With most convention center studies, the question on the minds of city administrators and economic development personnel is "Is is feasible?". In the strict definition of the financial feasibility, the answer is, in the vast majority of situations, no. Financial feasibility for any real estate development suggests that the income generated by the intended operation is sufficient to not only cover the debt service, but also provides a satisfactory return on any equity investments in the project. Most stand-alone convention centers in the United States, both large and small, have operations that require an annual operating subsidy. There are a few notable exceptions of convention centers that produce an operating profit, including the Meydenbauer Center in downtown Bellevue, Washington (pictured above). A primary differentiating factor seems to be a venue's ability to generate meeting demand from local corporations willing to spend a premium on high end meeting space and catering. Smaller venues with strong wedding and social event demand are also able to operate at a profit, primarily on their ability to generate significant food and beverage revenues.
So, how does one define the feasibility of a convention center? It is a question that I always ask clients, and I have heard a range of answers. Some take the purely qualitative approach wanting to know whether there will be sufficient demand. Common questions are, "What is the market?", "Is there a need?", and "What infrastructure are we missing?" Strategic Venue Studies has a variety of methods to arrive at those answers, but, a venue's popularity and ability to attract events and attendees does not necessarily mean that it will be a financial success.
Most understand that operating income will not fund development and that other sources (typically hotel/motel tax revenues) will be the primary source of debt service payments. For many, feasibility comes down to a convention center's ability to support itself through a break even operation. Again, while not unheard of, stand-alone convention centers rarely break even.
Setting aside strict definitions of feasibility, the value of a convention center comes from the activity that it promotes and supports. Convention centers are economic impact machines, not only attracting out-of-town visitors with money to spend on lodging and meals, but also supporting local industry with the infrastructure needed to do business. A quantifiable economic impact analysis, including direct, indirect, and induced spending, almost always produces a net present value of impacts that is several times larger than development costs. And, the direct beneficiary of these impacts is local business.
Strategic Venue Studies provides consulting services to meeting, recreation and event venues throughout North America. Services include market-based programming recommendations, business planning, feasibility studies, and economic impact analyses. For more information contact catherine@strategicvenuestudies.com