A consultant’s new report basically confirms what Monona Terrace officials have been saying for years: The lack of hotel rooms near the city-owned facility is cutting into convention business.
What the report doesn't mention is a possible need for up to $50 million in public subsidy to help a private developer build a new 500-room hotel near Monona Terrace as part of the Judge Doyle Square project.
That figure, tucked into a city report last year, dwarfs the controversial $16.6 million in TIF that was proposed and ultimately rejected for the Edgewater Hotel redevelopment. It could well prompt a heated debate over spending and borrowing priorities in a community generally viewed as cool toward the private sector.
“It will be a heavy lift,” admits City Council President Pro Tem Chris Schmidt, “but I don’t want to rule out anything at this point.”
Discussion over a new hotel to serve Monona Terrace is moving to center stage following a city-commissioned feasibility study from C.H. Johnson Consulting of Chicago released this week. The study updates a 2009 report and was prepared in advance of the city issuing a request for development teams for Judge Doyle Square, a vision that encompasses two city blocks, those containing the Madison Municipal Building and the aging Government East parking ramp.
Johnson estimates Monona Terrace will lose out on nearly $30 million in convention business from 2009 to 2016 because of a room shortage, putting the overall economic hit to the city at over $250 million. It says the 240-room Hilton Hotel is too small to host large events and that existing hotels such as the 356-room Concourse and the newer 151-room Hyatt Place on West Washington Avenue are not close enough to serve visitors to Monona Terrace.
“Monona Terrace has lost a significant amount of business due to a lack of hotel room inventory within close proximity to Monona Terrace,” the report concludes. “It is very likely that a substantial share of potential business, in addition to lost business, has not even considered Monona Terrace and Madison in past years because event planners know there are insufficient hotel room blocks for their events.”
To address the shortage, Johnson is recommending at least 400 and preferably 500 additional rooms. Adding that many rooms, along with some 50,000 square feet of convention space within a new hotel, would help Monona Terrace compete regionally with larger markets such as Minneapolis, Des Moines or Kansas City.
But a full-service hotel of that size won’t come cheap, according to HVS Consulting of San Francisco, a national hotel development cost tracking firm.
“A good ballpark number is around $250,000 to $350,000 (per room) for a turn-key, four-star, full-service hotel,” says Elaine Sahlins, senior vice president at HVS. “The costs can be higher depending on the quality of the construction, finishes, location or brand requirements."
That could put development costs anywhere from $100 million to $175 million, depending on the number of rooms and what amenities are included.
Whether Madison can both attract a developer and afford to subsidize a project of that scale is unclear but some City Council members are already saying the investment is needed to fully tap the potential of Monona Terrace.
The Johnson report says a new hotel alone could provide $1.1 million in new property tax revenues annually, with the balance of a mixed-use project contributing another $550,000 in new taxes yearly.
West-side Ald. Mark Clear says the project appears to hold merit and says the city has “plenty of capacity” to offer a developer a workable subsidy.
“I think the big takeaway from the (Johnson) study is the confirmation that to maximize the potential of Monona Terrace we need a hotel nearly twice the size of what Marcus has proposed,” he says.
The Milwaukee-based Marcus Corp., which previously developed the Hilton and hold first right of refusal on a second Monona Terrace hotel, last year floated two possible projects: a $77 million 287-room hotel and mixed-use project using the Municipal Building and a $68 million, 292-room hotel behind the Municipal Building.
The $50 million subsidy estimate mentioned earlier is from a city report last year on Judge Doyle Square, which is named after the father of the ex-governor. That report says the private hotel and mixed-used portion of the project would require from $25 million to $50 million in tax incremental financing or other assistance, such as city participation on the parking.
The city previously previously borrowed $20.6 million to build an underground parking garage to serve the stylish office and retail development on Doty Street created by Urban Land Interests. It also provided $10.8 million in TIF to help Marcus develop the $31.2 million Hilton Hotel adjacent to Monona Terrace.
City Economic Development Director Aaron Olver confirmed that a significant city subsidy will be needed to make the hotel project happen but says that has been known all along.
“I think all those issues can be worked out,” he says.
Downtown Ald. Scott Resnick admits that $50 million in TIF might be unrealistic, noting that amount is roughly half of what is already borrowed in total for other TIF project. But he says a smaller figure seems doable.
“It's difficult to assess the project until all the numbers are in,” he says. “But if we are able to work with the right development team and wisely moved forward with financing, the project could be a major asset to the city.”
At this point, the city envisions digging underneath Pinckney Street to create a massive underground parking facility with up to 1,400 stalls to replace the existing Government East ramp and provide more parking to serve a new convention hotel and additional development. Drawings have included other amenities such as a bicycle commuting station.
Still, any effort to subsidize another Monona Terrace hotel would likely face opposition from existing hotel operators, who were opposed to TIF for the Edgewater. The Johnson report does mention the city’s overall room occupancy rate runs below the national average of 70 percent but notes the downtown hotels enjoy full capacity for seven months of the year.
Long-time city budget hawk John Jacobs says TIF for a Monona Terrace hotel could well prove a better deal for the average taxpayer than $16 million for Edgewater.
Jacobs estimates that $50 million in subsidy would likely violate the city TIF guidelines but says in this case Olver and Mayor Paul Soglin will no doubt argue that the guidelines could be relaxed for a project with a good public purpose.
“It could be a good deal if it actually helps Monona Terrace bring in more business and thereby help to reduce its $3 million to $5 million annual subsidy from the room tax,” he says.