(Ninth in a series)

Despite countless misrepresentations to public officials and the public by sponsors of the Convention Center Project, the only actual market feasibility report was ordered by the Lancaster County Commissioners from PKF Consultants, Inc. and received in May, 2006.

Mayor Rick Gray had made a dramatic unannounced appearance before the Commissioners earlier in the year and had suggested that the Commissioners order their own Feasibility Study from PricewaterhouseCoopers (PWC), which had previously generated Two Market studies. When PWC declined, perhaps because they insisted their market studies had been misrepresented, PKF Consultants, Inc., at least equally recognized nationally and internationally, was engaged at a cost exceeding $135,000.

The PKF study concluded by recommending “either a downsizing of the project or an alternate use for the site.”

Thus their analysis was consistent with the PricewaterhouseCoopers recommendation in its 2002 market study report that the Convention Center not be increased in size from approximately 110,000 square feet to the actual 181,000 square feet.  The 1999 Ernst & Young market study envisioned 61,000 square feet.  Both firms expressed misgivings for similar reasons, even at the lesser scales.

Both Penn Square Partners and the Convention Center Authority under Ted Darcus had declined to cooperate with PKF on the grounds that the an internationally renowned firm, trusted by the worlds largest financial institutions,  was somehow biased.

PKF elaborated on its findings in a memorandum to Commissioner Molly Henderson on May 17, 2006:   “Per your request, we have prepared a summary of the projected overall financial performance of the proposed project in a representative year (in 2006 value dollars)….”

They assumed a total cost of $140 million, although it actually exceeded $175 million and is now approaching $200 million. They assumed annual debt obligations on $80,700,000, although the obligations grew.

After allowing for net operating revenue, hotel tax revenues, and the full State Act 23 TIF grant, they predicted an annual Project loss of $2,241,000 in 2006 dollars.

They note that should the hotel become subject to real estate taxes, the loss would increase by approximately $1,321,000.    If the Project fails to qualify for all or part of the State Act 23 TIF grant, the loss would further increase for all or part of a million dollars.

The report itself set forth the following:

“Weaknesses

• Constricted site resulting in parking and traffic issues
• Downtown location perceived as less desirable
• Poor air access
• Limited markets available to the hotel other than self/PDCCVB-generated meetings and shows
• Demographics not adequate for larger consumer/trade shows
• Markets available are price sensitive
• No other acceptable downtown hotel supply available for larger groups, unless Hotel Brunswick is extensively renovated
• Lancaster’s perceived image is not what many conventioneers are looking for.”

Most stunning, they project future hotel occupancy in future years at only of 53%, a percentage that would be considered catastrophic since modern hotels usually require occupancy levels from 65% to cover all costs.

Of particular concern is the prediction of only $124,000 in Net Operating Income before Debt Service for the Marriott Hotel. Its annual debt service will exceed $2 million dollars. Since the City has fully guaranteed the hotel bonds, it will have to make up the almost $2 million deficit annually, yet receive no real estate taxes.  Since it will receive no real estate taxes, the costs it incurs for services will add to its losses.

In summary of this part of the Convention Center Project series, the Ernst & Young and PricewaterhouseCoopers Market Studies as well as the PKF Consultants Feasibility Study had all warned against proceeding with the project that is currently being completed.