New downtown hotel could require $50 million public subsidy

2013-01-09T06:30:00Z New downtown hotel could require $50 million public subsidyMIKE IVEY | The Capital Times | mivey@madison.com madison.com

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.

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(14) Comments

  1. Steve_R
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    Steve_R - January 16, 2013 10:54 am
    No big subsidy and no big TIFs on this one. If a developer wants to build another hotel downtown, it's fine with me. Just do not expect the people of the city to help finance it.
  2. Drwildone
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    Drwildone - January 10, 2013 11:45 am
    I am really surprised no one has complained about the unbelievable gift of over $100,000 per room that is proposed by the CONSULTANTS. They must be looking for a kickback from the developer. Why not look to the owner of the Concourse, who is making BIG profits operating the largest hotel in the city and that hotel never received a dime of assistance. If they could do it then why can't they do it NOW.
  3. toobad
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    toobad - January 10, 2013 9:32 am
    Perhaps prostitution would bring the conventioners.
  4. toobad
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    toobad - January 10, 2013 9:31 am
    Agree 100%
  5. RichardSRussell
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    RichardSRussell - January 10, 2013 2:19 am
    When fat men with briefcases grab her attentions
    She knows that they want her to host their conventions
    Where bankers and Shriners make heavy decisions
    Like should they see Deep Throat or go out to Visions.

    Oh, wonderful Madison, mother of cities,
    Queen of all Dairyland, waiting for me,
    Wonderful Madison, jewel of Wisconsin,
    With more than 1 high school and cable TV.

    —Lou and Peter Berryman (no relation), "Oh Wonderful Madison" (1 of Madison's 5 official city songs — and, IMHO, the best)
  6. midwestguy
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    midwestguy - January 10, 2013 12:54 am
    The Edgewater debacle became contentious in no small part due to the divisive stances and rhetoric of city officials who refused to "hear" the overwhelming majority's negative reaction.
    The lesson learned was that Madison taxpayers by and large do not wish to be left on the hook for ANY project of this scale which would take an extended period of time to pay off, in exchange for the corporate profit of a relative few in the short term. That sentiment will continue to be expressed during this saga as well. Next subject.
  7. Barb10242
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    Barb10242 - January 10, 2013 12:08 am
    Rev, I don't think a strip club is the only thing people want in our downtown.
  8. Barb10242
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    Barb10242 - January 10, 2013 12:01 am
    Good plan Joe
  9. JoeBiteme
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    JoeBiteme - January 09, 2013 7:27 pm
    Let the Indians build a hotel and use their own money. Charge them rent via land lease. Let them put in a casino and take a percentage of the revenues. Budget problems solved. Tourism problem solved. I agree with Rev there is nothing to do downtown. What have you got the Farmer's Market. Give me a break.
  10. Beetlejuice
    Report Abuse
    Beetlejuice - January 09, 2013 5:09 pm
    You obviously aren't downtown much, at least not on the Monona Terrace side of the Square. The bars and restaurants are going full-bore, and there is plenty of socializing to be done.

    At least those who have some minimal social skills can find entertainment, which probably is why you can't find something to do.
  11. revH
    Report Abuse
    revH - January 09, 2013 9:59 am
    True enough from a modern standpoint, but since the inception of business conventions they have also served the purpose of a place away from co workers to let down your hair as it were. When the meetings are over downtown Madison has little to offer after 9pm, especially for middle aged male. The bars are filled with students, restraunts stop serving by 10, what is their to do if you are from out of town? Rent a bike for a night ride? Strip clubs bring in the $, not extra rooms that are empty most of the time.
  12. Blatant
    Report Abuse
    Blatant - January 09, 2013 8:18 am
    Rev- I hope you are being funny. Strippers usually aren't on the list for organizations seeking convention space. I guess some of the Babes that are now in the workforce aren't that into them. Huh???
  13. JohnM
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    JohnM - January 09, 2013 8:12 am
    It's good to see so many reasoned positions by our local officials. It's also nice to see Mike Ivey outline the essence of the issue so clearly. This is a proposed investment by the city in a facility that it's supporters claim will return increased tax revenue, jobs and other tangible benefits to the citizens. Let's set the expectation that press coverage of this issue continue in this manner, focused on the real questions surrounding the proposal. Too often coverage falls into merely reporting on the battle, and fails to do the work necessary to answer the questions. The press can and should identify the questions of fact around a proposal of this magnitude, and then seek the answers from credible sources and report them to the public. If they do this, please reward them by reading the publications that do this essential work, and abandon the outlets that take the easy road and go to a city council meeting and simply regurgitate the arguments made in debate.

  14. revH
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    revH - January 09, 2013 8:10 am
    The failure of downtown is not due to lack of hotels, it's the over abundance of aging snobs in condos and no real services conventioneers want. Madison can buy 1000 hotel rooms, but until Madison allows a strip club downtown the bookings will not be there.
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