Chapter Twenty-Two: ‘An alternate use for the site’: The PKF Feasibility Study

(Twenty-second in the series)

… [O]ur findings lead us to conclude that the potential economic benefits are not likely to be sufficient to justify the risks involved, including the potential need to raise the hotel tax to fund operating deficits after several years should the reserves become depleted. We therefore recommend that, prior to proceeding further with this project, the parties involved consider exploring a downsizing of the project or an alternate use for the site.”

– From the Pannell, Kerr, Forster (PKF) “Executive Summary” of its feasibility report for the Lancaster County Convention Center project, May, 2006. The PKF study was the first actual feasibility report done on the project.

The Lancaster County Convention Center battle was waged on several fronts in early 2006. On the Convention Center Authority board, the three new county appointees were aggressively questioning Authority spending. The hoteliers and citizen-activist April Koppenhaver were filing separate lawsuits against the project. And the County Commissioners Shellenberger and Henderson, despite being under grand jury investigation, were still raising questions about the project in court and in the media.

On February 15, 2006, five weeks after Lancaster Mayor Rick Gray challenged them to fund a feasibility study, Shellenberger and Henderson, at Robert’s Field’s insistent lobbying, voted to hire Pannell, Kerr, Forster (PKF) to perform the first feasibility study on the project.

“The point of the feasibility study is that there has never been one,” Commissioner Henderson said at the public meeting where she and Shellenberger voted to engage PKF. “To undertake a project of this magnitude without doing one would be a disservice to the citizens of Lancaster County.”

The selection of PKF represented a victory for project critics. First brought to the fore as an issue by Field in late 2005, it was evident that the numerous studies done on behalf of the project – paid for by either organizations connected with Penn Square Partners or the Lancaster County Convention Center Authority – were clearly not “feasibility” studies. Now, PKF with its impeccable reputation as a leading consultancy of hotels and convention centers, would, finally, examine the economic feasibility of the project.

From the time the hotel and convention center project was introduced, the sponsors of the project consistently referred to the “feasibility” studies that they said supported building it. Beginning with the Ernst & Young “Market Study” of 1999, two “Marketability” studies by PricewaterhouseCoopers, one in 2000 and a 2002 “Update Draft,” a 2003 HVS “Market Study, ” and finally the C.H. Johnson “Memorandum Draft,” the sponsors publicly referred to them as “feasibility” studies by name.

The studies themselves, based on a project far smaller in size and cost than the now $140-plus million, 220,000 square foot development, were clearly – and clearly labeled – “market” studies. The Ernst & Young study, the one that was most often referred to as a “feasibility study,” went out of its way to say in bold print to state their study was not a financial feasibility report: “It is important to note that this does not take into account the estimated costs associated with the development of each Scenario, the financial feasibility, or the anticipated returns.”

Additionally, all of the market studies prior to 2006 point to several significant “Competitive Weaknesses” in the downtown Lancaster market, including poor parking, congested traffic, lack of cultural attractions and amenities, no air-service, among other drawbacks.

Finally, Pricewaterhouse Coopers, the firm that had conducted a “marketing” study in 2000 and an “update” in 2002, distanced itself by asking that its name not be associated with the project.

In an email to Jack Craver, the county LCCCA board appointee, Robert Canton, Director PricewaterhouseCoopers Sports, Convention & Tourism Services and the lead consultant for the Pricewaterhouse report, voiced serious professional concerns about the feasibility of proposed project.

Canton wrote: “In March of this year [2006], I was so concerned that [PriceWaterhouse Cooper’s] analyses (demand study, economic impact, etc.) of a different building program were being used to ‘promote’ the proposed convention center development, that I wrote a note to Mr. Hixson requesting that all reference to PwC be removed from the LCCCA website.”

The memo also included: “Regardless of any review of our prior studies, the physical characteristics of the development that I understand to be proposed are VERY different from the project I studied (the equivalent of using a study of a 500 room Marriott to evaluate a 300-room Hampton).” [emphasis added.]

Canton concluded the memo by stating: “…I try to be very clear that we will not be influenced by what the client or community stakeholders ‘want,’ but rather will base our findings on what the market supports.”

David E. Arnold, an executive-vice president with the Philadelphia office of PKF, was the lead consultant who would head the Convention Center-Hotel study. Arnold was surprised to discover that he would not be receiving any cooperation from most of the sponsors of the project.

On February 22, one week after PKF was hired by the County, LCCCA Executive Director Hixson announced his board – co-created by the County Commissioners — would not cooperate with the study. Lancaster Mayor Rick Gray said the same thing regarding city cooperation with the report. Nevin Cooley, in his role as spokesman for Penn Square Partners, said no one from his organization would cooperate with PKF.

On February 26, LCCCA board Chairman, Ted Darcus, wrote an open letter to the County Commissioners’ board published in the Sunday News. In the letter, Darcus says one reason the Authority would not participate in the PKF study was the $65,000 contribution from Robert Field, whom, wrote Darcus, “is a self-acknowledged opponent” of the project.

Speaking for the other sponsors, Darcus wrote: “Specifically, neither the Redevelopment Authority of the City of Lancaster nor Penn Square Partners have expressed any willingness to participate in this further feasibility study by PKF.”

Darcus took the opportunity in the letter to take aim directly at Shellenberger and Henderson:

Please be advised that the authority views this study to be another example of the two commissioners attempting to usurp the powers of the authority, to diminish, distract and interfere with the ongoing business of the authority in fulfilling its statutory mission, and to bring further focus to the self-interests and competing goals of the project opponents.

For these reasons, the authority board and its staff will not participate in the process relating to the consulting services to be provided to the county by PKF Consulting.”

Darcus closed the letter with a warning to the two Commissioners:

Accordingly, the authority places the county and commissioners Shellenberger and Henderson on formal notice that: (1) PKF Consulting and the county are proceeding on your own, independent of the authority; (2) the authority will not be responsive to PKF Consulting’s data gathering, other than to continue to respond in conformity with statutory requirements; (3) the authority will not be responsible for any errors in, or misstatements of, data, contractual and/or legal relationships, or other information relating to either the project or the public agencies or private participants; but (4) in the event of any such errors, misstatements, or other dissemination of false or misleading information relating to either the authority, the project, or the public agencies and private participants, the authority will hold the county, commissioners Shellenberger and Henderson, and their consultants, and any public or private group or individual supporting such acts or omissions, financially.” [emphasis added]

Of the project sponsors, it was only State Rep. Michael Sturla, who was willing to speak with Arnold.

“I would love to,” Sturla said to Lancaster Newspapers. “I think if the feasibility study is done only with information from people with hostility to the convention center, I think there’s a pretty good chance that’s what the feasibility study will say.”

Around this time, late February, 2006, LCCA Chairman Darcus, approached the County Commissioners Shellenberger and Henderson with the offer that if they dropped their lawsuit and “cease and desist from all activity to obtain any market, feasibility or other studies of the convention center/hotel project,” the Authority would amend its financing contract with the county.

Under Darcus’ proposal, the Authority would agree to guarantee the use of its income from the county’s hotel room tax to pay down some of the debt service needed to finance the $137.8 million project.

Shellenberger said at a Commissioners’ public meeting that the offer from Darcus did not provide the protection for taxpayers for which he and Commissioner Molly Henderson had been seeking.

“It says nothing about the interest,” Shellenberger said. “And we all know when we pay a mortgage, most of the money paid the first few years is interest.”

Shellenberger said Darcus’ offer amounts to “horse trading.”

“I’m not interested in horse trading,” Shellenberger said.

When Darcus didn’t get the response he sought from the Commissioners, he fumed. “ I don’t know what they’re after,” Darcus said. “The more actions they take, the more it looks like they’re only interested in killing this project.”

The suggestion that PKF would compromise its international reputation for a $115,000 study in Lancaster, Pennsylvania was laughable on its face. PKF, along with Ernst & Young and Pricewaterhouse, represented the top-tier of hospitality industry consultants.

In May, 2006, even without the cooperation from the LCCCA and other sponsors, PKF delivered a professionally prepared and thorough feasibility study of the project.

In the 83-page report, PKF frames the analysis around the key trend of supply growth in the meetings industry outpacing demand growth, thus creating a more fiercely competitive environment for conventions events. This issue was developed in a Brookings Institute study that detailed the trend in depth.

PKF noted that: “…functions that previously would have been held at secondary or tertiary convention destinations are now being accommodated at primary destinations, as the larger facilities in major markets have the ability to host numerous smaller events concurrently.”

However, the report states with balance, “…there is a renewed interest on the part of many convention groups to consider second-tier cities in their evaluation of destinations, primarily for pricing reasons. Although it is reasonable to expect that third-tier cities [e.g., Lancaster] will benefit from this trend, the options open to groups at this level are extensive. Similarly, Pennsylvania associations which operate on a rotational basis for site selection now have a venue available in several geographic and city locations, reducing the visit frequency for each location.”

The PKF study also supported the conclusion of Robert Field, who declined to purchase the Brunswick hotel after assessing a poor downtown hotel market.

PKF writes that: “while the overall Lancaster County hotel market is stable, the downtown commercial hotel market has shrunk considerably in recent years. This has contributed to the decline of the Hotel Brunswick. Although the Marriott brand is extremely strong in this segment, the availability of Marriott products along Route 30 will limit this advantage.”

PKF, while noting some “Strengths” of the Lancaster area – its “wholesome image” ; extensive tourism base; strong hotel brand; “historic attractions downtown” — echoed the other market studies, pointing out Lancaster’s “Weakenesses.” Among them mentioned in the report were parking and traffic issues, undesirable downtown location, poor air access, and “Lancaster’s image not what conventioneers are looking for.”

It was an exhaustive study that included economic analysis, and multiple surveys of event planners in Pennsylvania, New Jersey, and Maryland. And PKF’s conclusion after its sober study:

… [O]ur findings lead us to conclude that the potential economic benefits are not likely to be sufficient to justify the risks involved, including the potential need to raise the hotel tax to fund operating deficits after several years should the reserves become depleted. We therefore recommend that, prior to proceeding further with this project, the parties involved consider exploring a downsizing of the project or an alternate use for the site.”


Chapter Twenty-Three: Fog of War: Opponents fall for misdirection


1 Comment

  1. In the immortal words of Gomer Pyle…….”Surprise, Surprise, Surprise!!!!!!!”

    and in the words of a 60’2 hit song…..”Silence is Golden”

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