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Why a convention center can’t pass no

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Cover001There’s no four-star hotel in Ann Arbor,

and if you want to host a big sit-down dinner, your only local option is Ypsilanti. Some say this isn’t a problem; if there was a need for a fancy hotel and conference center in Ann Arbor, someone would have built it by now. Others are flat embarrassed that Ann Arbor doesn’t have hosting facilities comparable to those in other university towns, believing it puts the city at a disadvantage when competing for talent, businesses, conferences and tourists. A prime downtown spot has been cleared for the exact facility proponents have been pining for, yet the debate seems no closer to resolution today than it did three decades ago.

Story by Julie Halpert

Photos by Benjamin Weatherston

Author and National Public Radio commentator David Sedaris spoke in April before a crowd of 3,139 at Hill Auditorium. He opened by saying his Ann Arbor hotel was “no stars” and that the city really needs a high-end hotel downtown. Sedaris’ publicist said that he had been staying at The Bell Tower hotel.

Sedaris’ remarks were “music to my ears,” said former City Council member Stephen Rapundalo, who attended the event. “He observed what (many in Ann Arbor) have known for quite some time. It’s nice to get validated independently by others with no skin in the game.”

Rapundalo served on the City Council for six years until 2011. He chaired a council committee that spearheaded a proposal to build a hotel and conference center on the Ann Arbor Public Library lot, which ultimately failed.

Leaders in the city’s technology, business, university and arts communities have suggested that Ann Arbor’s downtown lacks the type of facility found in comparable university towns – a four-star hotel with an adjoining conference center – and this puts the city at a disadvantage when competing for talent, businesses, conferences and tourists.

The reason there’s no big downtown hotel and conference center lies in a complex combination of economics, anti-development forces, the University of Michigan’s official silence on the issue and prevailing voices in city government that have been resistant to the idea.

Monopoly

While there are many hotels in Ann Arbor and several concentrated near Briarwood Mall, there are only two downtown hotels, both controlled by Dennis Dahlmann: The Dahlmann Campus Inn, built in 1970, and The Bell Tower, built in 1947.

Historically, downtown hotels have struggled. The Ann Arbor Inn, formerly a Sheraton, went bankrupt and closed in 1990. The Campus Inn was in receivership when Dahlmann bought it in 1990 for $4 million – less than half the asking price – while The Bell Tower, purchased for $400,000 in 1986, was part of a distressed sale. The Bell Tower, which received a three-diamond rating out of five from AAA, has 66 rooms and suites. The three-diamond Campus Inn has 210 rooms. (There are no five-diamond hotels in Michigan; the nearest four-diamond hotels are The Dearborn Inn and The Henry in Dearborn, formerly The Ritz-Carlton.) The three-diamond Ann Arbor Marriott Ypsilanti at Eagle Crest is the only local facility that can host a group as large as 600 for a sit-down dinner. It has 238 hotel rooms and 27,244 square feet of meeting space, but it’s a 10-mile, 15-minute drive to downtown Ann Arbor.

Rapundalo is president and CEO of MichBio and would like to bring its annual conference to Ann Arbor, but that would require 400 to 500 hotel rooms plus 10,000 square feet of exhibition space, and it’s not available downtown. While the Eagle Crest would work, “I don’t want to have to hop in a cab” to get downtown, he said. Two-way cab fare to downtown is roughly $60.

Dahlmann renovated both downtown hotels when he purchased them more than 20 years ago, installing new carpet, drapery and bedding, which have been periodically replaced through the years. Eight years ago, Dahlmann replaced the old door hardware in rooms at The Campus Inn and installed deadbolt locks. The doors unlock with brass keys instead of key cards, because of concerns that key cards have been shown to malfunction in prestigious hotels like Gramercy Park in New York, according to Susan Milne, senior vice president of Dahlmann properties.

Dahlmann is putting the final touches on a renovation and expansion of The Campus Inn’s ballroom. It has new mahogany walls and fresh carpet, and now seats 350 instead of 225 and includes a new outdoor space with granite flooring.

Joan Lowenstein, a Downtown Development Authority board member who served on the City Council from 2000 to 2001 and 2002-08, says Dahlmann’s hotels “are quite expensive for what you get and they’re not up to the standard that people expect for business hotels.” Rates at his hotels range from $159 to $287 a night, though The Campus Inn offers a special rate of $89 a night from November through March.

Crunching the numbers

There’s long been a push to bring in a new downtown hotel and conference center; the city’s 1988 Downtown Plan recommended support for the private development of one. That recommendation was retained in an updated, 2009 report. Wendy Rampson, the city’s planning manager, says a number of mid-size groups would find it attractive to come to Ann Arbor and stay downtown, “but we don’t have the facilities for those large meeting rooms.”

A November 2010 report prepared by The Roxbury Group for the city found Ann Arbor lacking in available meeting space and hotels compared to seven similar cities. It found Ann Arbor has 9,358 square feet of downtown meeting space. That compares to Columbia, S.C., home to the University of South Carolina, with 116,049 square feet, and Madison, Wisc., home to the University of Wisconsin, with 356,582 square feet. (Those numbers are contradicted by documents from The Campus Inn, which show that it alone has 13,516 square feet of meeting space.) The report found Ann Arbor has 274 hotel rooms downtown compared to 2,385 hotel rooms in Columbia and 1,517 in Madison.

Other comparable cities are expanding their space, including Austin, Texas, which in addition to an 800-room Hilton convention hotel and The Four Seasons, has a J.W. Marriott under construction that will have 1,012 rooms. Berkeley, Calif., has The Doubletree, with 15,000 square feet of meeting space for groups of 400 (meeting) or 850 (receptions).

“While Eagle Crest in Ypsilanti is managing to capture a portion of the unmet demand, there are certain needs within the community that simply demand a downtown facility,” the report said.

A June 2012 market analysis prepared for the DDA by 4Ward Planning highlighted the absence of a bona fide hotel conference center in walking distance to downtown dining and shopping. “The existing number of foreign-based corporations in and around the city of Ann Arbor, coupled with the fact that the University of Michigan is a recruiting hotbed for engineering, technology and professional business firms, suggests that the city of Ann Arbor would likely boost its economic development” were it to establish such a facility, the report said.

According to Smith Travel Research, Washtenaw County’s occupancy rate was 67.5 percent by the end of 2012, compared to the state of Michigan’s overall occupancy rate of 56.8 percent. The American Hotel & Lodging Association reports a national rate of 56.7 percent. A document from Robert J. Sweitzer, Dahlmann’s CPA, shows the occupancy rate for The Campus Inn for 2012 was only 53.76 percent. The occupancy rate for The Bell Tower was 60 percent during that time.

Lowenstein argues that Dahlmann’s occupancy rates are lower than Washtenaw County’s because his hotels are less desirable than some of the new ones that have recently been built around Briarwood. She points to data showing that the Washtenaw County 2012 occupancy rate increased 2.6 percent over the previous year, despite the new additions. “If there was no demand, you would expect that adding hotels would reduce the occupancy, but that didn’t happen,” she said.

We’ve got this covered

Joe Sefcovic, general manager of the three-diamond Holiday Inn on Plymouth Road and president of the Washtenaw County Hotel Association, says the fact that hotels are not operating at their maximum occupancy indicates a lack of need for a new one.

In a March 2011 letter to Mayor John Hieftje, he argued that a new facility would take away business from existing hotels which have underused conference and ballroom space. He said Eagle Crest rarely hosts groups of more than 300 and that the hotel has had significant financial problems. “Nobody has built a downtown hotel because economically, it never made sense,” he said. Milne agreed: “If there were a market demand for that type of facility, we would have built it.”

Sefcovic says conference centers nationwide are losing money, with companies cutting their budgets for face-to-face meetings, relying on video conferencing instead. Also, he says the quality of local hotel stock is improving as many Ann Arbor area hotels, including the Sheraton and Weber’s, are undergoing million-dollar renovations. He’s in the process of completing a $5 million renovation to every surface space in his hotel, to be finished in July. He points out that the Hilton Garden Inn and Marriott TownPlace Suites both opened last year by Briarwood Mall, and a Hampton Inn is currently under construction on Jackson Road.

The Ann Arbor Area Convention and Visitors Bureau, which is funded primarily from a portion of the 5 percent hotel room tax, has taken no position on a new hotel and conference center. “It is not the role of the AAACVB to endorse specific projects or to evaluate the proposals made by a private developer,” said Mary Kerr, organization president. “Clearly, there would be advantages and disadvantages associated to any new hotel in any community. We do not perform any type of cost-benefit analysis associated with the potential impact on taxpayers, existing hotels or the local business community.”

Reading U-M’s tea leaves

A key roadblock to getting any proposals approved is that the town’s biggest entity, the University of Michigan, hasn’t gotten involved.

“I do not believe a conference center and hotel have any chance of being successful unless the university will commit to using it,” said Mayor Hieftje. He says he can think of 30 days a year it would be used, but a university commitment could raise that to 200 days, which is what it needs to be sustainable.

“The university does not take a position in matters of private development within Ann Arbor,” said Jim Kosteva, U-M’s director of community relations. “That’s not our role. We don’t have any idea what that potential use might be.”

However, at a presentation given April 19 to community business leaders, U-M President Mary Sue Coleman, responding to a comment that Ann Arbor doesn’t have a great hotel downtown, said, “That’s one of the things I hear a lot about” from parents and visitors. “Whatever the dynamic is, I think it would be fabulous for us to have more hotel space downtown and with different kinds of hotels, too. It would be really helpful.”

The university’s facilities in the former Pfizer space on North Campus are the largest on campus, but it can accommodate only 350 to 400 at seated tables and Kosteva points out there’s no adjacent hotel. He says that Ann Arbor every summer hosts the National Training Institute, an apprenticeship training program supported jointly by the International Brotherhood of Electrical Workers and the National Electrical Contractors Association, bringing 2,000 delegates to town and holding meetings in Hill Auditorium. But the dinner is a barbecue, held outside.

Kosteva said that for organizations looking to accommodate more than 600 people at a sit-down dinner, “We’re not even on their screen.”

“No one can commit on behalf of the university that they’ll use the space, but there are plenty of departments within the university that would,” including the Health System, said Timothy Johnson, chairman of the Obstetrics and Gynecology Department, who sees the lack of a conference center as a “chronic issue.” He says such a facility could serve a “substantial” demand for continuing medical education that would attract large groups.

“I don’t feel the existing facilities are adequate at all,” said David Munson, dean of U-M’s College of Engineering. He predicts that dozens of conferences specializing in electrical engineering alone would come to Ann Arbor. “I’d surely like to host a conference with 1,000 attendees in Ann Arbor and that’s (now) not an option.”

Paul R. Lichter, who chaired the Department of Ophthalmology and Visual Sciences for 34 years, says he’s “lamented this for many years.” He has opted out of putting Ann Arbor in the running for a conference because the city’s accommodations don’t stack up to the luxury hotels in competing cities. The closest in quality is The Henry in Dearborn, he said.

The Stephen M. Ross School of Business School opened its own hotel in 1985, The Executive Residence, that’s primarily used for those participating in its own programs. It was remodeled in 2009 and has 105 rooms. Chuck Amyx, director of operations at Ross, says the rooms are well appointed, with granite work surfaces, and are equipped for wi-fi, but they’re small.

Proposals surface, then wilt

Between 1981 and 1986, private developer Richard Berger pitched three different proposals for a downtown hotel and conference center, none of which were approved by the City Council. After Mayor Jerry Jernigan appointed a task force to study the need for a downtown events facility in 1988, the city issued a request for proposals and received five. The Liberty Square proposal from Farmington Hills developers Joseph Slavik and Melvin Rosenhaus was selected for further consideration. It would have used the lower level of the Liberty Square building for conference space. They proposed a new 200-room hotel on East Washington, current site of The Varsity. The developers ultimately withdrew the proposal from consideration.

The most recent proposal was made in November 2009 by Valiant Partners for the library lot. It called for a 32,000-square-foot conference center along with a four-star, 150-room hotel. The plan was an outgrowth of the process to develop the library lot, where a new underground parking structure was built with reinforcements to support a building on top.

After reviewing several proposals, Valiant’s rose to the top. “It was stunning. I thought it was a great proposal,” said Margie Teall, who has been on the City Council since November 2002. But the plan faced significant opposition from many, including Alan Haber, a 76-year-old long-time Ann Arbor activist. He’s not against a downtown hotel, but he thinks the library lot should be a public gathering place. He proposes a green space with a public park that provides an ice rink in the winter. Dahlmann agrees and offered $2.5 million to build such a space in a project called Ann Arbor Town Square.

A November 2010 feasibility study by Charles A. Skelton, a minority owner of The Comfort Inn in Chelsea and president of Hospitality Advisors Consulting Group, whose clients are hotel developers and owners, concluded that the Valiant proposal would not be economically viable. The report indicated that existing facilities sustain what is “a declining demand for meetings and events space.” Conference centers “are loss leaders. They don’t make money,” Skelton said. He added that it would be hard to book upscale rooms that cost $200 a night or more. “The demand is not there for the money you would need to charge for that kind of hotel.”

The City Council rejected Dahlmann’s green space proposal in favor of Valiant’s for many reasons, including a lack of detail on how the park would be maintained and policed. But both proposals ultimately met the same fate. The Valiant plan crumbled due to claims that the city would be on the hook for financing the conference center portion. A resolution rejecting the Valiant proposal and ending the selection process was approved in April 2011, so it never went before the City Council.

Valiant was asking for money from the DDA that it didn’t have, said Leah Gunn, the DDA’s chair. But Bruce Zenkel, chairman of Valiant, which spent four years developing the project, said it would have cost the city nothing, while “creating a huge number of jobs” and adding vitality to the area. He attributes the defeat to a naive “no growth” city government that has only approved high-rise apartments.

He says a visit to comparable university towns like Berkeley shows what Ann Arbor is lacking.

Teall said the resolution rejecting the Valiant proposal was put forward prematurely; finishing the process would have allowed for more discussion and negotiation with the developer. “That’s what got me angry,” she said. “We never got to a point where there could have been public input at a public hearing.”

Steve Kunselman, who has served on the City Council for six years and was, at one point, “the lone voice” against the Valiant proposal, doesn’t see the need for a hotel and conference center, arguing that Ann Arbor’s frigid winters make it relatively unattractive six months a year: “I don’t think there’s a market for it.” He said the Valiant proposal would have used public dollars for risky “speculative development.”

Lowenstein said it also got derailed because of a vocal minority opposed to any development. “Politicians are likely to pander to whoever yells the loudest,” she said.

Mike Anglin, who has been on the City Council for the past six years, says research indicates that any project would require some public subsidies. He opposes using public money for a hotel and conference center, arguing that the city already has difficulty funding basic services like road repair, and that financing a hotel and conference center would plunge the city into debt. A successful hotel and conference facility “is a pipe dream,” he said. “We’d get stuck with a building that’s seldom used,” as big meetings head to larger destination cities like San Francisco, Chicago and New York that can accommodate them.

But many opposed to the library lot proposal still see a need for an Ann Arbor hotel and conference center. Gunn says there just hasn’t been a viable proposal to date, since each one asks for tax money to subsidize the project. But she feels such a facility is necessary in a town that attracts visitors from all over the world. She predicts that a new hotel will boost Dahlmann’s downtown hotel business as well, since it will bring in more people than the new facility can accommodate.

The common message of the voices opposing the construction of a new hotel and conference center – including some former and current City Council members, the hotel industry and the mayor – is that if there were demand for such a facility, private developers could build one on their own land, at their own expense, with no significant opposition. But such a proposal did surface, in 2008, and was defeated. Albert M. Berriz, CEO of McKinley, was interested in revitalizing the area at Washington and Division. Inexperienced in hotel development, he sold a parcel of land at that corner, across from Google, to First Hospitality in Rosemont, Ill. They proposed a 120-room, nine-story hotel. It was rejected by the City Council because of concerns that it would take away a lane of traffic from Division Street, converting it to a drop-off lane for the hotel.

“It was one of the last things that made me disgusted being on council,” said Lowenstein, who stepped down that year.

First Hospitality eventually sold that property and Dahlmann is leasing it from the new owner to provide parking for tenants at the City Center building, which he owns.

Berriz says that as world-class businesses and upscale restaurants have developed in this corridor, “what’s missing is that one beautiful parcel that could have been anchored by a beautiful corporate hotel.” He said that type of facility can spur a renaissance, pointing to a J.W. Marriott Indianapolis hotel and conference center built in 2011, which he says has revitalized that area’s downtown.

However, Ted Annis, who lives downtown and is a retired businessman and former treasurer of the Ann Arbor Transportation Authority board, said in his travels to conference and convention centers around the country he has seen “essentially no economic activity” in downtown areas surrounding those types of facilities. Those areas are either desolate in the evening or when there’s no one at the conference center, he said, or “overflowing with out-of-town strangers,” pushing out the residents. He points to his former hometown, Cincinnati, where he says a convention center forced out high-quality restaurants “and the most prominent retail business is now a Dollar Store.” He says Eagle Crest offers a perfect option already, that he’s used it for conferences and it’s worked well. “I don’t understand the lack of vision on the part of the pro-conference center people,” he said.

Rumblings of politics

Many people interviewed for this story wondered about Dahlmann’s role in quelling projects that would provide competition for his hotels. He has donated the maximum allowed under the law – $500 – to various City Council members, including Kunselman, Jane Lumm and Sally Peterson, and has provided financial support to Mayor Hieftje’s many campaigns.

Even though Ann Arbor is cosmopolitan, “we forget it’s a small town,” says Lowenstein. “Dahlmann has given lots of money to politicians. He’s a major property owner, and that pulls weight.”

Jane Lumm didn’t respond to requests for interviews. Kunselman says that even if Dahlmann didn’t donate to his campaign, his concern about funding a hotel with city money would remain the same.

Petersen said Dahlmann thought she would oppose the hotel on the library lot, which was true, but she doesn’t feel beholden to him. While she thinks the library lot’s too small for a hotel and was concerned about the city’s financial responsibility, she still sees the need for a new hotel. Dahlmann’s hotels “aren’t up to par for business clientele” who want large rooms and large bathrooms, a sophisticated workout room and business center, she said. If Dahlmann upgraded his amenities, that could suffice; if not, a new one should be built, she says.

Hieftje said, “I’ve always been very clear that his contributions to my campaign wouldn’t in any way cloud my judgment of someone who wanted to build a hotel downtown.” He added, “I don’t think anyone should expect they’re buying anything for $1,000,” the maximum allowed for mayoral campaign contributions.

“Mr. Dahlmann’s political contributions have always been unconditional,” said Milne.

And some City Council members who voted for the resolution to discontinue the library lot development process have not seen a dime of Dahlmann’s money.

If only they asked us

If Ann Arbor’s business, technology and arts leaders are to be believed, a new hotel and conference center would be well used and promote growth in the city.

Paul Krutko, president and CEO of Ann Arbor SPARK and chair of the International Economic Development Council, has seen what other towns have to offer. He’s hosting the council’s annual conference of 250 from June 9-11, using The Campus Inn and having guests walk to the Michigan League for meetings. Every guest will be given an umbrella. If it rains, “we might have a whole bunch of disgruntled people,” he said.

As he surveys the competition, with luxurious hotels that have their own meeting space, he finds Ann Arbor lacking. Krutko says in every meeting he has with a CEO, they mention the lack of appropriate hotels and meeting rooms when their clients come to visit. SPARK’s soon-to-be-unveiled strategic framework, a five-year look at priorities for the organization, discusses ways to make Ann Arbor competitive with cities like Boulder, Colo., Austin and Madison, including pushing for new hotel and meeting space.

“Our executive committee has recognized that the lack of hotel and meeting space could put us at a competitive disadvantage over the next decade,” he said. He said that Greenville, S.C., recently hosted a conference on connected vehicle technology that featured several University of Michigan speakers. It’s a program that Ann Arbor is piloting. That conference “should be in Ann Arbor but we don’t have the facilities to host it,” he said. “We’re not even in the game on meetings that should be held here.”

Based on conversations with developers in the city, Krutko says there is reluctance on their part to propose this kind of project. They looked at past experience where the City Council initiated the proposal process, only to reject all the plans, and feel like it’s easier for them to invest their time and energy on other projects, he said.

Teall acknowledges the City Council should shoulder some of the blame. She says projects are often unsuccessful because the council receives numerous comments from those opposed to development, yet few from those who support it.

The hotel/conference center idea could still be resurrected. At the request of the City Council, the DDA prepared a January 2013 report, the Connecting William Street Plan, which comprehensively evaluates uses for five city-owned parcels within the downtown area – including the library lot – and how the city should proceed with them. One of the recommended uses for the former YMCA lot is a hotel and conference center. The city has retained a broker to try and sell the property. Earlier this year, the council presented the Connecting William Street report to the city’s Planning Commission to incorporate in future planning decisions.

Rapundalo believes the obstacles that stood in the way of previous proposals remain. He argues that the current City Council is even less likely to support a proposal than those who served during his time.

Current City Council member Christopher Taylor, who voted for the resolution ending the selection process for the library lot, doubts such a facility will ever be built here. If the market demanded it, he says, it would have already been built. That sentiment is shared by the hotel industry’s Joseph Sefcovic, who adds that it “won’t ever make sense.”

Krutko is more bullish. “This kind of project will get built in the next 10 years. There is too much significant business activity” for someone not to make it happen, he said.

“At some point, someone will decide the opportunity is just too good to pass up.”

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