Case for bigger convention hall has familiar ring

Consultants’ projections fall short elsewhere

By Casey Ross
Globe Staff / April 22, 2011

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In a meeting last year with some of Boston’s most influential business leaders, a consultant grimly warned that the city’s new convention center is losing millions of dollars a year because it can no longer compete with the nation’s largest venues.

The Boston Convention and Exhibition Center, opened just seven years ago, is so short of exhibit space and hotel rooms, the consultant said, that officials need to consider a mammoth taxpayer-funded expansion.

To some, the consultant’s conclusion was shocking. But to others, it rang familiar.

Over the past decade, the same firm, Convention Sports & Leisure International, has produced similar findings to support expansions in Philadelphia, San Antonio, Washington, New Orleans, and other cities. Despite finding widely different conditions from city to city, in nearly every circumstance the firm’s recommendation was construction of bigger exhibition halls and hotels. A second convention center consultant for Boston, HVS International, has made similar findings around the country.

But many of the cities that subsequently expanded are not seeing the predicted economic benefits, and some of the facilities are struggling financially.

In Minneapolis, a center expanded at the advice of principals from Convention Sports is beset with low occupancy and huge deficits. Convention hotels built in Baltimore, Austin, and Phoenix based on HVS findings are doing so poorly their public managers suffered hits to their credit ratings.

And in Washington, D.C., a center that opened in 2003 is producing much less hotel business than Convention Sports had predicted, according to the city’s convention agency.

“These consultants always say there is this untapped potential out there,’’ said Marc Scribner, an analyst with the Competitive Enterprise Institute. “But they are consistently wrong.’’

In Boston, officials are using studies by HVS and Convention Sports to lay the groundwork for a near doubling of the South Boston hall’s exhibit and meeting space and the construction of a 1,000-plus-room hotel next door. At $2 billion, it would be one of the largest construction projects in Boston and probably require tax increases to fund it. In coming weeks, a state panel of 27 public officials and business leaders will make final recommendations to the state Legislature, whose approval is needed to begin construction.

The Boston official leading the charge for expansion downplayed the consultants’ role in the process, and even went so far as to disparage their work. While they provide helpful data, Massachusetts Convention Center Authority executive director James Rooney said, convention consultants in general have “done a disservice to the industry’’ by consistently overstating the business potential of expansion.

“I’ve been saying for over a decade now that the projections have been overly optimistic, and some cities have acted on that,’’ he said. “But that’s not what we’re doing here. We’ve had a year-and-a-half-long, transparent and probing public process, in which the analysis is being poked and prodded by some very smart people.’’

In the end, he said, Boston must expand to remain competitive. Despite his criticism of the consultants, Rooney and others involved in the expansion effort use figures from both Convention Sports and HVS in their published materials about the potential project.

Convention Sports has been paid $34,000 so far for its work in Boston, HVS $86,000.

John Kaatz, an executive with Convention Sports, declined to discuss his firm’s Boston studies because the work here is ongoing. But he defended the company’s forecasts in other cities, saying its work is thorough and insisted the firm is not predisposed to supporting expansion.

“This isn’t some cabal where we say, ‘What can we do to twist our numbers so you can build your project?’ ’’ said Kaatz.

He blamed the economic downturn — which, he said, his firm could not have foreseen — for the financial trouble at some halls. Moreover, performance figures reported by convention centers, Kaatz said, do not account for all the spending facilities bring to their local economies. For example, he said, Washington hotel numbers don’t include rooms booked outside of those reserved by event planners.

As for Minneapolis, Kaatz said, the center’s deficits are high because of out-of-control expenses, not lower-than-expected revenues.

Thomas Hazinski, the HVS consultant working in Boston, noted his firm’s findings have persuaded some communities to not pursue building projects, including Plano, Texas and Monterey, Calif. He too said the recession — not his firm’s research — are to blame for problems at hotels in Phoenix, Baltimore, and Austin.

“To say that they’ve underperformed is not a meaningful statement,’’ Hazinski said. “The more relevant measures are, ‘Are they able to repay their debts, and did they have the desired affect in the communities that built them?’ And the answers to those questions are typically yes.’’

The firms are among a handful of consultants that study the convention center market. Founded in 1980, HVS is a global firm that conducts studies on large hotels and meeting facilities and provides other services, such as investment banking and executive recruiting. Convention Sports & Leisure, founded in 1988, focuses on convention centers and sports facilities.

Both use surveys, financial data, industry research and other sources to assess the conditions and demand for convention facilities. Facility managers who have used the consultants said their studies often provide valuable information about industry trends and development activity.

While the recession has certainly hurt the convention center business, the industry’s leaders acknowledge their troubles were brewing before the economy fell.

A 2007 report from associations for convention managers and marketers found the building boom created a glut of space, and their financial problems worsened when struggling state and municipal governments pressured them to boost revenue at the same time demand was dropping.

“The resulting ‘buyer’s market’ has exacerbated an already competitive environment, resulting in the need to discount rental rates or increase services that can create a competitive advantage,’’ said the report by Destination Marketing Association International and the International Association of Assembly Managers.

Despite those findings four years ago, Convention Sports & Leisure and HVS have since issued studies for Dallas, Miami, New Orleans, Boston, San Antonio, and other cities that supported construction of new or bigger facilities.

Meanwhile, some convention managers said the sector still remains overbuilt.

“There does need to be a correction in the amount of supply out there,’’ said Greg O’Dell, chief executive of the Washington Sports and Convention Authority.

In some cases the consultants conclude there is less demand in one city for additional space, and much more in another, yet still reach the same finding for both: that expansion is warranted.

Convention Sports conducted a study in San Antonio in 2008 that found 82 percent of event planners surveyed indicated they would consider holding an event there. In Philadelphia, meanwhile, an earlier Convention Sports study found positive response from planners at 58 percent. Yet Convention Sports consultants told each city the market would support its expansion, although it ultimately recommended a bigger project in Philadelphia than it did in San Antonio.

Minneapolis expanded based on the advice of the principals from Convention Sports. But since opening in 2002 the expanded center hasn’t drawn the big shows as hoped, with occupancy rates around 50 percent, well below the 70 percent considered optimal. Its annual deficit has been as high as $15.6 million, well above the $3.4 million that the consultants predicted.

“What has changed since the prediction in the mid 1990s is that other cities expanded right along with us,’’ said Jeff Johnson, the center’s director. “We thought we were moving up the chain in terms of space, but we really just held our place.’’

In Austin, HVS predicted in 2001 that if the city built an 800-room hotel near its expanding convention center visitors would book 314,000 rooms annually by 2005. But it’s never gotten close, topping out at 190,000 in 2004.

Last month, Standard & Poor’s lowered Austin’s hotel debt rating, already in junk status, to reflect “major ongoing uncertainties due to adverse business conditions,’’ and issued a similar downgrade in Phoenix over its struggling 1,000-room hotel.

In Boston, HVS’s preliminary finding is that a 1,000-room hotel near the convention center could trigger visitors to book 140,000 rooms from events at the seaport district facility. Massachusetts officials have said the hotel may need up to $200 million in public subsidies.

The consultants say the lack of hotel rooms near the center is a major drawback to luring conventions to Boston. Convention Sports also said Boston’s exhibit space of 516,000 square feet compares poorly with the more than 1 million square feet available at centers in New Orleans, Atlanta, Orlando, and Chicago.

Rooney acknowledged the convention industry is overbuilt nationally, but said Boston has proved a strong competitor and must expand to remain an attractive destination.

“There is more supply of meeting space than there is demand for events,’’ he said. “But that just means it’s a mature industry, which can be said in a number of industries. There is more office space than demand for offices. There are more TV channels than could ever be watched. All that means is that to be competitive one needs to do an intellectually honest assessment of your product.’’

Casey Ross can be reached at