Plans for A New Downtown Hotel Give Hope to LA Convention Center

Michael, we do this interview as the City of LA weighs a pending proposal and plans for a new convention center hotel in Downtown Los Angeles - a convention center hotel that was promised more than 15 years ago. Why has it taken so long?

First, let me go back 15 years ago. There was a pro forma done that examined the economic consequences of building an expanded convention center. The logic behind it was predicated on the fact that there would be a feeder system of 4,000 additional hotel rooms. Those additional rooms made an expanded convention center make economic sense. It wasn't such an optimistic notion, because at the time there were probably 10 or 12 massive hotel projects on the books, all of which fell off of the books when the recession hit Los Angeles.

The new hotel construction never happened. We have found ourselves living with the consequences of that for almost 10 years.

From 1994 through 1998, our competition on the West Coast began to build. They began to expand their convention centers. They also began creating a friendly environment for new hotel development. Today, we find ourselves in a very different world than in 1998 and 1999. At that time, the LA Convention Center could still take advantage of the fact that large organizations could not be comfortably accommodated in Anaheim. In 2000 and 2001, all of our competition opened the doors to their new hotel facilities and sometimes expanded convention centers. We found ourselves in the midst of a brand new calculus. Event planners began to note that delegates would have to travel from the convention center to hotel by bus in Los Angeles. The same is not true in San Francisco, Las Vegas, Anaheim or San Diego. Since 2000, we have had our clocks cleaned, and we can't change that without addressing the availability of hotel rooms near the convention center.

The reason a hotel hasn't been built in recent years was that the convention center was surrounded by a parking lot. People who know much more about hotel prosperity than I do will tell you that even in the best of times, a convention center hotel will get 35 to 40 percent of its occupancy from a convention center. The rest has to come from business, travel and smaller meetings

It wasn't until the Anschutz Entertainment Group decided to invest in the Sports and Entertainment District that the context for a new hotel was created. Now the argument for having a new hotel works, because it is going to be supported by a massive dining and entertainment area that will generate demand from virtually all visitor market segments.

Michael, why should the readers of The Planning Report and the citizens and voters of the City of Los Angeles care what happens to the convention center and whether a hotel is built or not built?

Well, there is a $500 million building that has not come close to delivering its potential ROI to the city that built it. If this city ever expects to get a return on its investment, it is going to have to believe that it is in the convention business.

A convention center succeeds when it can offer the right quantity and quality of hotel rooms within walking distance. It is a prerequisite for having delegates moving through the city, spending $460 per delegate. That's why cities build convention centers. You don't build convention centers because convention centers are profitable. You build convention centers because they are economic catalysts. In LA, they bring in enormous amounts of cash. An E3 (Electronic Entertainment Expo), for example, uses 53 hotels for five days, and people aren't just spending their time in their hotel rooms.

So bring us back again to today and the plans for this 1,200-room hotel. It sits in the context of other investment taking place around the convention center. What do the next three to five years look like?

I can responsibly lay out the next year. I believe that the city will ratify an agreement to be a partner in the development of that hotel. The plan calls for no existing General Fund money to be used. The city will provide a loan, public improvement revenue and the waiver of building fees. Unlike many other hotel deals that have been struck in other cities, this one is intended to shield the city from virtually all downside exposure. The memorandum of understanding that goes before the council this month will be approved. There will be a 90-day period in which a contract will be defined, and, I believe, ratified.

If that timing holds up, dirt can be moved as early as June. The very moment that there is a hole beginning to be dug, we can begin to use the hotel to sell conventions. We can begin to make pitches for conventions that right now won't even put us on their lists to bid. We can take advantage of the existence of that hotel even before its basement has been built.

In the press lately, there have been some discussions about hotel owners converting to luxury condominiums and rental units in the Downtown vicinity of the Convention Center. Does LA Inc. have a position on that, or even a thought about the significance of that private-sector action?

We're a business association, and at the heart of that is the belief that business owners should have every right to do what they want with their own property. Having said that, it is our hope that the conversion of premier hotel rooms into condominiums not become too popular. The reason for that is pretty obvious. We do not have a surfeit of hotel rooms.

The other problem is that, for a premier hotel to decide that it is no longer going to be in the hotel business suggests that the demand for the city is so low as to not be able to sustain a premier hotel. That's not a good story, and it's not an accurate story. I think the reason some consider condo conversions now is more about the strength of the real estate market. That's an owner's particular option. But I would hope that the immediate economics of the real estate business could be viewed in the context of a longer-term commitment to a prosperous and growing LA visitor economy.

In that regard, there have been other discussions going on for almost a decade about the value and need for the NFL to return to Los Angeles. You've been privy to these discussions and on the record in the past talking about this issue. Put that effort in context for us as it relates to the interests of LA Inc. and the Convention and Visitors Bureau.

The economics of NFL football are controversial. I'm not about to get into the varied interpretations of the economic impact. What is inarguable, however, is the impact of a Super Bowl. A city doesn't win a Super Bowl without an NFL team. So there's a pragmatic, once every third or fourth year, arithmetic: $300 million of new cash that is brought into the community in the middle of the winter. LA has experienced that kind of cash infusion before. I think the last time was Super Bowl XXVII. By the way, a Super Bowl is not as complex or as expensive to host as something like the DNC. Super Bowls are a corporate event yielding four-night hotel minimums.

As far as the NFL coming to Los Angeles, we're a little different than Cincinnati. LA doesn't need to boost its notoriety. Twenty-four million people want to visit LA every year, even in a bad year. This is a market that has an enormous capacity to excite. There is little doubt that NFL football would be a quality-of-life enhancer to those of us who want to watch football games, but I don't think that it's something the city should divert its current resources to underwrite or subsidize.

Economically, I think the NFL needs Los Angeles as much as Los Angeles needs the NFL. I think it would be exciting to have it in town. It would be one more reminder of LA's never-ending capacity to renew itself -- especially its downtown core -- starting with the development at Exposition Park up the Figueroa Corridor to Staples, the boom in new market rate housing, Disney Hall and the arts and cultural institutions along Grand up to the Cathedral. LA is a city that is giving itself a new sense of place in the midst of what has traditionally been a vast horizontal suburbia.

I think NFL football in LA is the logical extension of what we see happening every day in LA. Still, there's an opportunity cost associated with every public expenditure. I believe that the NFL will be motivated to come to Los Angeles. And if they come to Los Angeles they need to be in the Coliseum.

So lastly, Michael, you talked about the 24 million people who come to visit Los Angeles, and you've been eloquent in past interviews with us about the role of the airport. We have a tentative agreement on what to do with LAX modernization. What do you think needs to be done to execute that agreement and to realize the potential that the LA Convention and Visitors Bureau sees in the market of Los Angeles?

Let me start with the last point. LAX is the shelf upon which a huge market purchases Los Angeles. A vital LAX is not just important; it is absolutely axiomatic that its vitality is connected with the vitality of this community. There are too many other cities building very long runways, and the idea of LA losing its gateway status is not just a matter of hypothetical or philosophical worry. There are 14 cities that have added direct international flights in the last six years. This changes the equation, not just of passengers, but of cargo too. LAX is, quite literally, the gateway to America for a world that is increasingly on the move.

The plan that has been approved by the city and is moving forward will probably face some legal maneuvering from a number of different groups, most of which are provoked by specific, parochial interests. Moving forward is going to require alignment between a number of groups that don't naturally align. Los Angeles is not a city that creates alliances easily. But the LAX masterplan will demand an effective alliance between mayor and city council, and among the airport, its management, the airline industry, and the federal regulatory bodies that are going to weigh in very, very substantially. Throughout all of this, there are going to be opportunities -- requirements, in fact -- to change what is currently in front of us. There are ten years ahead in which there will be adjustments to new realities that we can't predict right now. In order for us to get the airport we need, we must maintain that alignment. I hope we find that the process by which the LAX master plan was approved can be the beginning of that alignment that can be held together with a common vision, and informed, persuasive authority for a long time. This has only begun to happen. As I said earlier, we haven't moved the dirt yet.