Flip-Side

ANALYSIS CLAIMS HUGE BOON ANTICIPATED FROM MBCC PROJECT.

Before the Miami Beach City Commission made its decision between two rival bidders to be named master developer of the $1 billion-plus renovation and improvement of the Miami Beach Convention Center and addition on new facets such as an on-property hotel and a multi-use ballroom, they didn’t necessarily get data on the convention industry in the nation overall, or the trending in terms of convention participation in the age of video-chat and business cut-backs.

Instead, they were presented with a brief overview of the anticipated financial impact of the project, based on data from numerous other U.S. cities that had invested in similar expansions/improvements and based on studied data related to conventioneer habits from the Greater Miami Convention and Visitors Bureau.

So, commissioners did not hear the fact that, in a little over a decade, available convention space nationally has increased by 36 percent and growing each and every year, despite flat or even reduced numbers of conventioneers. Nor did the commission necessarily heed the statements of Greg Ortale, 2013 chair of CEIR, the Center for Exhibition Industry Research – basically the convention industry’s public relations wing – made in the most recent CEIR Index Report.

“The third challenge concerns the business model for sustaining convention centers. Clearly the original ‘loss leader model is no longer acceptable, yet in the current buyer’s market, unrealistic concessions are being made to book business,” wrote Ortale in the CEIR Index Report, acquired by SunPost.

“ That practice cannot continue over time and still provide the quality facilities all buyers require today,” Ortale continued. “The current excess supply is more likely to come into balance through a reduction in inventory than an increase in demand as destinations (note: emphasis added) accept that they no longer can keep investing in a facility if they cannot market it at a fair price. As those destinations withdraw from the competition for the national business, the supply of acceptable facilities will likely drive site selection. Organizers need to work with destinations to establish a more balanced business model that is advantageous for both sides.”

However, the city’s consultant, Strategic Advisory Group (SAG), provided a much rosier – but, statistically based — analysis of the total economic impact of the proposed convention center redevelopment. It was this document with which the commission was presented that presumably provided the economic data upon which commission decisions were made.

Initially, both finalist bidders were required to present economic impact data as part of the Request for Qualifications (RFQ) that started the official process – a breakdown of the return on investment for the City and its taxpayers. However, early on, it became apparent that particular RFQ requirement wasn’t practical.

“Two bidders could each create their own study that would measure [return on investment] differently,” said Jeff Sachs, managing partner with SAG. “We wanted the math to be the same, so we had to let them wait so we could make an apples-to-apples comparison.”

Sachs said that SAG always intended to do such a study and that the firm has done “hundreds” of economic impact reports. Following the 16 points interjected by City Manager Jimmy Morales, subsequent changes to the development program and the selection of South Beach ACE as master developer, the numbers are in – and, assuming they are reliable – the news should be good for the city with an improved convention center facility.

“Return on investment for a convention center project is measured by the comparing the public investment to the economic impact created in the local community,” Sachs explained. “Convention centers are built to support local business through the spending by convention delegates outside the center. Destination Management Association International and the GMCVB study how much people spend when they come for events.”

According to Sachs and included in the presentation to the city commission, impact for the District project is generated in four broad areas:

* From the construction of the project. The spending of over $1 billion to develop the District will have a material impact on Miami Beach and Dade County. “Not only will the direct construction industry be impacted, but so will the support business such as transportation, restaurants, hotels, etc.,” Sachs said.

* From more city-wide convention activity. Increased spending in Miami Beach from incremental city-wide convention is estimated to be $32 million annually. This is based on a 30 percent increase in city-wide event activity. Thirty percent is the average of what has occurred in other cities where [anchor] hotels were developed and/or convention centers were materially improved. Some cities increased citywide activity in excess of 50 percent. “The 30 percent average was utilized and is consistent with GMCVB estimates,” said Sachs.

* From increased in-house convention group meetings. During non-city-wide event periods, the hotel will bring new smaller groups to the areas and their spending is estimated to be $74 million annually. “Again, this is based on was has been achieved in other cities,” Sachs said.

* Finally, there will be an impact on retail spending, estimated to be $4 million annually, according to the study.

“All told, over 30 years, the project is estimated to generate $3 billion in spending (economic impact) for local businesses,” Sachs said. “During the construction period, the project is estimated to support 2,500 jobs annually and 1,600 incremental jobs annually once operating.

When you consider that the 1 percent Resort tax that funds the project is paid by visitors, the parking is self financed from parking revenues, and that the land leases from the developer pay for a portion, the net public cost is $308 million. The economic impact for that $308 million investment is $3 billion, or 9.7 times the public investment.”

The statistics presented to the city commission conflict wildly with those presented by convention center industry expert Prof. Heywood Sanders, professor of public administration at the University of Texas at San Antonio. Just weeks ago, he told SunPost that many U.S. cities that had invested in similar improvements – including Orlando and Las Vegas – only to see convention attendance flatline, improve marginally and even decrease.

However, Sanders’ data appeared to be culled from attendance data in a short period of time or in varying increments of time. That’s one reason Sachs said the official study for the City revealed very different statistics.

“That 30 percent average number comes from us looking at the year before the project numbers and comparing them to the numbers three years afterward,” Sachs explained.

Cities that have undergone similar transformations have witnessed tremendous growth in convention attendance and thus return on investment, Sachs asserted. On the high end, Charlotte has seen a 70 percent increase over the studied period; while San Diego is on the lower end with but 6 percent expansion. Orlando has witnessed impressive expansion, Sachs said, beating the approximate 30 percent average.

“You don’t open a new hotel project and see immediate results,” Sachs said.

City commissioners had varying views on the presentation and the information it offered.

“I believe that the project will generate even more significant positive economic impact throughout Miami Beach as well as being an even greater economic engine for Miami-Dade County,” said Commissioner Michael Gongora. “Among these benefits is the creation of thousands of jobs that will create income and fiscal revenues from direct and ancillary services.

  “We are trying to attract the higher-end conventions that require the added ballroom and headquarter hotels that will attract more upscale tourists,” Gongora continued. “These tourists in turn are expected to spend a greater amount of money per capita in Miami Beach. Clearly, this will result in a positive economic impact. The project should be viewed in its entirety and residents should focus on the big picture that the convention center renovation project will give Miami Beach a competitive edge to bid for more substantial business that will benefit both residents and tourists alike.”

However, Commissioner Jonah Wolfson, a fierce critic of the project, said he did not feel enough hard evidence had been presented to feel confident that the project would have a sizable economic impact on Miami Beach.

“The GMCVB cites Microsoft and the dermatologists of America as two conventions we will get,” Wolfson said. “And some anecdotal evidence of other speculative business. But there’s no surety we will see an uptick. Really, we are headed upwards anyway. In fact, if you look at the increases in resort tax collection, we are soaring on our own merits. What, exactly, is the problem they are trying to fix?”

Wolfson is correct and provided documentation to demonstrate the tourism-driven revenue streams have increased notably and even set recent new records – without a renovated convention center, convention center hotel or the presumed increase in business those would provide.

Wolfson also questioned the validity of return on investment numbers initially floated by South Beach ACE. What they provided is purely speculative and is not the sort of thing to rely on before you spend a billion dollars,” he said.

Philip Levine, entrepreneur and mayoral candidate (competing with Gongora and maverick Steve Berke among others), is in favor of improving the convention center – but the process has been consistently marred, he said.

“I am in favor of renovating the convention center, but I am opposed to this deal,” Levine said. “This was a backroom deal mired with questionable decision-making. The project before us was conceived by the disgraced former city manager, who envisioned the project. It also remains tainted by the arrest on public corruption charges of the city’s former Procurement Director who was handling the convention center bids.

“A majority of city commissioners claim that this renovation and the selection of the South Beach ACE plan will provide the greatest benefit to Miami Beach residents,” Levine continued. “But that is false. The proposed plan will be more costly to taxpayers and will take a longer time to [complete] than the alternative plan. Inexcusably, they voted against the city manager’s prudent and sound recommendation.”

Levine’s reference was to a 5-2 commission decision to enter negotiations with the politically-connected South Beach ACE, despite its rival offering, on paper, a less expensive and considerably faster program that was also less expensive to the public and offered a theoretically better return on investment.

“This convention center deal will overburden Miami Beach’s current traffic problem that is unacceptable to the current residential population,” Levine continued. “It is my contention this deal before us is Miami Beach’s equivalent of a Miami Marlins Ballpark Part II in terms of undue financial burden for Beach residents and a bad deal for taxpayers. Convention center revenue only accounts for 4 percent of tourism dollars generated in Miami Beach, but our city commission has decided to spend at best over one billion dollars, at worst a blank check, when our city has rising pension obligations, an inadequate storm water plan and corruption that pervades city hall.”

Verifying any hard numbers when it comes to actual dollars generated by conventions in Miami Beach is no easy thing. SunPost inquired of the GMCVB, which provided copious documents but with little breakdown (convention and business-related visitors are grouped together in many analyses) and referred SunPost to Michael Aller, the City’s Tourism and Convention Director and Chief of Protocol. Aller did not respond to an email or phone message. Days later, an email from Noelia Gonzalez asserted she could not help with the request sent to Aller, and to please contact City Manager Jimmy Morales. After an email inquiry to Morales, SunPost was directed back to the GMCVB and also to the presentation provided by SAG.

Furthermore, two questions related to the return on investment promised by the convention center project and South Beach ACE’s statistics, were sent to the entire Miami Beach City Commission. Gongora and Wolfson were the only elected officials to respond to the request for comment.

So is the convention industry an invaluable contributor to the local economy and is it set to boom when improvements are completed? Or is it a white elephant weighing down a city already beset with public corruption and bloated pension obligations, and about to get worse with additional public obligations?

If the answer is in the numbers, it depends entirely on perspective, projections and predictions.

 

About Michael W Sasser

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