Indianapolis Hoteliers Reach a Crossroads with Convention Center Expansion

By J.K. Wall, The Indianapolis Star
Knight Ridder/Tribune Business News

Jun. 14--A consulting firm's call for a massive hotel in Downtown Indianapolis to support an expansion of the Indiana Convention Center is evoking an "amen" from city tourism officials and some hoteliers.

Such a hotel, they say, would allow Indianapolis to compete for and win bigger and better events, such as a national political convention. Indianapolis lost a bid for the 2000 GOP convention to Philadelphia, in part because it didn't have enough top-notch hotel rooms.

But other Downtown hoteliers -- mainly those not located next door to the Convention Center -- worry that another major hotel would hurt their business by filling Downtown with too many rooms. And even the most rabid supporters of the convention-expansion-plus-hotel-mansion combination acknowledge that the Downtown market would need several years to grow into it.

"It becomes the classic (case of) building a new church just for Easter Sunday," said Bill Stanton, managing director of the Adam's Mark Hotel & Suites Downtown. The question is how to keep the place filled during the rest of the year, he said.

The study, conducted by PricewaterhouseCoopers, was issued in March. It urged the city to build an 800- to 1,000-room hotel or to add about 600 rooms to one of Downtown's major hotels -- the Indianapolis Marriott Downtown, The Westin or the Hyatt Regency -- to create a 1,200-room facility.

City officials will pursue the second option first, said Fred Glass, chairman of the Capital Improvement Board, the city-controlled landlord of the Convention Center. If that option fails to pan out, they'll look for a new hotel. Talks about an expansion have already begun with some of the city's major hotels, he said.

The city needs another so-called "headquarters" hotel because large conventions like to congregate most of their attendees in one place, said Bob Bedell, president of the Indianapolis Convention & Visitors Association, which is in part funded by the city. Such a hotel could boost tourism business by housing guests while the Convention Center overlaps two or three conventions on its schedule.

"If our Convention Center is almost doubled in size, then we're going after business that is bigger than most of the business that we currently have. We would need to have a bigger hotel than what we currently have," Bedell said. Indianapolis ranked second-to-last among 13 peer cities in terms of the size of its largest hotel, according to the Pricewaterhouse study. The 615-room Marriott is the city's largest.

Bedell predicted that a new hotel could come online in three to six years. But that timing, of course, depends on a Convention Center expansion. Glass has said he wants to be prepared to break ground in the summer of 2005.

At stake in this debate is $372 million in economic impact that the Convention Center brings to the city, according to the Pricewaterhouse study. Tourists -- many of whom come for conventions -- are the reason Downtown has so many restaurants and retail venues. For example, more than 50 percent of customers walking through Circle Centre mall come from out of town.

As a result, Mayor Bart Peterson has committed himself to expanding the Convention Center. The Capital Improvement Board has identified two possible sites: One to the northwest of the current facility and one to the south of it. The city has also asked the federal government for $20 million to help fund the street changes related to the project.

The issue is urgent to Peterson because some of the largest shows that come to Indianapolis are beginning to leave in search of more space. The annual show of the Custom Electronic Design & Installation Association will move its 20,000 attendees to Denver from 2006 to 2008, Bedell said. But the organizations leaders have said they'll return to Indianapolis if the Convention Center expands.

Bedell also expects the 39,000-attendee Performance Racing Industry to move its annual convention out of Indianapolis, but give city leaders a commitment to return once the Convention Center expands.

"We are going to lose customers if we don't expand," said Mark Prince, general manager of the Marriott Downtown. "If you build the (Convention Center) space and don't build the new hotel, the customers won't come."

Critics have pointed to the struggles that Baltimore and Chicago have seen recently in filling their convention centers. Others say that makes Chicago, Baltimore and other major cities more hungry for convention business and could fire up competition for Indianapolis' most coveted shows.

In spite of those concerns, John Livengood supports a Convention Center expansion. But the president of the Indiana Hotel & Lodging Association wants to give Downtown hotels a chance to recover from three years of losses -- sustained during the recession of 2001 and a steep drop-off in business travel after Sept. 11, 2001 -- before new rooms flood into Downtown.

"To me, it's a little too early to talk about a new 1,000-room hotel," he said. "We're starting to come back, but it's not going to happen overnight."

Bedell, who has championed the cause of another major hotel even before the Pricewaterhouse study, echoes that thought.

"The longer it takes," he said, "the better off all of the existing hotels Downtown will be."

The city's hotels are beginning to recover, along with the rest of the country. A study by the Hospitality Group of PKF Consulting predicts that national occupancy rate in the nation's top 52 markets will rise this year nearly 3 percentage points to 64.5 percent. The price of rooms should also climb nearly 3 percent to $96.93.

Downtown Indianapolis performed better last year than the national average of 61.7 percent. In 2003, occupancy among Downtown hotels was 65.9 percent, down from 67.1 percent in 2002, according to Nashville, Tenn.-based Smith Travel Research. Room rates in 2003 were $118.34. Across the country, 2003 occupancy was 59.2 percent, according to Smith Travel. The average room rate was $83.12.

Livengood is also concerned about hotels outside of Downtown. They largely have been cut out from convention visitors as more hotels went up Downtown, he said, and that could be exacerbated by yet another Downtown facility. At the same time, a raft of suburban hotel construction in the late-1990s has pinched business at suburban hotels.

The 2003 occupancy of the Indianapolis metro area was 55 percent -- more than six percentage points below the national average, according to Smith Travel. The average room rate was $75.22.

"Short-term, the (suburban) hotels will feel it. It would take awhile for the demand to catch up to the additional rooms," said Brent Myrick, general manager at the Marriott Center near 21st Street and Shadeland Avenue. "But long-term, the growth of the Convention Center, it's important for the success of the city."

Stanton, at the Adam's Mark, isn't so sure.

Downtown already has new hotel capacity to absorb. The 180-room Hilton Garden Inn opened near Monument Circle in December. And 243 more rooms are coming in 2006 when the Conrad Hilton opens at Washington and Illinois streets.

That's one reason Stanton intends to focus his hotel more on business travelers and less on convention business when the hotel changes to the Hilton brand in August. Stanton used a similar strategy while general manager at The Westin, which helped him survive Marriott's opening next door in 2001. Adding as much as 1,000 rooms to the mix would funnel more business to the Downtown area and less to the outlying hotels, Stanton said. Even some Downtown hotels could suffer.

"When conventions don't need huge blocks of rooms, I'll hear the sucking sound," Stanton said. "But in my case, it will just make me more keen on not being so dependent on conventions."

THE 10 LARGEST DOWNTOWN HOTELS: A study commissioned by the city says that Downtown Indianapolis needs a hotel with 800 to 1,200 rooms to accommodate extra business that could flow if the city expands the Indiana Convention Center. That recommendation could be met by either expanding an existing hotel or building a new one of "headquarters" size. But some Downtown hoteliers worry that adding so many rooms would further harm their businesses, which have suffered during the recent recession.

Hotel . Address . Rooms

1. Indianapolis Marriott Downtown . 350 W. Maryland St. . 615

2. Westin Indianapolis . 50 S. Capitol Ave. . 573

3. Hyatt Regency Downtown . 1 S. Capitol Ave. . 497

4. Omni Severin . 40 W. Jackson Place . 424

5. Radisson Hotel City Centre . 31 W. Ohio St. . 374

6. Embassy Suites Indianapolis Downtown . 110 W. Washington St. . 360

7. Adam's Mark Hotel & Suites Downtown . 120 W. Market St. . 332

8. University Place Conference Center . 850 W. Michigan St. . 278

9. Crowne Plaza Hotel at Union Station . 123 W. Louisiana St. . 275

10. Courtyard Indianapolis Downtown . 501 W. Washington St. . 233

* The Conrad Hilton, at the corner of Washington and Illinois streets, is scheduled to open with 243 rooms in 2006.

Source: Indianapolis Downtown Inc.

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