog).  The authors are Vivienne Armentrout, Nancy Kaplan, Eric Lipson, and Leslie Morris.

I. Demonstrated need

It has been asserted by supporters of building a conference center that “many” people believe that there is a need. There is no current market study available that addresses the need for additional hotel and conference capacity in Ann Arbor and Washtenaw County, though both Valiant and Acquest have cited the need for a study, and Valiant has indicated that they are contracting for one. The only information that we have at present is about the current capacity and its usage.

According to Mary Kerr of the Convention and Visitors Bureau (CVB), Washtenaw County has 4,000 hotel rooms, including bed and breakfast-type lodgings.  The Ypsilanti Marriott, where many events have been held, is 238 rooms.  The occupancy information that the CVB collects is considered confidential and is released only to its members.  The other major source of occupancy data is Smith Travel Research, a subscriber-based service whose reports are also confidential and not available to the general public.  Kerr was able to summarize STR’s latest report as indicating that “Ann Arbor’s year-to-date occupancy (through November) was 60.2%, down 7.3% from the same period in 2008 which was 65%… Ann Arbor’s occupancy rate is the highest in the State of Michigan.”

Another important measure of hotel profitability is average daily rate (ADR).  This fluctuates from month to month, with seasonal and competitive differences.  According to Kerr, ADR in 2009 was down 5% (Jan. – Nov.).

Charles (Chuck) Skelton, president of Hospitality Advisors Group of Ann Arbor, is considered to be an authority on the hotel business nationwide and is very familiar with the situation in Ann Arbor.  He has recently given several interviews, including one with Councilmember Sabra Briere (January 14, 2010) and one with Leslie Morris (January 24, 2010: see here).  In the Briere interview, he stated that Ann Arbor hotel occupancy was in the low 60% range and that ADR is around $99.  He also said that full-service hotels need to have occupancy in the 60-65% range in order to break even. A copy of the CVB report (obtained informally) appears to bear that out.  It shows 2009 full-service hotel occupancy at an average of 63% and the ADR as $102.  But limited service hotels had an average occupancy of 52% and the ADR for 2009 at $90.  For the month of December, both occupancy (46%/35%) and ADR ($89/$81) dropped for both classes.

The numbers may even be worse for some area hotels. Michael Harman, General Manager of the Campus Inn (the major downtown hotel at present), in a comment to an AnnArbor.com story about the conference center proposals, stated that the Campus Inn’s occupancy “hovers around 50%” year to year.

But the proposals now before the City are apparently based on much higher occupancy and room rates.  The Valiant proposal assumes an occupancy of  73% in the second year, rising to 80% by the fifth year.  It assumes an ADR of  $193 in the second year, rising to $221 by the fifth.  The Acquest proposal does not break out expectations in that manner, as they expect to be both the developer and the manager of the hotel.  (The Valiant proposal bases payments to the City on hotel revenues so presents occupancy returns as part of their cost proposal.)

Briere’s notes on her meeting with Skelton contain his account of a meeting with Fritz Seyferth and Bruce Zenkel of the Valiant group a year ago, when they asked him to look at a proposal for a bigger facility than that finally proposed.  It contains an amusing error of assumption that they made.

“Chuck informed them that market conditions nationally were bad and Michigan was the worst market in the country. At that time, full service hotels (those with restaurants and meeting space) in Ann Arbor were performing in the low 60% occupancy range (he advised us that at year end ’09 they had deteriorated to 55%) and that those in the downtown area were performing below that level… He also related that the historical growth in the full service segment in Ann Arbor was about ½% per year over the past seven years. He also relayed that average rates for hotels in Ann Arbor had grown at only about 1 ½% per year over that same period and that currently full service rates are around $99. These factors have eroded hotel values. Needless to say the hotel developers were surprised and stated that it was always difficult to get rooms when they came into town and that rates were always above $200 at the Campus Inn. When asked when it was that they came to town they admitted it was typically during football season and graduation. Chuck stated that those were the exceptions and from November through March one could find significantly lower rates.”

Skelton, as relayed through his interviewers, makes another point about the viability of new conference center space: the increasing use of videoconferencing as a replacement for in-person meetings.  A recent (February 1, 2010) article by Joe Sharkey in the New York Times highlights this movement by interviewing the originator of a new virtual conferencing website, Expos2.  The company’s website, which is subtitled “Real is so yesterday”, says: “The world has moved to virtual events in a big way. The reasons seem pretty clear. First you can save up to 90% of the event budget compared to a physical event.”  The site allows conference participants to navigate from event to event, with live interaction.  Sharkey says that in 2007, meetings accounted for about 44% of business travel, but the industry is now in a sharp slump.  Indeed, a recent story in the Detroit Free Press says that “Total hotel revenues in the metro Detroit market plunged 19.3% last year to $578 million, down from $716 million in 2008, according to Smith Travel Research. Average occupancy fell from 55% to 48% last year”; a number of top hotels in the area are in financial trouble, including the prestigious Hyatt Regency Dearborn, “a premier conference and convention hotel”.

A key question in demand for conferencing facilities in Ann Arbor is the possible role of the University of Michigan, both in driving demand and in filling it.  In response to a query from Nancy Kaplan,  Jim Kosteva, the director of community relations for the UM, indicated that the UM takes no position on any possible proposal for a conference center and will not speculate on what use UM departments might make of any new facility.  For an event hosting 2000 in the summer of 2009, organizers had no trouble finding hotel rooms and made creative use of spaces in the Michigan Union, the Michigan League, Hill Auditorium, etc., and with 4000 hotel rooms there were no housing problems.

The UM itself has many facilities that are actively managed for conferences.  As they say on their Conference Services page, “The University of Michigan is one of the largest universities in the world in terms of building space. With more than 20 million square feet of space in our classrooms, auditoria, sport and performance venues, we are sure to have the space you need to host a successful program.”  They mention, for example, the Rackham Building, with its large lecture hall (1,100 seats) and auditorium (240 seats) plus a variety of meeting rooms, and a number of smaller facilities like the University League and Palmer Commons that can accommodate 220 to 600 people.  Although Kosteva discounted the possible use of the newly acquired former Pfizer facility, now called the North Campus Research Complex, a video points out that it has a 700 seat cafeteria, conference rooms with state of the art audiovisual features, an auditorium, many conference rooms and offices, as well as multiple coffee bars, a fitness center, and shopping and retail across Plymouth Road, and is served by campus and city buses. The NCRC website also has slideshows of the facilities, including one on extensive meeting room and conference capabilities. Of course the Plymouth Road/Green area also has hotels.  It is clearly ideal for conference use, especially if it attracts the high-technology clients that are clearly anticipated.

UPDATE: The NCRC’s potential for serving as a community meeting place is illustrated by the Ann Arbor Art Center’s Winefest celebration to be held in the former Pfizer cafeteria, as reported by AnnArbor.com.

SECOND UPDATE : Another example of conference space already available in Ann Arbor and apparently underutilized was reported by AnnArbor.com.  The Michigan Information Technology Center is dissolving and apparently leaving vacant its conference facility, though other parts of its building (South State Commons II) are apparently still occupied. The building at 1000 East Oakbrook had sophisticated conference capabilities, including videoconferencing throughout.  Yet as the landlord, MAV Development states in its listing,  “The immediate area features ample lodging, dining, shopping, and offices.” (And, one might add, there is plenty of parking.)

THIRD UPDATE: A new article discussing the importance of convention centers to communities includes several notable quotes, including this one: “Most convention centers are removed from their communities by virtue of becoming developments that are about drawing people into the city, not about being integrated in the city culture and fabric.”

Categories: Business, civic finance

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