Many convention center contracts rise above early estimates

Friday, August 21, 2009 at 1:29am

Metro Development and Housing Agency's communications contract with McNeely, Pigott & Fox has drawn the most speculation in recent weeks, but several other convention center-related contracts have also exceeded the original agreed-upon maximum price.

MDHA has amended four contracts related to predevelopment activities of the new convention center after the contractors’ invoices exceeded the original agreed-upon maximum price, according to documents obtained by The City Paper.

• The communications contract with MP&F was originally not supposed to exceed $75,000, but wound up with a cap of $900,000.

• The building management consulting contract was originally not supposed to exceed $254,000, but now has a cap of $303,000.

• The hotel consulting contract was originally not supposed to exceed $93,500, but now has a cap of $500,000.

• The financial consulting contract for the convention was originally not supposed to exceed $165,000, but now has a cap of $250,000.

In total, the four predevelopment activities contracts were capped at $587,500 when they were originally signed with MDHA. Those same contracts now have a collective maximum price of $1.95 million.

The contractor for both the hotel and the financial feasibility report is C.H. Johnson Consulting, which works on many major convention center projects. So far the firm has been paid upward of $500,000, of which $370,000 has gone toward consulting work for the proposed convention center hotel.

District 23 Councilwoman Emily Evans said she took issue with MDHA spending such a large amount on consulting work for a proposed hotel. The resolution passed by Council last year approving predevelopment activities for the proposed Music City Center called predevelopment “and related activities.”

“They [Mayor Karl Dean] administration has told us they always considered the convention center hotel a separate project,” Evans said. “So when they present a resolution for predevelopment and related activities, they did not specifically say it was for a hotel.

“There has not been any real public dialogue about a hotel, so a lot of us are really in the dark.”

Evans has been critical of MDHA’s contract management for allowing the contractors to invoice the city for so much more than the original agreements.

The fourth contract is with Conventional Wisdom for building management and operations consulting work.

Predevelopment costs have reached $16 million. The funds come from tourism taxes and fees created by Council to fund the proposed $635 million project.

MDHA Director Phil Ryan said the city simply low-balled its estimate of what communications would cost for the project. Public relations firm McNeely, Pigott & Fox has billed Metro for more than $450,000.

Metro Council planned to consider at a special meeting on Friday the creation of the Convention Center Authority, a nine-member board that would shift project oversight away from MDHA.

Council approved the creation of the Convention Center Authority on Tuesday, but Councilman Mike Jameson used an obscure rule to defer the legislation.

Jameson submitted a list of 12 questions, which Metro Finance Director Richard Riebeling promised would be answered by the end of the week.

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Hotel1.pdf141.68 KB
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42 Comments on this post:

By: Kosh III on 8/21/09 at 6:14

Folks, this is the way it's going to be: one cost over-run after another. How much will this end up costing the taxpayers? Just grease up and bend over.

IMHO
If they signed a contract for a certain amount, that is what they should be paid, if they go over, they should absorb the cost, but Ryan and Metro seem more than happy to fork over any amount of welfare their buddies ask for.

By: govskeptic on 8/21/09 at 6:30

How could this be: I don't recall hearing that the duly elected Metro(watching out for tax dollars)Council had even voted yet to build the MCC? There seems to be a great deal wrong with this big screen picture!

By: producer2 on 8/21/09 at 6:50

Yet one more reason for the CCA.

By: Kosh III on 8/21/09 at 7:04

Producer? Do you like overpaying?

By: govskeptic on 8/21/09 at 7:46

Goggle any 3 of Conventional Wisdom recent Convention Center Projects: Boston Convention, Pittsburg, or Overland Park. Look at those news articles on the construction from floors collasping to leaks and mold invading and least important-cost overruns. Deeper looking will show many articles on the false and bad economics of convention centers.

By: idgaf on 8/21/09 at 7:53

By what legal authority do they have to spend our money on "predevelopment activities " when the authoriziation for the project was never approved by ANY ONE.

Not the council and certainly not the taxpayers that will have to foot the bill.

By: NewYorker1 on 8/21/09 at 8:09

This is the American business model "More More More" at any cost. When is enough ever enough for these folks? If my company has a contract for $75K, then I'm going to do $75K worth of work. If they need more work done, then we agree to another contract. It's very simple to me.

By: JeffF on 8/21/09 at 8:28

NY where have you been? Hows things?

By: airvols on 8/21/09 at 8:51

Thank goodness we are having a Convention Center Authority being appointed to assist the mayor with these responsibilities. That is a smart move on the part of the Mayor. We all know with any big project there is always unexpected costs that creep into the final expenses. He understands the process and moved quickly to contol this, as we move forward with the next phase of the project. I'm already getting excited about seeing our skyline change and Nashville becoming the envy of other cities in the South. The young people of this community will see many more people flock to our city because they visited for a convention or meeting and corporate centers will relocate because of the visibility and progressive business environment. What does this mean for the younger folks more job, more opportunity, a better quality of life. Build it and they will come!

By: JeffF on 8/21/09 at 9:08

Huh, Can't say that I ever heard of any relocations to any of the other cities because they built their own white elephant. The only data I get from these other cities are tales of whoa about the centers not meetings expectations and showing higher than promised operating losses.

Seeing as how many of the strongest opponents to this project are the most progressive people I know, staking the position of this being a "progressive" project is a real reach.

You know what will help the young people. A non-failing school system and the ability to live in town without being shot by gangs or run over by drunk drivers. The only way a convention center will help a young person is if they strive for part-time banquet server or hotel maid jobs. Otherwise the money would be spent helping actual people instead of the meeting industry and the imaginary young people you use in your last paragraph.

By: idgaf on 8/21/09 at 9:17

Pre recession there were only 2 CC's in the country paying for themselves, Vegas and Orlando and we are no competition to either.

By: producer2 on 8/21/09 at 9:48

Govskeptic,
Do you even know what services Conventional Wisdom provide? They have nothing to do with any of the areas you outlined.

JeffF,
Enough with the "they underperform" stuff. You keep using this phrase like it has any bearing on the industry as a whole. NO BUILDING is going to make a large sum of money and even in the current center in Nashville, Metro cuts their operating budget every year which makes it impossible to show a profit. But what Metro also knows is the funds still come in through the bed tax and the $100 million a year continues to go into the General Fund from that tax so they don't mind doling out a measly 1% back for operating expenses. That is the truth you don't want people to hear.

By: JeffF on 8/21/09 at 12:12

Underperform means that they do not fulfill the promises laid out by the consultants who promise an increase in business of x% with an expansion in facility space. EVERY city has seen their centers pull in only a couple of percent more (many have seen drops) with expansions recommended. This is not a recession thing, these are documents numbers starting in 1995 to the present. There have been multiple excuses given (many repeated by you) for this drop but this is a trend not a blip. The industry is not suffering from a recession or 9/11. The suffering began in the late 90's.

10 years of industry wide losses or minute growth in not indicative of a cycle waiting to be turned around, it is the dawning of a new era. This "downturn" has been through two cycles now and has not recovered. It is insane to spend money then state we are doing so "to be ready when all this turns around in three years." There have been waiting for that three years to be over for over a decade now.

Still not seeing that $100 million per year line item in the revenue reports on the CAFR. Is that one of those shady study estimates you were trying to use as "facts" yesterday? Someone has already explained the humor in using those as facts. Maybe someone can come back here and remind us of the NEED for this. That would be fun.

By: JeffF on 8/21/09 at 12:15

Atlanta for example has experienced smaller attendance at each expansion of the GWCC. Maybe they need a brand name like we have? That "Capital of the New South" just doesn't have the economic-powerhouse panache the "Music City USA" brand has, especially as it applies to bringing in shriners and podiatrist conventions.

By: Time for Truth on 8/21/09 at 12:19

This is just the tip of the iceberg. Just wait until they have to go ahead to build the thing, then we'll really see some over-runs, pork and corruption. I trust a commission appointed by Karl Dean with prudent oversight of the MCC about as much as I would trust the Taliban to provide homeland security.

The Nashville Scene, a generally a fairly liberal paper, gave Crafton a backhanded compliment by agreeing with his assessment of the real reason Dean wants a CCA. In doing so, they essentially agreed with the need for a referendum.

Stop the madness now. No CCA , Yes referendum.

By: producer2 on 8/21/09 at 12:38

As you know and we have discussed ad nauseam on these threads there is a HUGE difference between expanding (or over expanding to 1million square ft. exhibit space and simply building a facility that is market worthy in size. We are not trying to capture all business just the business that wants to come here and is appropriate for our City.

You must have taken lessons from Sanders because you are pretty good at spinning the truth....(and now you want to belittle certain groups and organizations, what is next for you?)

By: JeffF on 8/21/09 at 1:05

Overexpansion is all relative. In your world every convention center that has struggled the last 10-15 years was guilty of over-expansion. Seing as how the entire list of top convention cities (the one you are proud that Nashville is on) has overexanded except Nashville, I am amused as to how our ranking on that list can improve and we NOT be overexpanded.We are ranked with our piddly littel facility. Do we hope to be "more ranked".

Even with JUST $1,000,000,000.00 (snicker har) in new buildings the likelihood of us pulling in an appreciable (or proportionate) amount of new business is slim-to-none based on historical precedence throughout the industry. Unless you would have us all believe that 100% of all cities have over expanded while we are the one true city on a hill that can expand our capabilities and costs six-fold and not be guilty of the same over expansion.

Again is it worth $1,000,000,000.00 in debt and another tens of millions of dollars in interest charges and other increased taxpayer subsidized expenses to increase traffic by a few percent long-term. Right now the paid-for centers (the public one, Opryland, and other hotel facilities) are doing a great job even getting us on "the list" and making money (per your preferred figures). Are we to believe that all that money and success will go away unless we spend a $1,000,000,000.00+ in public funds? I say we test that assertion and see if indeed tourism will suddenly stop with a denial of a new swing set (with attached sandbox and play fort) for the spoiled children in this industry.

By: JeffF on 8/21/09 at 1:28

How to turn a city with high occupancy rates (hotels) and high income into one struggling to meet its bills for it new massive CC hotel:

http://www.baltimoresun.com/business/bal-hilton0821,0,1823339.story

I particularly loved this line:
"We wanted to pay our bills without having to go outside what the hotel brings in," said Irene Van Sant, hotel project manager for Baltimore Development Corp., the city's economic development arm.

Quickly followed with:
During the first annual reporting period, which ended Dec. 31, 2008 and includes only 132 days of operation, the hotel reported a $17.1 million loss, with $18.1 in revenue and $35 million in expenses, according to financial statements prepared by Clifton Gunderson LLP. Van Sant notes that much of the expenses were funded not with revenue but with bond proceeds designed to cover one-time opening costs, which must be charged as expenses under accounting rules.

For the accounting impaired, the hotel manager has convinced herself that the hotel is paying its own way by including the public money from the bond issue. The hotel is operationally losing lots of money AND is dragging down the once "thriving" privately owned downtown hotel market with it.

more:
Officials say they are heartened by the hotel's ability to pay its bills and meet its debt payments. The city sold $301.7 million worth of revenue bonds to finance the project, including $230 million in construction costs, and set up a series of back-up sources to pay debt service in case hotel revenue and tax increment financing falls short. Reserves include a $9 million fund, Hilton's hotel occupancy tax, citywide hotel occupancy taxes and a pledge of up to $25 million from Hilton's corporate office.

So in the mind of the hotel manager, the hotel brought in all the money it needed to operate. This includes the bonds taken out in excess to cover the EXPECTED operations losses as well as the loss in hotel tax from the private properties being forced to drop rates to compete with the public entity.

These are the same events that happened in St Louis. The same ones that supposedly do not happen anywhere else.

I love the internet. It allows you to free yourselves from the drivel coming from local project cheerleaders who would prefer you not look behind the curtain at all the rotten garbage.

By: NewYorker1 on 8/21/09 at 1:59

Oh get over it. It's happening and will get built. Next.

By: JeffF on 8/21/09 at 2:00

I just looked into the legality of having a municipal corporation issue debt that is backed by the inclination of the primary government (moral obligation) in the event that revenue streams fall short of meeting the obligations. There is zero case law in the state of Tennessee regarding this action.

So if Nashville leaders were to go on record of doing this in order to avoid hearing from the citizenry, they would have to appear in court to explain why a lawfully collected petition containing signatures from thousands of citizens does not bind them to the people's will. Elected officials and the hired politicians would have to publicly testify in court on why the citizens voices should be silenced on this billion dollar set of projects.

NewsChannel5 has done a great job on the blatant fraud being hidden by public officials related to the CC contract. Other media outlets (some reluctantly) have jumped on board. I am sure it would garner as much media attention as the administrations attempts to stop the EO last year.

Does the mayor want to be seen fighting public will on this issue? Are there people who still think that this massive project is something the majority actually wants. Can pro forces fight a media war without the use of their friends at McNeely Piggot & Fox?

I am betting that the recent news cycle has already given them way more media exposure with the general public then they wanted. The budget for public nosiness runneth over already. It looks like there are a lot more people finally paying attention to what goes on behind the scenes of a billion dollar public project. The mayor's lieutenants are feverishly attempting to take this off the media screens and public radar in order to get back to the behind-the-scenes-business-at-hand. Previously they had MP&F to help them with that, but that group is too busy trying to remove themselves from that same glaring spotlight. And MP&F obviously would not provide that service for free anyway.

By: JeffF on 8/21/09 at 2:08

NY, we were all told the exact same thing about the little league baseball stadium. It never got one shovel of dirt turned before hard work got it euthanized.

People were telling us that there was no one on our side on this issue, then Channel 5 jumped on board. I believe the wave is coming toward shore and the government is scrambling around looking for a place to hide their stashes until we forget about all the bad decisions they have made on this project. There are finally people who understand (besides me of course) that one OBE is no better than another. People are becoming informed on this issue and their numbers are swelling. In a city where term limits keeps smart councilmembers from advancing, we now see at least two who are very qualified at being mayor (because they spoke out and the media paid attention and we all were finally watching)

$1,000,000,000.00 is a hard number to ignore. It is getting more difficult to get people in Nashville to accept that number as none of their business.

By: JeffF on 8/21/09 at 2:10

The absurdity of thinking that people would not at least question a $1,000,000,000.00 bond issue is mind boggling. Thinking that the public would not question $1,000,000,000.00 on a dubiously government project is even more astounding.

By: JeffF on 8/21/09 at 2:12

"$1,000,000,000.00" and "trust us, this will work" do not go well together.

By: producer2 on 8/21/09 at 2:51

"Overexpansion is all relative." Is that a fact or an opinion? Nice comeback.....

By: airvols on 8/21/09 at 2:55

I think Jeff is writing a term paper. Talk about over exposed!

By: producer2 on 8/21/09 at 2:57

Calm down son, your blood pressure is going to explode...

You forgot to include this headline with your piece above:

Downtown Hilton hotel faces tough economy in first year.......duh!

And you left out this paragraph conveniently:
Despite the struggling lodging and convention industry, the West Pratt Street hotel has succeeded in meeting other goals, city officials say. It has persuaded convention groups who would have gone elsewhere to come to Baltimore. And it has paid its bills and met its debt payments without dipping into reserves.

The internet works both ways.....

By: producer2 on 8/21/09 at 3:00

Apparently he did not get the memo from Bernanke.....

Federal Reserve Chairman Ben Bernanke said what investors wanted to hear, that the economy is indeed on the verge of recovery, and they responded with a rally that sent the major indexes to new highs for the year.

By: producer2 on 8/21/09 at 3:01

The next noise you hear will be him screaming after the vote to approve the CCA passes in about 27 minutes......

By: JeffF on 8/21/09 at 3:32

It does indeed "And city officials are less certain the hotel will turn a profit in the three- to five year time frame originally projected."

as for the CCA:
I wouldn't expect anything else from an administration fighting hard against public discourse. There is no other reason to rush this. If they want to be seen fighitng against the concept of due diligence then let them. There are already 5 council members on the record as not being happy about the railroading. Previously there were none.

Waiting one month would really prevent them from selling bonds in the middle of next year. They sure better sell these before the next election because Dean sure doesn't want the limiting of public input on a $1,000,000,000.00 public obligation bond issue hanging over his head. He sure can't depend on the convention industry to turn around a decade of losses before then.

By: Magnum on 8/21/09 at 3:38

Well I guess I'll use this subject to jump to my favorite, dead issue. It amazes me that our government can move forward in spending millions, even billions of our tax dollars (whether generated from the community or by the community, they are still supposed to be our tax dollars), but they can't seem to get wine in grocery stores. It is telling about the priorities of these people in that there is major opposition to the convention center and no one cares...it will be built. Likewise, the majority of Nashville's residents would like to buy some wine in the grocery store and no one cares...it will not happen.

I'll tell you what. Get me some wine in grocery stores and I'll vote 'yes' if this thing goes in front of the public...which is unlikely.

Finally, where does one go see the financial projections for this project? It seems quite simple to zoom in on whether this would meet required returns on investment. Forget all of the games of operating budgets, operating costs, etc. It is all there to protect the peanut...its a shell game. I want to see historical data from our current convention center for our market. None of this hotel tax within 3 miles. By doing that you're getting credit for every vacationer and redneck that got to drunk on Broadway to get home. These facts should be available and if they are not, then proper diligence has not been taken with regard to a $1B project.

By: JeffF on 8/21/09 at 3:47

I love it when people refer back to the studies done by consultants when things start going South:

"...But the hotel falls short in revenue per available room, which is average daily room rate multiplied by occupancy rate. City and hotel officials won't disclose the Hilton's revenue per room, occupancy or average room rates. But a calculation using the hotel's reported room revenue of $6.8 million for 2008 and the number of days open last year shows revenue per available room of $68.46. That's well below the $112.57 projected for the Hilton for 2008 by consultants, based on projected occupancy levels of 62 percent and an average rate of $181.56. It's also below Baltimore City's average hotel revenue per available room of $82.55 as of mid-year, according to Smith Travel Research...."

HVS is the firm who promised Baltimore the numbers that have downgraded to lie status. The same HVS that published a a paper saying that Dr. Sander was incorrect of his assessment of the convention consulting business. The same HVS that has promised Dallas untold riches with their hotel. The same HVS that promised St Louis lots of new convention prosperity with its new center and its recently foreclosed hotel. Luckily we used KPMG as our consultant. Unluckily they admitted to Forbes in 2005 that they are not paid to deliver the truth, just a positive arguement ---- "You lose clients if you shoot down projects. They've already made up their minds by the time they come to us."

By: JeffF on 8/21/09 at 3:52

Magnum, I agree. Real numbers are not available because they are not so rosey. I gave real employment statistics regarding the hospitality industry straight from the State website yesterday, and I got projections and estimations back from the tourism hacks. There are no real numbers. Having those would make it impossible to every get the government to build anything for your private business.

Real numbers would prevent someone from proclaiming Tourism as the 2nd largest employer Nashville when it isn't even in the top 5. Real numbers would prevent you from arguing for the tax kick backs that no other industry asks for. Real numbers would be hidden by the estimations and statistics paid for with those tax kick backs.

By: JeffF on 8/21/09 at 3:56

By the way, Baltimore can expect to go through its debt-leveraged operating reserves in 4 years unless they can make a real operating profit to pay its debt. After that money will need to come from sources that supposedly would never be touched for this building, or the repo man will come to the inner harbor. Baltimore residents were promised that no sales or property taxes would ever pay for this. This is exactly the same situation HVS got St Louis into.

St Louis officials could live with having their pride and joy foreclosed upon. Nashville and Baltimore will raise taxes somewhere to prevent this from happening. They can do that because they will not legally commit to not doing so.

By: producer2 on 8/21/09 at 4:08

Some serious backpedaling dude...by the way the beatdown was 33-3

By: JeffF on 8/21/09 at 4:15

I love doing this

Across-the-board Fallout as Q2 Ends
http://www.tradeshowweek.com/article/CA6588650.html?nid=3494
For the first time since 2002, every index TSW uses to measure tradeshow activity is in negative territory.

This is just one publication, but there should be no expectation of any publication crowing about anything positive happening industry wide. Every center is losing now, even the big important ones. Things are declining so bad that San Diego officials are trying to get a taxpayer financed expansion. The solution to every convention industry decline is to get taxpayers to build a bigger space. We will need a bigger center in Nashville as soon as the doors open in 2015 on this one.

By: JeffF on 8/21/09 at 4:16

So the choice was CCA or MDHA. Heck of a choice for the officials. Maybe one day Dean can allow this project some public input.

By: producer2 on 8/21/09 at 4:22

Again very easy to show negativity in the aftermath of one of the worst recessions in history. Do you actually watch the news or are you too cynical to even believe that? I bet you think the moon landing was all done in a Hollywood studio......

By: govskeptic on 8/21/09 at 6:17

producer 2
Sorry I couldn't get back to you sooner after your snide remark early today on my not knowing anything about another overpaid convention consultant-Conventional Wisdom Corp. I have to do my own research on my own time and work to pay taxes on an Over Appraised house actually in this county. This co. has those 3 earlier mentioned projects spread all over their website. They are a major division of "Rider Levett Bucknell Co" which designs manages and contructs projects such as MCC. They also need a path finder and skid greaser to work with the locals in the technical community to help market the project Convertional Wisdom is the marketing and unannounced PR firm for that purpose. No, I don't make
my remarks with foolish intentions and I have not been provided with software to slay the unsuspecting and uninformed sheepish voters with a keyboard while earning $285.00 in doing so. I truly suspect 80% of the biggest booster of this project don't live in Davidson Co.

By: producer2 on 8/21/09 at 8:45

I don't work for any PR firms. Your buddy JeffF already verified this. I do live in Davidson Co. and actually downtown, also verified in other posts. I pay taxes just like you, probably more so get over yourself. Some people have differing opinions than yours. It s part of life...

By: govskeptic on 8/21/09 at 9:59

I hate to hear about those high downtown property taxes. That one of the luxuries in living in condos or lofts that cost $400,000 in 06-07 and neighbors are buying comps now at $250,00. To encourage conventioneers to visit we've raised the meter rates 50%.

By: idgaf on 8/23/09 at 7:15

Bottom line is why and by what authority are they spending almost 2 million dollars on something that hasn't been approved yet and is sure to meet with taxpayer resistance.

By: Time for Truth on 8/24/09 at 8:00

These overruns essentially indicate that Reibeling lied in the Council meeting. No one called him on it.

Maybe Crafton will put it in gear now that an online poll at Fox News shows roughly 85 percent opposed to a new center. I'm sure that's his news program of choice. Even considering the 'fairly unbalanced' factor, those numbers are a pretty convincing indictment that only thee elected officials in Metro government give a rat's @$$ what the citizens think.

Can the mayor be recalled?