Some of the biggest hotel operators in Indianapolis are opposing legislation that would pave the way for development of 1,400 Hilton-branded rooms downtown.
The hoteliers, including well-known industry leaders White Lodging Services Corp. Chairman Bruce White and General Hotels Corp. CEO Jim Dora Jr., argue that the city would not be able to absorb the 800-room and 600-room hotels planned by Kite Realty Group Trust alongside the $120 million proposed expansion of the the Indiana Convention Center at Pan Am Plaza.
Funding for the project is tied to a bill that's aimed at keeping the Indiana Pacers in Indianapolis for at least another 25 years and gives the Capital Improvement Board an additional $15 million annually through various tax funds.
The CIB says it needs the revenue in order to replace the $8 million in operating revenue that it plans to redirect to pay off bonds for the convention center expansion. Plus, it is looking ahead to future projects, such as renovating Bankers Life Fieldhouse.
The bill passed the Indiana Senate and has moved to the House for consideration.
The group of hoteliers sent a letter on Tuesday explaining their concerns to the four leaders of the Indiana General Assembly—Republican House Speaker Brian Bosma, Republican Senate President Pro Tem Rodric Bray, House Democratic Leader Phil GiaQuinta and Democratic Senate Minority Leader Tim Lanane—and is publishing a full-page ad in IBJ's next print edition, scheduled for Friday delivery.
The letter is signed by executives from White Lodging Services Corp., General Hotels Corp., Summit Hotel Properties, HRC Hotels, Columbia Sussex Corp., Schahet Hotels, Host Indianapolis LP, Ashford, SWVP Indy LLC and REI Real Estate Services.
Together, the group controls 12 downtown Indianapolis hotels, including the JW Marriott, the Westin and the Hyatt Regency, plus three Hilton-branded hotels.
Mike Wells, president of REI Real Estate Services, said the hoteliers are concerned that the proposed 50,000-square-foot addition to the convention center would not generate enough extra demand to fill the additional 1,400 hotel rooms attached to the project.
The group cites a study the Indiana Restaurant and Lodging Association commissioned from New York-based LW Hospitality Advisors that shows hotel occupancy would drop from 73 percent in 2019 to 65 percent in 2023 once 1,400 rooms are added at Pan Am Plaza, along with the other 1,700 rooms already in the pipeline.
“This is like the straw that broke the camel's back,” Wells said. “We’re concerned it would be a long-term pain.”
But the city’s tourism officials argue the convention center and surrounding hotels are already at capacity and some of the largest conventions are outgrowing the space. Plus, they say the city has been unable to attract more than 200 conventions over the past 10 years due to space issues.
Chris Gahl, senior vice president of Visit Indy, said the Pan Am Plaza project proposal is based on two years of research, which included surveys from convention groups and data compiled by Colorado-based HVS on behalf of the CIB.
“We wholeheartedly, based on research, feel that these two new hotels and the expansion of the convention center will not only retain but grow our convention business,” Gahl said.
The HVS study also found that occupancy would drop to 65 percent in 2023, but would rebound to 72.5 percent by 2026.
The hotel group research from LW Hospitality Advisors only forecasts to 2025 and shows an occupancy rate of 64 percent that year, while the HVS research shows occupancy would be nearly 72 percent.
Hotel occupancy in downtown Indianapolis has hovered above 70 percent since 2013, and that’s considered a healthy level in the industry.
Wells said the hoteliers group isn’t opposed to the state's providing the CIB more funding as a way to keep the Indiana Pacers in town or for an expansion of the convention center. The only concern is with the new hotels.
But removing one element from the project has the potential to make the entire proposal unravel.
That’s because the extra revenue the legislation would allow the CIB to receive comes from various taxes attached to downtown hotels and would include the two hotels at Pan Am Plaza. So, if those two hotels were not built, that would reduce the available tax revenue for the CIB.
But Wells said if the two Hilton hotels open at Pan Am Plaza, the damage to the downtown hotel occupancy rate would be significant enough to cause layoffs at existing properties. And that would also affect CIB funding, because some of its revenue comes from income taxes paid by hotel employees.
Wells also said a drop in revenue for existing hotel operators would mean less money available to reinvest in their properties, which would then make them less appealing to visitors. And if visitors aren’t happy, he said, they may not return.
“It is like giving the CIB money to buy a sledgehammer so they can hit us over the head with it,” the letter says.
Wells said the hotel operators are not opposed to expanding the convention center. He added that they have supported the other past expansions that included hotel projects. In 2000, 100,000 square feet of space was added to the convention center along with the development of the Indianapolis Marriott Downtown and, in 2011, the JW Marriott was completed along with a 420,000-square-foot expansion in convention space.
REI Real Estate Services and White Lodging partnered to build the Indianapolis Marriott Downtown and the JW Marriott.
Wells said the 50,000-square-foot expansion proposed now pales in comparison to the previous expansions.
“Our business in Indianapolis relies upon the convention center,” Wells said. “There’s no one more interested in promoting and working with the convention folks. … There are just too many rooms being introduced.”
Gahl said last fall's unveiling of the Pan Am Plaza project already is boosting the city's convention industry. Within 60 days of the announcement, huge events Gen Con and the national FFA Convention & Expo extended deals to stay in Indianapolis.
“Had it not been for the news of the expansion … both would have most likely said ‘no’ to Indianapolis moving forward,” Gahl said. “They are literally outgrowing the city.”
Gahl said he thinks the expansion also be key in keeping the NFL Scouting Combine in the city, based on conversations Visit Indy officials had with NFL representatives last week during the event.
“That is not lip service,” Gahl said. “That is not made up.”
Gahl also pointed to the flag Hilton has selected for its 800-room hotel—a new, high-end convention-focused brand known as Signia, which it is launching in only three cities.
“If Hilton has confidence … that should also help our hoteliers draw confidence,” Gahl said.
Wells said the hoteliers would like to see the legislation amended so that it does not involve the hotel project. He said they have met with Indianapolis Mayor Joe Hogsett and Chief of Staff Thomas Cook to discuss their concerns and share their research.
Cook said the city stands by the research from the CIB and Visit Indy, and believes the project would be successful.
“Anytime you’re proposing a large transformative project, there are going to be concerns from those that are natural competitors to whatever vendor is selected,” Cook said.