What the Convention Center CSL Report really said

The “Conventions, Sports & Leisure” (CSL) Report is largely a white wash of the convention center project and provides no meaningful recommendations for stemming the losses.  It tip toes around the projects deficiencies and ever so gently criticizes egregious errors and rapacious exploitations.

Nevertheless, the clear implications of the report were:  The convention center should not have been built in downtown Lancaster, it was poorly designed, and that the Convention Center Authority is being exploited through its one sided arrangements with Penn Square Partners and the High companies.  And lastly, there isn’t much that can be done about it.

The below excerpts and comments are in the order that the material is presented:

“The greater Lancaster area and surrounding ‘Pennsylvania Dutch Country’ has established itself is a well-branded, successful visitor destination. According to PDCVB estimates, as a whole, the destination attracts as many as 11 million annual visitors. The Bureau estimates that this visitor activity accounts for approximately $818 million in direct economic impact and nearly $460 million in indirect economic impact. Travel and tourism is reported to be the County’s second largest industry employing nearly 40,000 people, both directly and indirectly. Recent growth in this industry has been noted as well. Based on statistics from Smith Travel Research Inc., visitors to Lancaster County booked a record 1.42 million room-nights in 2011. The previous record was 1.40 million, set in 2007.”

They imply that downtown Lancaster is in the same tourist market as the balance of the region, which it is not.  Nor is much industry and commerce situated in downtown Lancaster.  Hence the failure of the Hilton later Ramada now Brunswick hotel, a four star facility when new that was far superior to the current Marriott three star rated facility.

Unlike marketing reports written during the planning of the hotel, they fail to mention the lack of highway access  to downtown.

They skirt the fact that the nearest significant commercial airport is thirty-five miles away in MIddletown.

They fail to explicitly point out that the various business and recreational attractions in the region are suburban and exurban, not downtown.    Of the 24 regional features they list, not a single one is within walking distance of the Convention Center and only one is within the city limits.

The 24:  Aaron & Jessica’s Buggy Rides,  HERSHEYPARK, Railroad Museum of Pennsylvania,  Adventure Sports in Hershey, Hershey’s Chocolate World, Rockvale Outlet Center, Amish Village,  Indian Echo Caverns, September Farm Cheese,  AvalancheXpress Snow Tubing,  Julius Sturgis Pretzel Bakery,  Sight & Sound Theatre,  Carlisle Sports Emporium,  Kitchen Kettle Village,  Strasburg Rail Road,  Cherry Crest Adventure Farm,  Lancaster Barnstormers Baseball,  Susquehanna Glass Factory Outlet and ,  Dutch Wonderland Family Amusement Park,  Lancaster Quilt & Textile Museum,  Tanger Outlet Center, Hershey Garden, President James Buchanan’s Wheatland, Turkey Hill Experience

Of the listed primary reasons for Visiting Lancaster County, only one, “Heritage, History and architecture” even partially relates to downtown.

“The most important non-convention center amenity is the hotel package. Without sufficient nearby, quality hotel product, convention centers are extremely challenged in attracting non-local conventions, conferences, tradeshows and meetings, regardless of the attractiveness of their facility and the community’s other supporting infrastructure. From a meeting planner’s perspective, assembling a room block in as few properties as possible is critical. Oftentimes planners will utilize no more than two to three properties as close as possible to the host facility. As such, the location of a market’s existing and planned inventory of hotel space can be critical in successfully accommodating events with a non-local attendee base.

“The market for conventions, tradeshows, meetings, banquets, and other such events in any community cannot grow beyond the hotel base available to accommodate out-of-town visitors. There is currently only one hotel property (the attached Lancaster Marriott at Penn Square) that could be considered to be located within walking distance of the Convention Center that provides what are generally considered to be ‘convention quality’ hotel rooms.

“ ‘Convention-quality’ is a term that varies based on the particular community and type of group considered; therefore, in order to accommodate as many different groups as possible it is important to offer a variety of hotel properties with varying price ranges and available amenities. The Marriott provides 299 total guestrooms. Based on conversations with property management, between 150 and 200 rooms are typically available to serve the needs of Convention Center events.”

Precisely what was anticipated by all the original marketing studies which were suppressed or selectively reported upon.   The CSL report fails to discuss why there are no other suitable hotels:  The historic paucity of  downtown hotel business due to the scant downtown commercial and tourist attractions.

Moreover, a few days ‘spill over’ days from the Marriott is not sufficient business to justify the Brunswick Hotel owners investing several million dollars to bring the hotel up to a standard that would achieve a prestigious franchise affiliation.

“Located within close proximity to Interstates 83 and 76, Lancaster is within a day’s drive to a number of major northeastern U.S. markets. Exhibit II-5 provides the driving distance (in road miles), as well as the approximate driving time, from Lancaster to select regional markets.”

Did they invest $10 in a road map?   Since when is Lancaster near I-83 and I-76, both about 20 miles away? Moreover, as noted on earlier market studies, there is no limited access road delivering cars to downtown.

“At 54.2 percent, occupancy levels within Lancaster County are very close to the overall average among the 14 competitive and comparable markets (54.6 percent).”

Misery loves company.  The report fails to mention how many of the “14 competitive and comparable markets” are also losing money.

“It is also important to assess the revenue per available room (RevPAR) ratio to determine the strength of the local/regional hotel market. In 2011 the RevPAR for Lancaster County was approximately $49.69 and has grown by more than 16 percent over the past three years. When the RevPAR is rising, it is an indication that either occupancy rates are improving or that room rates are rising (or some combination of both), typically indicating a strong/growing hotel market.”

If “RevPAR is rising”, how comes the proceeds from the Room Revenue Sales Tax have remained virtually stable, actually declining one year?   If indeed RevPAR has risen, it has risen very little and likely less than the rate of inflation.

“Based on PDCVB estimates, total trackable room nights associated with Convention Center event activity approximated 28,500 in 2011. This compares to an estimated 14,300 in 2010 and represents a nearly 100 percent increase in room night activity.”

Assuming that the Marriott booked every last one of them, which it can’t because some events provide more rooms than it can accommodate, that only comes to 78 rooms a night for a 299 room facility.   Is the market sufficient to provide at least 131 additional rooms per night to bring the hotel occoupancy to 70%, the usual percentage necessary to pay operating costs, debt service and taxes.  Oops…we forgot that the Marriott doesn’t have to pay real estate taxes!   So maybe its breakeven point is at 65%, which would require 116 additional room sales a night.

Since all of the room demand takes place during event dates, there is some displacement ….hence the need for more downtown rooms to attract major events.  But the spill over for say a dozen dates would hardly generate enough business to justify a second hotel or modernization of the Brunswick.

“Each year, the Convention Center hosts a variety of large events that generate significant levels of non-local spending (and associated economic and fiscal impacts). Exhibit III-2 lists several of the larger events that have recently taken place at the Center. Corresponding attendance levels are representative of total attendance over the entire event. For example a three-day event with 7,000 people per day has a total attendance of 21,000).”

What the report does not mention is that some of the events, such as the 16,000 day Quilt Society Show, used to take place on Rt. 30 East.   Not only are those hotels taxed to support the convention center and receive no business in exchange, but the very business that fed the hotels in the past has been lured away from them.  Some justice!

“As noted by approximately 15 percent of event planners, the inventory of hotel rooms within a walkable vicinity of the Convention Center prevents Lancaster from successfully penetrating many event markets with significant non-local attendees. This represents the number one specifically referred-to deficiency among responses.”

See above.  Although the region has ample industry, commerce and tourist attractions, there is little enticement for people to walk around downtown Lancaster, especially in the evenings.

“Other issues, such as a lack of direct air access, transportation concerns, canceled events, and related concerns were noted by nearly one-fourth of those questioned.”

If one can’t fly to Lancaster, why would any non-regional group book here?

“The existing inventory of hotel rooms within walking distance of the Convention Center is able to support approximately 25 percent of this national event market (for events requiring 10,000 to 50,000 gross square feet of exhibit space. Shuttling is required to support an event requiring 500 committable rooms. This highlights a competitive disadvantage of the Center when competing for rotating, room night generating events. To support the needs of an event requiring 800 rooms (75 percent of the market) would require five to six hotels. This review again underscores existing limitations with regard to the supply of hotel room surrounding and able to facilitate the demands several high impact events.”

This is information stressed in the initial marketing study and convincing reasons not to build so large of a center.  No marketing study recommended so large a convention center.  PriceWaterHouse Cooper actually withdrew its earlier market studies when it discovered that the facility was to be greatly increased in size.

(Is this motivation behind this report to seduce public funding for Penn Square Partners to  purchase the Brunswick?)

“Locations with considerably higher room tax rates relative to other markets can, for some events, negatively impact the likelihood of the location being selected.”

Yet LCCCA is requesting a still higher hotel room sales tax to cover convention center losses!

“… the PDCVB allocated an estimated $402,700 toward selling and marketing the Convention Center and other local and regional event space in 2011.

“This compares to an average of nearly $1.4 million among the communities reviewed and is significantly less than current expenditures in Virginia Beach, West Palm Beach, Madison and Lexington.”

Those convention centers  are several times larger!

There are all sorts of comparisons with other convention center but no mention of whether those cited centers are making or losing money.   Why not?

“As shown in the exhibit, with a net operating deficit of approximately $844,000 in 2011, the Convention Center ranks well compared to the average of the facilities reviewed in terms of net operations. Two facilities that were frequently cited as being competitive with the Convention Center within certain event segments (the Wildwood Convention Center and the Ocean City Convention Center) operate at annual deficits that exceed $3.5 million. Only one facility operates with a positive cash flow—a relatively rare occurrence among convention centers in the United States.”

Out of a ‘competitive set’ of 16 convention centers, only one earns a profit.  LCCCA loses a bit less than the average.  This could change when the newness wears off.  Moreover, the convention center is already  heavily subsidized from the proceeds of the Room Rental Sales Tax.  So we are talking about losses in addition to anticipated losses.

“As is typical in the industry, the majority of comparable facilities reviewed contract food service operations to outside vendors. Vendor commissions and the structure of the contracts vary among each facility, with most involving various percentages of gross food and beverage collections remitted to the center. At five percent of gross catering sales, the revenue split to the Authority is generally lower than that of similar contracts with other comparable convention centers across the country…

“The share of gross revenue allocated to the Convention Center owner (Authority) are somewhat below what is standard in agreements between convention center food and beverage vendors and facility owners. These agreements provide for owner revenue sharing at the 10 to 25 percent range. We also note that there is a provision in the agreement that calls for the Authority to fund 100 percent of Kitchen Facility equipment, and that the Authority will maintain and replace these items as needed. The fact that the hotel is a significant beneficiary of the Kitchen Facility equipment is not reflected in this component of the agreement. Finally, we note that agreements such as this are often negotiated in the context of larger facility development and financing agreements, and any areas that diverge from industry standard may result from the accumulation of terms and provisions in the global set of agreements.”

The report provides statistics showing Food and Beverage revenues from the comparable set are Average = $9.03 Median = $6.60.  LCCCA receives only $3.39.  Why?  There was a ‘sweet heart’ deal with a subsidiary of the High Companies who pay a far lower commission than is the industry norm.   The voluminous documents were only provided LCCCA board members less than two days before the meeting and Chairman Ted Darcus refused a request by three members to postpone a vote until a later special meeting or regularly scheduled one.

“In 2009, 2010 and 2011, LCCC utilities expenses were more than $200,000 higher than originally projected.

“Total Utilities Expenses per Square Foot – Competitive and Comparable Facilities…

Average = $6.40 Median = $5.50  Lancaster:  $8.27.”

Why so high?  There are two obvious reasons.   The atrium design which continues into the hotel lobby is nutty, making it necessary to heat and cool a huge area whether or not there is a convention center event.

High as manager of the project did not provide for more than a single electric meter for both the convention center and the hotel.   Who is paying for what?

Information on whether the Convention Center has added sufficient business to downtown to at least  make  the Marriott profitable is not available to the public.   Of course, if it is in economic distress and the owners choose not to subsidize the losses, then the problem will eventually become public since the City of Lancaster has guaranteed the debt.

We do not see where the CSL reports adds much useful information not already available from the initial largely negative marketing studies, either suppressed or misreported upon by the Lancaster Newspapers, and by NewsLanc’s “Convention Center Series”.

Although current management and board bear no responsibility for the shortcoming of the convention center design and legal arrangements, we are disappointed that they accepted a report that does not clearly and courageously set forth the plight, marketing expectations, and funds likely needed over the future decade to prevent bankruptcy.

The CSL reports is but another market study.  What was needed is a feasibility study.  History repeats itself.

LETTER: Visit “CSL report clearly avoids addressing the root causes of the convention center’s debt issues” for an important supplement to the above.

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Updated: August 4, 2016 — 9:51 pm

2 Comments

  1. The real issue here is that the debt burden on taxpayers to finance the construction of the downtown Lancaster convention center is far greater than could ever be justified by whatever economic development the project could possibly ever create. None of the many promises ever made about the hotel and convention center driving new businesses and new construction in downtown Lancaster have come true; besides intermittently increased traffic at a number of downtown businesses, the ONLY new or rehab construction that can be directly attributed to the project is the Subway restaurant across King St. from the Marriott.

    Had some variation of the original hotel and convention center been constructed, funding for the project would have been sustainable. But the project was allowed to metamorphosize into a facility that costs taxpayers far more than anticipated revenue streams could realistically provide for. Adding to this the unreasonably large taxpayer subsidies that continue to benefit the “private” hotel paints a picture of a project that cannot possibly make any kind of economic sense.

  2. There are several notable issues with the CSL report on the downtown Lancaster convention center:

    Page 13 notes the total amount of “sellable event space” including the part of the convention center that is controlled by the Penn Square Partners (all of the third and fourth floors, including the upper ballroom). Yet the next several pages do not include this space; it is noted on page 18 that “Data for hotel-controlled space (floors 3 and 4) was not available.” Yet Interstate Hotels and Resorts SUPPOSEDLY markets all of the meeting spaces as an “integrated facility”; it is their oft-repeated claim that the customer chooses which rooms to use. If so, how can this space – owned by the convention center, built and maintained by taxpayers, yet leased to the Penn Square Partners for next to nothing – NOT be included in determining the center’s results? Obviously a significant portion of the convention center business is being diverted (intentionally or otherwise) to the Penn Square Partners, which directly receives revenue from events booked in the convention center!

    Later in the report, this split of exhibit space is again mentioned several times. Page 33 notes “Floors 3 & 4 are leased to Penn Square Partners and are not included in this analysis.” A comment at the bottom of Page 34 states “It should be noted that figures for Lancaster include floors 1 and 2 of the Convention Center. Floors 3 & 4 are leased to Penn Square Partners and are not included in this analysis.” Yet there is no mention whatsoever of the direct impact to taxpayers of this lost revenue.

    Now here is where the report gets strange. The following excerpt from Page 47 is so significant that I’m going to quote it in its entirety:

    “Lease Agreement between the Authority and Penn Square Partners – The amended lease dated March 27, 2007 addresses the lease terms for 14,851 square feet of meeting, ballroom and business center space leased to Penn Square Partners (PSP) by the Authority. The lease term runs for 99 years, with a base annual rent of $100.00. PSP also pays a proportionate share of Convention Center maintenance costs (7.2 percent based on current calculations).”

    This sounds like the build-up to something significant. Yet the very next paragraph is clearly a cop-out:

    “Given the significant costs of developing convention and hotel space, it is very common nationally for the public sector to provide financial assistance in a variety of ways, including build-out of event space for use by hotel owners/managers. The March 27, 2007 Lease Agreement appears to be consistent with this approach.”

    This statement is not consistent with the critical nature of the surrounding portions of the report. Might this paragraph been edited, toned down to divert attention from the fact that this specific agreement bleeds desperately-needed revenue from the convention center – and taxpayers? It might be common “for the public sector to provide financial assistance in a variety of ways”, and IN A VACUUM this might seem to be reasonable; yet in perspective, the “private” hotel pays no real estate taxes, and nearly $45 million of the hotel’s construction was paid for directly by taxpayers. In fact, the hotel doesn’t even own its building, which is held by the Redevelopment Authority of the City of Lancaster. The total amount of taxpayer-provided financial assistance to the Penn Square Partners is clearly unreasonable, and is in no way comparable to competing facilities.

    On page 7 of the “LCCCA: review of bond docs” appendix, most of the proposals would negatively impact businesses and/or taxpayers within Lancaster City, which already has the highest taxes in all of Lancaster County; any of these would only serve to drive businesses and individuals out of Lancaster City. One of these proposals is particularly noteworthy in its fallacy:

    “Tax Increment Financing: It is not uncommon to set in place a tax increment financing district from which various tax revenues in excess of a base collection level are contributed into a particular project, in this case the Convention Center. This concept should be considered.”

    Tax Increment Financing diverts INCREASED tax revenue based on improvements made after a specific date. Base taxes remain unchanged, but taxes which are increased as a result of new construction or renovations are used to fund economic development projects. Tax Increment Financing is successfully being used to pay off loans used to create civic infrastructure on the former Armstrong site. Since northwest and north central Lancaster City is thriving, there is adequate construction and renovation going on to pave the way for new development in the former brownfield.

    The reason a TIF will not work in downtown Lancaster is because there is no significant new construction or renovation going on. Had a TIF been implemented when the construction bonds were sold at the end of March 2007, tax revenue might have been collected from the new Lancaster Newspapers parking garage, the renovated buildings on East King Street, and the Subway across King St. from the Marriott Hotel. That’s all, folks! The hotel and convention center project simply has done practically nothing to spur economic development in downtown Lancaster (there is NO way the residential and commercial renovations in the 100 and 200 blocks of East King Street could even remotely be credited to either the hotel or the convention center). ALL of the remaining construction surrounding the hotel and convention center has been either non-profit or taxpayer funded. Besides, a TIF district by law cannot coexist with a LERTA (Local Economic Revitalization Tax Assistance) district, one of which has covered much of Lancaster City for many years.

    The CSL report clearly avoids addressing the root causes of the convention center’s debt issues, and its recommendations suggest a naïveté that is unhelpful at best.

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