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Hopin' for Business

Mitch O'Connell

Denver City Councilwoman Susan Barnes-Gelt isn't known for holding her tongue. She often jousts with the mayor and fellow councilmembers, pushing through proposals such as the city's new ethics policy, which put an end to the lobbyist-supplied meals and drinks that have long added inches to the waistlines of Denver politicians.

And for the past two years, Barnes-Gelt has been trying to tell anyone who will listen that Denver is on the verge of making a huge mistake by doubling the size of the convention center and backing an adjacent 1,000-room hotel. Nonetheless, the city will soon break ground for the construction of a $285 million expansion of the Colorado Convention Center, which was approved by voters in 1999. When completed, Denver will have roughly 600,000 square feet of meeting space, which backers claim will allow it to compete with major convention cities like San Diego, Chicago and Boston.

To house all those conventioneers, several consultants have told Denver it must have a new hotel next to the center. So even before voters okayed the expansion, the city had already started negotiating with Denver developer Bruce Berger to build a 35-story, $220 million structure at 15th and California streets, for which he was promised $55.3 million in city subsidies. Since then, Berger has repeatedly told the city he can't find private funding for the project and has won several extensions of a city deadline to have the financing in place.

And that, says Barnes-Gelt, may mark the beginning of a financial debacle that could make Denver taxpayers the proud owners of downtown's newest luxury hotel. Not only did the city make the mistake of selling bonds for the expansion before a hotel deal was finalized, she notes, but if Berger can't find financing, the city may have to take on the burden of building the hotel.

"We've painted ourselves into a corner and said, 'Hit me again,'" says Barnes-Gelt.

If Denver does have to get into the hotel business, it will become part of a trend around the country. With banks and other potential funders increasingly hostile to the idea of building large new convention-center hotels, cities like Houston, Chicago, Sacramento and Austin have simply taken on that burden themselves.

Barnes-Gelt has been skeptical of the need for an expanded convention center from the start. The area around the existing convention center is one of the most blighted parts of downtown, and she says the massive new building will be an eyesore that will make it impossible to foster the pedestrian ambience that has revived areas such as lower downtown. While Denver spends hundreds of millions of dollars trying to get itself into the convention big leagues, Barnes-Gelt says, a dozen other cities are doing exactly the same thing, preparing to flood the market with new meeting venues. If the most-sought-after conventions continue to bypass Denver, she fears the city could wind up with two white elephants: a huge, half-empty convention center across the street from a huge, half-empty hotel.

"We're being lemmings, our usual posture," says the councilwoman. "We're still marching blindly on this path. It's too bad we haven't learned."

Backers of the project scoff at Barnes-Gelt's pessimism. They say huge projects are always difficult to pull off, but Denver could one day be enjoying a new status as an important convention city, with thousands of free-spending conventioneers filling up our bars and restaurants -- and depositing millions of dollars into Denver's civic piggy bank. Consultants have predicted that Denver will garner an extra $100 million a year from the expanded center. And they insist that the hotel is essential to make Denver's dream of convention glory come to pass.

"I think the hotel is very important to the convention-center expansion," says John Hickenlooper, owner of the Wynkoop Brewing Company and boardmember of the Denver Metro Convention & Visitors Bureau. "You have to have a convention-center hotel with the large conventions we plan on having. When you get those big conventions, you're talking 6,000 to 8,000 people. That brings millions of dollars into the city. Without that hotel, the large conventions will keep going to Chicago or Las Vegas."


Bruce Berger swept into town a decade ago after making millions in Manhattan real estate. A savvy investor with a remarkable sense of timing, Berger had sold 3.5 million square feet of commercial property in New York just before the real estate market tanked. When he arrived in Colorado, he knew the state was poised for a rebound and began buying up property in the Golden Triangle neighborhood south of the Civic Center. That area is now one of the hottest development sites in town.

When Denver seriously began to consider expanding the Colorado Convention Center, Berger moved quickly to acquire the block of land just across the street. In a series of transactions that left observers marveling at his business acumen, Berger gained control of an entire downtown block at a bargain price, got the city council to approve the destruction of the former Denver Post building, won a zoning variance to put in a parking lot, and then announced that the value of the block had tripled in just over a year ("A Game of Chance," August 26, 1999).

 

Berger bought the land for $3.3 million in 1998 from the Times Mirror Company, the former owner of the Denver Post. Times Mirror had asked for $8.5 million for the property, but Berger convinced the company that rezoning the property, cleaning up contamination left over from the old Post printing plant and demolishing a historic building would be a nightmare that would make the block far less valuable. After a nasty battle with preservationists who hoped to save the art-moderne Post building, Berger spent $3 million to demolish it and clean up the residue from the printing plant. With breathtaking swagger, he then told the city the block was worth $22 million, and the value of the land would have to be factored into the $220 million tab for the hotel.

That didn't stop Denver from approving a $55.3 million Denver Urban Renewal Authority subsidy for the project. Barnes-Gelt is still astonished at Berger's deft seduction of the city council.

"It was like, 'How far over do you want us to bend?'" she says.

Berger has missed several city-imposed deadlines to have the funding secured; city council has granted him repeated extensions and is expected to do so again in the next few weeks.

For much of the past year, Berger has blamed a campaign led by the Hotel Employees and Restaurant Employees union for his inability to lock in funding ("Check-out Time," February 8). The union insisted that Hyatt, which has a deal with Berger to operate the new hotel, should agree to be strictly neutral during any union organizing campaign before receiving city subsidies. The union had been deeply angered by its experience with the Adam's Mark hotel, which in 1995 took $25 million from DURA for a major expansion and then proceeded to bust the union that had represented the hotel's employees for years.

The union decided to fight the DURA subsidy for Berger's hotel and gathered enough signatures to place a referendum on the ballot that would let voters scrap the deal. The city challenged the union in court, arguing that voters couldn't kill a contract that had already been signed, and in July a Denver District Court judge sided with the city. The union threatened to appeal the ruling but decided earlier this fall to give up the legal battle.

"We continue to oppose the hotel and will look at ways for people to vote on it," says Mike Cerbo, secretary-treasurer of the Hotel Employees and Restaurant Employees Local 14. "The city, Hyatt and Berger don't want it to get to a vote, but the people want to vote on it, because it is not good for the city."

For Cerbo, the idea that only Berger was considered was a "slam-dunk deal because he has political" clout.

Even with the union issue out of the way, Berger spokeswoman Maria Garcia Berry claims that the recent terrorist attacks present the latest obstacle to building the new hotel.

"We've never said this is not going to be challenging," says Berry, the powerful City Hall lobbyist who represents Berger. "Nobody was going to finance anything when they thought there was going to be a referendum on the ballot. Given what happened September 11, no one knows what will happen with the capital markets. It's way too early to tell."

City officials say the disastrous downturn that's hit the travel industry has made banks already leery of funding hotels even more skeptical. Downtown Denver hotels are laying off staff as occupancy rates sink as low as 15 percent. Businesses that count on tourist dollars -- from taxi companies to 16th Street Mall ice cream shops -- are being hit hard. It's still unclear if there will be lasting damage to the convention business.

"Right now it's really bad," says Tracy Huggins, executive director of the Denver Urban Renewal Authority. "The projects looking for financing now are in a tough spot."

For weeks, construction workers have been removing asbestos from Currigan Exhibition Hall; demolition is scheduled to begin this Friday. With construction under way, the pressure is building for Denver to come up with a deal. However, Huggins points out that Berger could secure funding as late as next summer and still get the hotel open by the time the new convention center debuts, possibly in 2005.

 

"We believe Berger will be able to put this together," says Huggins. "We wouldn't be going down this path if we didn't have confidence in him."


Several other cities have traveled the same route as Denver, and the result has been a head-on collision with financial reality. Taxpayers have wound up having to pick up the tab for lavish 1,000-room hotels, and city governments have found themselves in the unusual position of becoming hoteliers.

More than a dozen cities around the country are offering subsidies to private hotel developers for projects linked to expanded convention centers. While these kinds of subsidies have become almost commonplace, several cities have gone even further and funded the new hotels themselves. In desperation, some cities -- namely, Houston, Austin and Sacramento -- decided to create a city-owned nonprofit corporation that could sell tax-exempt bonds and build the hotel itself.

Houston's experience mirrors Denver's. Houston is spending $165 million to double the size of its center to one million square feet. The city has a limited number of downtown hotel rooms, and its consultants told Houston the expanded convention center would flop without a new hotel. In the late 1990s, the city watched in frustration as two different private efforts to build a 1,200-room hotel next to the George R. Brown Convention Center fell apart. (There was even a scandal linked to the project when the FBI conducted a sting operation, with undercover agents pretending to be businessmen and offering bribes to two former officials in return for a promise to steer hotel contracts their way. Both officials are now in prison.) Last year the city created the nonprofit Houston Convention Center Hotel Corporation to develop the $285 million hotel. The new Hilton -- which will rise 24 stories and include two large ballrooms, several restaurants and two skyways linking the hotel to the convention center -- will be paid for with tax-exempt revenue bonds. The project, due for completion in 2003, is being shepherded by former Houston mayor Bob Lanier. Houston's city council also voted to change the name of the street that fronts the hotel from Dallas to Lamar so as not to give any free publicity to Houston's cross-state rival.

City officials have told the public that only the nonprofit corporation would be liable if the hotel failed and that taxpayers wouldn't be left holding the bag. While that's technically true, the city would be under great pressure to bail out the corporation in the event of a default. Because Houston created the nonprofit, the city's credit reputation could be damaged simply through association.

More disturbing, to get the hotel built, Houston had to give up millions of dollars in taxes that help fund health care, police, transit and other vital public services. The project received a total of $58 million in tax abatements from local governments, meaning the hotel will pay no taxes for years. The city will give up $43 million over the next ten years, while Harris County will lose $12.2 million and the Metropolitan Transit Authority will be out $3 million. Supporters argued that the tax revenue brought in by future conventioneers would more than make up for the loss.

Officials in Denver say they have looked at the Houston model and rejected it as too big a burden for the city, although they acknowledge it could be an option if Berger's effort fails.

"We met six weeks ago with an investment banker who brought this concept to us," says Denver treasurer Steve Hutt. "We were starting to look at this, but that was prior to the Hyatt reaffirming its commitment and the union dropping the lawsuit. It's still a fallback position in the event the deal doesn't get finalized."

Hutt says that under the tax-increment financing that typically supports DURA projects, the city still collects a base amount of sales and property taxes. However, a percentage of new revenue that comes in from a DURA-funded development such as the Denver Pavilions goes to repay the bonds. Under the Houston scenario, virtually all of the tax revenue would go to pay for the hotel.

"It would be a very radical departure," says Hutt. "If you exempt a development, there's no tax being collected."

Denver is still hopeful it won't become desperate enough to do that. "We don't think we're in the same situation as those cities," says Hutt. "DURA and the developers are consummating a development agreement. We believe this will get done. It's a matter of getting all the pieces together."

Garcia Berry says Hyatt has begun working closely with Berger to find financing. Even though Hyatt won't be an owner of the hotel, the chain has extensive connections to investors, and she thinks that will make a big difference.

 

"This is very high on Hyatt's priority list," she adds. "There aren't many convention-center sites that are clean and have everything in place to do it right. It's across the street from the front door of the convention center, one of the best sites in America. I believe we've got a game plan to do this."

For years the city has been trying to get a private developer to build a 500-room hotel at Denver International Airport. Officials are convinced the airport needs a hotel to attract overnight business travelers who use airport hotels for extended layovers and corporate meetings. After several efforts to get private investment failed, the city decided to fund the $115 million hotel with airport revenue bonds. However, in the wake of the huge dropoff in air traffic at DIA, Webb announced last week that he may postpone the project.

Others are seeking handouts as well. Last week, representatives of the Miami-based owners of the Executive Tower Inn briefed city council on a $110 million renovation plan that would include a city subsidy of up to $20 million.

While there is no guarantee that will fly, it's probably too late to postpone the convention-center expansion, since the bonds have already been sold. Denver City Councilman Ted Hackworth shares Barnes-Gelt's skepticism about the need for a new convention center but says that once voters approved the expansion, the city had no choice but to find a way to get a hotel built. Otherwise, he fears, the new convention space will go unused.

"I think the hotel is an absolute necessity," says Hackworth.

Even though he's known as the council's leading fiscal conservative, Hackworth says it would be irresponsible not to make sure a hotel is ready to serve the new center. But he's still bothered by the cost.

"They need about $200 million to build the hotel," says the councilman. "You put that with $285 million for the convention center, and you're talking real money."


City officials have been convinced that conventions are a dream come true for city treasuries, a bottomless well of money from free-spending conventioneers who eat and drink with abandon and use few city services. While the recent terrorist attack has led to the cancellation of dozens of conventions -- including several meetings planned for Denver -- boosters still claim the industry is a potential gold mine for cities with the space large groups demand.

"Conventioneers spend hundreds of dollars a day," says John Hickenlooper. "Between 10 and 15 percent of the Wynkoop's business comes from conventions. If you want to have a city that's diverse with interesting restaurants and theater, you need these people."

Voters are often persuaded to okay convention-center projects, won over by the argument that these projects will be funded by taxes on hotel rooms and rental cars that residents rarely use. The high-profile advertising campaign that helped convince Denver voters to approve the expansion portrayed the idea as virtually risk-free. The convention center was touted as a job-creation machine that local taxpayers wouldn't have to subsidize.

"It's a very clean, growing industry," says Hickenlooper. "When you have 10,000 people come for a five-day convention, they add millions in tax revenue, but they don't use the police or schools. It's one of the most underappreciated parts of our economy."

But some wonder if the millions of square feet of new convention space now coming on the market could become a civic nightmare for cities that lack the razzle dazzle of Las Vegas or the tropical fun of Orlando.

"The best numbers we have suggest the convention market is flat to declining, but there will be a 25 percent increase in space over the next five years," says Heywood Sanders, professor of public administration at the University of Texas at San Antonio. "You put those two things together, and you have a disaster scenario."

Sanders is a leading critic of the rush to expand convention centers. He tracks ongoing projects all over the county and says almost all the cities have been told by consultants that they need a huge hotel to go along with their flashy new convention center. Sanders says even cities with existing convention centers that are underperforming are told the same thing.

"All of these cities are saying, 'We can't do anything without a hotel,'" he says. "If there are new headquarters hotels in every major city, you'll be back to the same competitive situation."

Even cities that are well-established convention destinations, such as Chicago and Washington, D.C., have authorized huge public subsidies for new hotels. San Diego, one of the most popular convention cities, recently became the latest town to explore full public funding of a new 1,200-room hotel after a deal with a private developer fell apart.

 

Sanders predicts that a handful of American cities will emerge from this free-for-all as popular convention locales, while the rest will be stuck with hulking white elephants.

"The likelihood is, some cities will succeed and a lot of others will fail," he says.

Denver has about 5,000 downtown hotel rooms (the Adam's Mark is the largest hotel, with 1,225 rooms). Until September 11, most downtown hotels were fully booked during the peak summer months.

Even with a new hotel across the street from the convention center, Hackworth is worried about the competition Denver will face from other cities with huge new facilities.

"I've always thought the convention and visitors' bureau was shooting for the moon, hoping the 10,000-delegate conventions would come to Denver," says Hackworth. "What will happen when competition becomes more keen? I'm just not sure."

The city is already saying it will need to budget almost half a million dollars per year just to market the new convention center.

"People say we could use that money for other things," adds Hackworth. "Promotion costs money. That could become a serious problem."

Sanders is struck by the way these projects are often pushed by conservative businesspeople who denounce government and glorify private markets -- except when it comes to something that benefits them. "They're appalled at the notion of giving welfare to poor people, but not at giving subsidies to people like themselves."

But Hickenlooper says conventions do benefit hundreds of people who work in downtown hotels, bars and restaurants. While many of these jobs are often thought of as low-wage, Hickenlooper says the industry creates lots of good jobs for people who may not have other skills. "The average wage at the Wynkoop is probably $12 an hour, not the $5 or $6 an hour people think it is," says Hickenlooper.

The convention and visitors' bureau estimates that the convention center brings $274 million into Denver every year and hopes the expanded center will boost that amount to as much as $400 million.

Sanders insists the market for large conventions is static, citing Tradeshow Week figures that indicate a decrease from 4,400 large trade shows and conventions with 101 million visitors in 1996 to an estimated 4,333 shows and 75 million attendees this year. Boosters claim the number of visitors tends to fluctuate with the economy, and they stress that there is an equally important market for medium-sized conventions, which the expanded Colorado Convention Center should be able to draw more easily because of its capacity to host several smaller conventions simultaneously.

Having national conventions in Denver also brings a cosmopolitan influence to a somewhat isolated city, adds Hickenlooper. "Conventions bring a whole strong wind of excitement. Whenever people come from different places to your city, it enriches your city."

If people wonder about the importance of the convention-and-tourism industry, says Hickenlooper, all they have to do is look at the disaster facing downtown businesses in the last few weeks. "Conventions are a foundation for a lot of businesses. Two nights ago I walked through the Wynkoop, and it was half empty. If Susan Barnes-Gelt doesn't think the convention industry matters, she should go talk to some of the business owners that are hurting."

In Denver, the major studies of the convention-center proposal were done by Coopers & Lybrand and Hospitality Real Estate Counselors Inc. Both studies were submitted to the city in 1997 and came to similar conclusions: to support a center with 600,000 square feet of exhibition space, Denver would need a 5,000-seat auditorium and an adjacent hotel.

To have enough space for the auditorium, the city will have to acquire the Terracentre office building at Speer Boulevard and Stout Street. The city dragged its feet on buying the building, watching while investors purchased the tower for $6.5 million last year, then turned around and sold it for $11 million in June to Matrix Capital Bank. Now Denver is condemning the building.

The probable destruction of the Terracentre is one more reason that local wags have dubbed the convention center "the project that ate downtown." Many fans of modern architecture are mourning the destruction of Currigan Hall, which they see as one of the most innovative buildings from the 1960s. Many people feel that, together with the loss of the I.M. Pei-designed paraboloid in front of the Adam's Mark hotel -- part of a DURA-funded expansion that was also justified as a necessity to host large conventions -- the convention center has become a disaster for anyone who cares about Denver's history.

 

"We've lost buildings that were attractive and usable and will be replacing them with a convention center that's half empty most of the time," says Tom Noel, professor of Colorado history at the University of Colorado at Denver. "At what price is progress when you lose an I.M. Pei building?"


In the 1980s, building a new convention center was touted as a way to recharge the depressed Denver economy, which was still suffering from the mid-decade collapse of the oil industry. Mayor Federico Peña campaigned relentlessly for a new center.

However, the young and inexperienced mayor soon found himself in the middle of a political free-for-all, as vying real estate interests came up with competing proposals. Denverites spent years arguing over where the new center should be. One group backed by developers Mickey Miller and Marvin Davis pushed a site behind Union Station, while another advocated the Golden Triangle. A smaller, less organized group wanted the center to be next to Currigan Hall on 14th Street.

After the city had selected the Union Station site, opponents launched a petition drive to require a public vote on the proposal. The result was one of the biggest setbacks of Peña's career, as voters rejected the Union Station site 65 percent to 35 percent in 1985.

Then the Colorado legislature entered the fray. The state agreed to contribute $36 million to the project, with the proviso that final determination of an appropriate site be left up to the Urban Land Institute, a Washington, D.C.-based research group. After studying the issue, the institute recommended the location on 14th Street next to Currigan Hall. Peña quickly accepted that decision and gave the responsibility for designing the new Colorado Convention Center to Curt Fentress, the Denver architect who would later be brought in to create Denver International Airport.

Fentress is also designing the expanded center. Many people think the existing convention center is one of the uglier buildings downtown, and the city asked Fentress to completely redo the exterior of the building. The new design Fentress submitted puts glass walls all the way around the center and fanciful canvas "sails" on top, ostensibly to break up the mass of the building.

Barnes-Gelt isn't impressed. The current convention center has done little to invigorate upper downtown, she says, and even the best architects can't turn them into anything more than glorified warehouses that kill off street life. She has little hope that the depressing blocks around the existing convention center will be changed by the expansion.

"No one cares about urban design or architecture," says Barnes-Gelt. "At the end of the day, people will ask, 'What impact did this have on the lives of the people in this city?' Instead, every decision has been made based on time and money. That's why we have this thing."

Barnes-Gelt has often been a minority of one on the council with her criticism of the project. Those who are pushing the expansion and hotel say her concern is ideological and not particularly pragmatic.

"Susan Barnes-Gelt has a philosophical belief that convention centers are obsolete," says Garcia Berry. "She doesn't like the convention business. She says, 'How many more T-shirt shops are we going to have?'"

Denver's downtown business establishment is used to getting what it wants, and the array of shiny new civic buildings that have cropped up over the past decade are evidence of that. Critics have predicted disaster for many of these projects, especially Denver International Airport, but they have largely been successful and even become a badge of pride for Denverites. When city leaders promised voters the same success with a bigger convention center, they were willing to go along with the idea.

Barnes-Gelt has been a supporter of many of the other construction projects Denver is backing, from the Denver Art Museum addition to the new Civic Center municipal office building. But she fears Denver's luck may have run out with the convention center and hotel. She blames a business lobby and City Hall leadership that resisted asking hard questions, then misled the public into believing there was little risk involved.

"The voters had confidence in what their leaders were saying," she says. "The voters are generous and optimistic, and we've abused their generosity and optimism."


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