Hotel execs mixed on seeing success for convention hotel

Now city must decide whether a hotel represents a significant financial exposure or a significant opportunity

Jackson’s convention hotel conundrum started the day crews went to work readying property on the south side of Pascagoula Street for construction of the Convention Center Complex.

Once that work started in earnest, Jackson’s elected officials committed themselves to someday having to make a difficult decision: let the complex live or die on its own or double-down on the initial investment with a convention hotel to give the complex the bookings it must have to survive.

It’s a tough call that Mike Cashion of the Mississippi Hospitality and Restaurant Association is glad he does not have to make. Choose your cliché, he said: “Catch-22,” “Between a Rock and a Hard Place”…

The city, Cashion said, put itself into that bind when it built the Convention Complex without a convention hotel – or even knowing if such a hotel could be built.

Now it must decide, he added, whether the hotel represents “a significant financial exposure” or “a significant opportunity.”

The hotel’s upside is obvious: $94 million in construction spending followed by 100 or so permanent hotel jobs and the potential for more jobs if a second hotel and mixed-use project follow. In terms of dollars and jobs, each $1 million of visitor spending creates 12 direct jobs and six indirect jobs, a report released in February by the Mississippi Development Authority concluded.

Supporters also predict the hotel would spur other new development in the vicinity of the Convention Complex.

It would put money in city and county coffers as well. The privately owned portion of the hotel would go on the property tax rolls, the Hinds County Tax Assessors office says. Under100 percent private ownership, the hotel would have generated tax revenues of $600,000 annually in the early years and $1.2 million at buildout of the other components, city spokesman Chris Mims said.

Absent a developer willing to take on the project solo, Jackson city officials are trying to go 50-50 on a $94 million hotel deal with Dallas real estate investment firm TCI Investments. Hotel revenues would back $84 million in tax-free Gulf Opportunity Zone bonds the partners would issue for the project, but the city’s general fund would have to cover any shortfall on the city’s approximately $42 million bond debt.

City officials have not done a market feasibility study of their own but say they are comfortable with a study by development partner TCI Investments. That study projects average nightly room rates of $150 at the Crowne Plaza-flagged hotel, nearly $70 above what Smith Travel Research says is the Jackson market’s current average rate.

David Watkins, developer and current part owner of downtown’s restored King Edward Hotel, now a Hilton Garden Inn, says he would do the deal. The rate projections seem doable, he said.

“I haven’t seen the study,” Watkins said of the PKF Consulting firm’s market assessment.

“I don’t have a problem with $150 a night room rates. Given the flag they are talking about, I think they can achieve that.”

Watkins said the King Edward opened a year and a half ago with a $125 “rack rate,” a rate charged with no discounts. “I think it’s now around $150,” he said.

The hotel offered an Internet rate of $129 a night for a four-night stay from June 22 through June 26. For that same period, it also offered a $144 business traveler’s rate that included breakfast, valet parking and high-speed Internet.

Watkins said he expects a Crowne Plaza serving as a convention headquarters hotel would be able to adjust upward as time went by and the Convention Complex became more established.

He said he thinks the Crowne Plaza would need an occupancy rate of 60 to 70 percent to stay viable but added “it is not a stretch” to think the hotel could achieve that.

“We have a really serious shortage of class A hotel rooms in this city.”

Watkins said he thinks a convention hotel is “the main thing we are missing here for our economic development” and the vitality of the city’s hospitality sector.

He conceded that he has some partners “who don’t necessarily agree” that a convention hotel can do well here.

Mitch High isn’t a Watkins’ partner but the general manager of the Hilton Jackson on County Line Road. He thinks the timing is not right for a convention hotel. Not enough visitors and certainly not enough of them willing to pay a rack rate of $150, said High, a veteran hotel executive who has been general manager of the Hilton for about a year.

“I would challenge anyone to show there is that volume,” he said, and voiced concerns that more hotel supply at a time of limited demand can only drive down rates for the city’s hotel/motel sector. “It would have a ripple effect.”

He said he is not getting a $150 rack rate and expects a Crowne Plaza here would average nightly rates in the $89 to $99 range. “Groups right now are looking for affordable venues,” he said.

Another veteran hotel executive, Gaines Sturdivant of Jackson-based MMI Hotel Group, called the $150 rate “an aggressive target” but one that is “probably appropriate for this type of facility.”

Should a convention center hotel make and sustain its rate target, it would bring rates up for other downtown hotels, he noted.

If the Crowne Plaza fell short, it would begin competing with hotels that don’t charge that high, said Sturdivant, a member of the Jackson Convention & Visitors Bureau board and president of MMI Hotel Group, which manages two Cabot Lodge properties in Jackson, a Hilton Garden Inn in Madison and a Crowne Plaza near the Jacksonville, Fla, International Airport.

“The average daily rate of Crowne Plazas across the country is significantly below $150,” he said.

He emphasized two aspects of the convention hotel issue make him uneasy: the public funding and the absence of a city-sponsored market feasibility study.

He said a hotel connected to the Convention Complex is an important piece of the city’s convention business strategy but “it does need to make economic sense. I have rarely seen a hotel project done by a public entity that proved economically to be a good idea.”

And without the city having a feasibility study of its own, “I think they are just pulling a number out of the air,” he said.

Downtown Jackson hotels at the moment are not averaging “$100 much less $150,” Sturdivant said. He put the average at “$85 or so.”

A convention headquarters hotel could be viable once the national economy rebounds in earnest and necessary amenities go up around it, said Michelle Russo, president of hotelAVE, a Providence, R.I.-based firm that manages $2 billion in hotel assets.

Demand for hotel space by groups and conventions is running 40 million to 50 million room nights behind its peak earlier in the decade, but group bookings have the highest potential for improvement of any hotel guest category, Russo said.

She said group bookings turned positive in May but are projected to go flat for the next 12 months.

For long-term success, cities must complement their convention centers and convention hotels with entertainment venues, appealing restaurants and retail shops, Russo said. “It needs to be kind of the whole package.”

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