January 17, 2014

Miami Beach seeks new direction for convention center

Most commissioners agree the center should have a hotel, but many details remain to be worked out.

Miami Beach’s struggling convention center needs a headquarters hotel to be competitive. On that, city leaders seem to agree.

But will the addition of a hotel really solve the convention center’s problems? Where should the hotel be built, and how much should its rooms cost?

Those questions are open for debate after City Commissioners on Wednesday agreed with a proposal by Mayor Philip Levine to:

• Scrap a convention center district redevelopment plan years in the making, and start over with a smaller-scale project.
• End negotiations with South Beach ACE, a team of world renowned developers and architects chosen six months ago for the project.
• Identify other sites for a convention center hotel, which ACE had proposed building into and on top of a renovated convention center.

How the hotel question is resolved will go a long way toward determining the city's next steps. Beach officials had hoped to lease out land to ACE for the development of a hotel. In turn, the lease revenue would help pay for the convention center renovation. So the addition — or not —of a hotel could affect how much Miami Beach will pay for a better convention center —which essentially everyone agrees is necessary because the center is an economic driver.

Industry leaders insist that it’s not enough to just give the center a facelift. It also needs a large, nearby hotel in order to remain competitive. Commissioners mostly agree.

“I think if we're going to spend the money to have a competitive convention center and don't do a hotel component, we’re making a mistake,” Commissioner Ed Tobin said at a city meeting on Wednesday.

On the other hand, a 2008 study done for the city and hospitality leaders by Conventions, Sports and Leisure (CSL) notes that the viability of a revamped convention center “will not be solely dependent on the development of a new headquarter hotel.”

Vicki Hawarden is the head of the International Association of Venue Managers. While hotel location and price are significant factors in deciding where to hold meetings, she called Miami Beach a desirable spot for planners.

“People who want to go there bad enough usually find a way,” she said.

The issue of a headquarters hotel for the convention center has dogged Miami Beach for more than two decades.

The city had hoped to solve the issue by contributing about $60 million in land and construction subsidies to the Loews hotel in the late 1990s, but meeting planners soon found the four-star resort too pricey for the kind of wholesale rates many groups demand for large gathering. At more than a half a mile away, the Loews, and the adjoining Royal Palm — also launched with city support — are also too far from the convention center for some meeting planners to consider them convenient.

When it comes to conventions, Miami Beach’s biggest asset becomes one of its biggest problems: oceanfront properties. The CSL study highlights that “the relatively high prices of ocean-front, resort hotel properties” is a potential drawback for meeting and convention planners.

The Miami Beach market commands the 10th highest room rates in the nation, according to 2013 data provided by STR, an international company that gathers lodging industry supply, demand and performance data from hotels in more than 160 countries.

"The rates are still going to be a challenge,'' said Jeff Sachs, the convention-center consultant hired by Miami Beach to help guide the process.

Rates become a flashpoint during the selection process to choose a master developer for the now-scrapped project. The second-place finisher, Portman CMC, knocked ACE for predicting a quick run-up in prices at the new headquarters hotel. In 2019, ACE forecast its typical room costing $294 a night, compared to $231 for Portman. ACE argued the quality of its hotel, and the upgraded convention center, would let Miami Beach attract high-end medical conferences and other groups willing to pay top-dollar for rooms.

Even still, Hawarden, the International Association of Venue Managers leader, said she hasn’t met a convention planner who isn’t sensitive to price. And she’s been in the business for decades.

For instance, Hawarden said, events that attract medical doctors who may not mind paying top rates for room on the beach, also attract interns who just want an affordable place to crash. So meeting planners look for a range of hotel price points when deciding whether to book a particular convention center.

“If you want to get your full potential out of attendance, you need to have a range of options,” Hawarden said. “If you can’t find an affordable option, you’re going to block out a segment of your attendees.”

Headquarters hotels, because they rely so heavily on the adjoining convention center, often require a government subsidy or some other public support. Broward County briefly considered a Hyatt for its center that would have used as much as $15 million a year in public money to market the property if profit targets fell short.

According to the CSL report: “It is highly unlikely that a private developer could generate the necessary return on investment to justify financing a headquarter hotel project. In reality, this is the situation that exists in nearly all markets in North America.”

Though Mayor Levine has now publicly supported the plan for a convention center hotel — or even two — he has in the past called the idea a solution in search of a problem.

“We're not Orlando. We're not Atlanta. We're not Las Vegas. ... This is not a situation where our hotels are empty and our rates are low,” Levine said at Wednesday’s commission meeting.

It’s not enough for a convention center hotel to be affordable, though. Proximity is also key.

“People want to be at the convention center hotel. They want to be at the heart, at the center of it,” said Eli Gorin, owner of Hospitality Growth Partners, a strategic consulting company in the meetings and events industry.

The plans that Beach commissioners decided to nix Wednesday night included a hotel built into the convention center building itself. Instead, mayor Levine seemed to suggest maybe City Hall, located within the convention center campus, could be bulldozed to make room for a hotel. Commissioner Joy Malakoff floated the idea of replacing the 17th Street garage, right across the street and flanking the tourist-centric Lincoln Road Mall, with a mixed-use hotel development.

“A hotel component is needed nearby. It doesn't have to be on top of” the convention center, Malakoff said.

As the debate rolls on, some see the process hopelessly flawed.

“You can’t take it seriously,” Gorin said. “It’s like, ‘You know what? We can’t trust you.’”

Miami Beach has gone through at least two rounds of soliciting design ideas for the center, only to scrap them. Before getting the death knell by the City Commission, the most recent round had survived the arrest of the city employee tasked with handling it and the ouster of the Beach’s top administrator.

But it didn’t survive the latest round of elections, when a mostly new commission that supported a smaller plan was swept into office. The new leaders say they want the project to move quickly, and observers say they’ll have to if Miami Beach wants to stay in the convention center business. A major player is waiting in the wings: Miami.

Developer MDM Group plans an 1,800-room hotel in downtown Miami, along with a 500,000-square-foot convention center. That would still be smaller than the one in Miami Beach, which would have had about 1.3 million square feet under ACE’s layout. But it would further an effort in Miami to make downtown a more attractive option for smaller groups looking to gather in the winter sunshine.

“We’re looking at a conference center, not a convention center,’’ said Alyce Robertson, director of Miami’s Downtown Development Authority. “We’ve now got 6,000 hotel rooms. And because of MetroMover, it’s easy to get from place to place.”

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