Hotel conference center plan is a high-risk venture for Ann Arbor that doesn't make sense
Editor's note: The Ann Arbor CIty Council is expected to vote on a resolution on Monday night to reject the Valiant Partners hotel-conference center proposal.
The Washtenaw County Hotel and Motel Association, which includes all of the major hotels in Ann Arbor, with over 1,800 employees, wishes to advise you again that we firmly oppose the hotel and conference center that have been proposed for the Library Lot by Valiant Partners L.L.C. Through our many years of industry experience, and for the six reasons stated below, we are convinced that the City of Ann Arbor should not participate in this high-risk real estate venture.
1.The Valiant Partners Proposal states: “We envision the University of Michigan to be a significant user of the Conference Center facilities.” However, the university’s official response re-garding a hotel and conference center on the Library Lot is: “The University of Michigan has no interest in any of the Library Lot proposals and, consistent with our long-standing policies and practices, we will not endorse nor offer any assurances to private sector developments proposed within the City of Ann Arbor.”
In reality, The University of Michigan is a competitor. It owns and operates approximately 300 hotel rooms and over 100,000 square feet of state-of-the-art conference and ballroom space, including the Michigan Union Rogel Room, which can seat 420 dinner guests, and the Michigan League Ballroom, which can seat 350 dinner guests.
The 13,000-square-foot North Campus Research Complex Banquet Room (formerly the Pfizer corporate dining room) has been upgraded with new audio-visual and video conferencing equipment and is now available to all university departments for conferences and other events. It can seat up to 700 people for a sit-down dinner.
To quote Ann Arbor.com columnist Paula Gardner: “This facility is fit for any type of elegant event, thanks to its high ceilings, expansive windows and high-end finishes.”
Most of the above University conference and banquet facilities are available for rent by outside organizations and the general public.
2. Demand for conference space in Ann Arbor and throughout the country has been trending downward for the past five years, prior to the onset of the current recession. It is apparent that this downward trend will continue as companies increasingly utilize technological innovations such as the Internet, video conferencing, and improved teleconferencing to make sales presenta-tions and provide information to their customers, thereby avoiding the hassle of airline flights and significant lodging, dining, travel and meeting expenses.
3. The industry standard, Smith Travel Research’s “STAR” Report, states that our area’s upscale hotel occupancy rate and average daily room rate for 2009 and 2010 were:
Year Occupancy Rate Average Daily Room Rate 2009 61.5% $ 99.48 2010 64.1% $ 99.21
The Valiant proposal estimates that is stabilized hotel occupancy rate will be 75.8% with an av-erage daily room rate of $208.89. If travelers were willing to pay twice the going rate to stay in Ann Arbor, opportunistic developers would have built hotels downtown years ago.
4. An Illustration of the cyclical nature of our business is the fate of the once highly successful 300-room Ritz-Carlton Hotel in nearby Dearborn. Quoting from Crain’s Detroit Business, August 30, 2010: “The hotel lost $5 million in 2009…It sold for an eye-opening low sale price in 2010, selling for $3 million. When the hotel last changed hands in 1998, its sale price was $64.8 million, still far less than the estimated $100 million is would cost to replace the property.”
5. The 26,000-square-foot Valiant conference center is comparable in the size of its conference and ballroom space to some of our existing facilities and consequently would not open new mar-kets. It would need to take business away from our hotels, which have more than ample underu-tilized, upscale conference and ballroom space available to meet the current and future needs of Ann Arbor. As a group, we have experienced little demand for sit-down dinners for more than 300 people. For example, the Ann Arbor Sheraton Four Points off south State Street can accommodate 550 people for a sit-down dinner in its Michigan Room. However, the Sheraton only hosts a group of 500 more an average of three times per year. The Ypsilanti Marriott at Eagle Crest can seat 640 guests for dinner. However, it rarely hosts groups of more than 300 and has had significant financial problems, including the original developers defaulting on the public bonds that financed the hotel.
6. Unlike the Valiant proposal, Ann Arbor’s existing hotels have paid for all of their ballroom and conference center construction costs as well as all of their fully assessed property taxes. City assistance for the Valiant project, including reduced property taxes, the highly unusual non-payment up-front for the Library Lot air rights, and the use of the city’s proceeds from the sale of the Library Lot to pay for the financing of the conference center, will provide Valiant an unfair advantage and will threaten the viability of our hotels, some of which are already struggling. We believe that public assistance should not be provided for the benefit of private business that competes with other private businesses that aren’t provided that assistance.
Joseph Sefovic, President Washtenaw County Hotel and Motel Association
Comments
Mike
Mon, Apr 4, 2011 : 1:08 a.m.
The real question is whether Ann Arbor is better served by the usual beltway hotels who don't want more competition or by the presence at least of a few key quality hotel properties downtown. Anyone who has entertained out of town interview candidates for executive positions know how embarrassing the peripheral hotels are. I have no problem sacrificing a couple bland chain hotels on the beltway for a destination hotel downtown.
1bit
Fri, Apr 1, 2011 : 11:08 p.m.
Although I agree with the comments, it reads as "We, the potential competitors, don't want competition." A conference center of suitable size and design in a central location in Ann Arbor is not a bad idea per se. Perhaps, without the additional hotel, the surrounding hotels could serve as locations to house those who might use and be shuttled to a downtown conference center.
1bit
Sat, Apr 2, 2011 : 3:44 p.m.
I agree with both of you. I didn't like the proposal as offered, but it seems that there could be some compromise to make a conference center that would increase business for area businesses and hotels. I've used the example of Moscone in San Francisco before and it started smaller and grew over time. Obviously, A2 isn't San Francisco but that doesn't mean people don't want to come here. We do need some "higher end" or "destination" hotels and restaurants in the area as well. I'm not sure if these come first and a conference center follows or vice-versa. The alternative is slower "organic" growth, which is just fine too.
johnnya2
Sat, Apr 2, 2011 : 12:33 p.m.
It is not "unfair" competition any more than the UM is unfair competition to a landlord because they have people living in dorms or UM is unfair competition because they have facilities. This writers own number show that occupancy is trending UP, not down. Even if you take a small decrease in the room rate it shows the "average hotel" has more revenue in 2010 than in 2009. Eagle Crest s used as an example of a competitor, but what about their bankruptcy and the millions of dollars in debt they walked away from? They have an "unfair" advantage. The negative reports seem to concentrate on two failed hotels in Flint and Jackson. I would not consider Flint or Jackson to be the same type of area as A2. Our unemployment rate is the lowest in the state (hardly the case for them) and has neither have the amount of business on any level. People fail to realize that bringing a conference center to the downtown area attracts larger groups and conventions. This would actually HELP the other hotels. Many regional type conference and events could be held in A2, but currently can not due to hotel and space limitations. A perfect example would be Cobo Center. Without expansion the largest user (the auto show) was going to end up leaving. They would end up in Chicago, New York or even Indianapolis.
mw
Sat, Apr 2, 2011 : 12:12 p.m.
What they're saying is that they don't want unfair competition that's subsidized by tax dollars--and I don't want Ann Arbor's (increasingly scarce) tax dollars used for such subsidies either. But their motivation certainly doesn't invalidate the central points that the success of the proposal depended on not only subsidies, but on unrealistically high occupancy and room rates and on use by UM which has no need for the facility (given all of its own conference spaces).
satkin
Fri, Apr 1, 2011 : 8:26 p.m.
As someone who works in the local hotel industry, I would like to thank everyone involved with the response from the Washtenaw County Hotel and Motel Association. Your points were very clearly made, and such strong leadership is greatly appreciated. Thanks!