Convention Center Wraps Up 1st Year : New landmark: Facility’s staff finds that utility bills were much higher than expected; also, expansion is already being studied.

The $161-million San Diego Convention Center celebrates its first anniversary this weekend, a year in which the huge, bayside structure became an instant landmark and community focal point.

More than 1.1 million people attended events there, and the number of trade shows, conventions and local activities--from weddings and meetings to banquets and seminars--totaled 354, an amount industry officials say is unprecedented for a center’s maiden year.

The Convention Center has helped businesses around it, in the Gaslamp Quarter, Seaport Village and Horton Plaza, and expectations are that, as the center becomes better known, the number of dollar-spending tourists and locals will increase.

It’s estimated, for example, that the more than 250,000 out-of-town delegates who attended the 49 conventions and trade shows in the center’s initial year spent nearly $226 million, the San Diego Convention & Visitors Bureau says.

By all those measurements and others, the center has been a success. But those achievements, although not guaranteed, were expected. Part of the center’s first-year story were the surprises, the things no one could predict because the building lacked a track record.

Like living in a new house or buying a new pair of shoes, it took a while to break in the Convention Center.

What officials found out over the course of a year was that the expense of operating the large structure was much higher than anyone had guessed.

Mundane but costly things such as turning on the lights and air conditioning in some months were close to 40% more than what officials had budgeted. That was not good news for a facility whose operating budget is in the red.

They also learned that the center lost more money than it made when it was rented for events that drew 300 people or fewer. “We’ve found it costs us more to turn on the lights” than the event pays for, said Donna Alm, spokeswoman for the San Diego Convention Center Corp., the nonprofit agency in charge of operating the center.

The result is a new strategy for next year that anticipates, in part, having fewer events but ones that pay more.

And experience has shown that, even though the structure is striking architecturally, some elements could have been designed better. There is no direct way, for example, to get to the bayside mezzanine level from the front of the center. It takes a long escalator ride up, directions from a few strategically posted ushers and then an elevator trip down to reach the mezzanine.

The 40,000-square-foot lobby is too small for some events, office space is cramped, and there are too few traffic lanes at the front entrance, where it gets congested with cars, buses and taxicabs.

None of the flaws are considered fatal, and officials have found ways to overcome them--or at least make them less troublesome.

Perhaps the most significant thing officials learned firsthand was something they suspected from the beginning: expansion--most likely doubling exhibit space--is a top priority. The need, according to Carroll Armstrong, the center’s marketing director, is “dire” if the center is to meet growing exhibit space demands in the convention and trade show industry.

Initially, he said, when the facility was being designed and constructed, groups interested in coming to San Diego were happy with the center’s 254,000 square feet of main exhibit space, plus the other 100,000 outside under a sail-like Teflon roof, but were worried about having enough hotel rooms nearby.

Now, the concerns have reversed, he said, and convention and trade show exhibitors are wary there will be sufficient exhibit space in the near future to accommodate out-of-towners staying in what is fast approaching an adequate number of hotel rooms.

Convention Center officials have advertised for consultants to begin exploring the expansion issue. The politically tough questions of who will pay for it and when an expansion can occur are expected to begin surfacing publicly next year. Others say such an effort is premature.

The true cost of the new center is open to interpretation. According to figures supplied by San Diego Unified Port District, which paid for the facility, it cost $161.1 million to construct and outfit the 1.75-million-square-foot structure, including payments to contractors, architects, engineers and others.

But, a few months ago, the Port District agreed to pay $11.2 million to hotel developer Doug Manchester, who sued because the two years’ delay in constructing the center hurt business at his adjacent Marriott Hotel & Marina.

And the Port District is now faced with a $48-million lawsuit filed by the center’s builder, the joint venture of Tutor-Saliba-Perini, in a dispute over design and construction changes.

As for the Convention Center’s operating budget the first year, it had a shortfall of about $530,000, with both revenues and expenses running higher than had been expected. It was anticipated that the operating budget would be in the red until the center’s third year, when, it is projected, the center will break even.

Center officials are holding to that projection, though they are making changes on the road to self-sufficiency.

The goal the first year, Armstrong said, was on quantity, to have as many events as possible. That goal was achieved, even though officials were chagrined to discover that they lost money on some of the smaller events. In response, Armstrong said, the second-year goal is to increase revenues.

Part of that strategy calls for streamlining the booking system. The object is to take several of the smaller events and schedule them in different parts of the center on the same day, thereby spreading staff and utility expenses over a wider base of renters.

Not only is the profit better for the center, but it will keep costs down for the smaller groups, Armstrong said. The buzzword for this is yield management.

“We want more bucks and to work smarter,” he said. “We want to operate as effectively and efficiently as we possibly can and still be all things for all people.”

The center is also reviewing its rental rates, already the highest per net square foot on the West Coast.

The center is trying to see what it can do about its high utility expenses. Officials, for example, budgeted $125,000 a month for utilities, but some months the costs ran as high as $170,000, or nearly 40% over budget.

“We’re trying to find out how we can cut back on that or whether that’s the way it’s going to be,” said Armstrong, adding that talks are going on with SDG&E.;

In going for quality over quantity, Convention Center officials believe they will have fewer events the second year but make more money. They think they will be getting more “high-quality” conventions for one thing, which bring in more revenue.

“The big challenge facing exposition facilities today is to quantify business to determine which events are the most profitable and desirable,” said Tom Liegler, the center’s general manager, in a prepared statement. “In short, we may provide the venue for fewer events but derive more financial impact. This means there will be less overhead, hopefully reducing our overall costs and bringing us closer to a positive bottom line.”

There are other reasons why there may be only half as many events as in the inaugural year. The trendiness of the facility is expected to wane, and the plan to consolidate several smaller events into a single day may lead to some drop-off.

The more ominous sign, however, is an increasingly skittish convention and meeting industry. Talk of recession is making some Convention Center clients tentative, and already there have been two major cancellations in early 1991, including one by Mobil Oil.

A full-scale retreat would not only harm the center but downtown businesses. Although none of the restaurant, bars, hotels or retail stores interviewed are yet dependent on convention business, it’s clear they are expecting such business to play an increasingly important role.

Laurie Woodside, owner of the 515 5th Avenue restaurant in the Gaslamp Quarter, said the business her small, gourmet eatery received last January from the Action Sports Retailers’ convention accounted for the best week she ever had.

Her experience is similar to that of several others. Some weeks convention business is great, and at other times, when no large shows are in town, there is barely a trickle of business. Part of the lesson of year one of the Convention Center is learning to anticipate the business flow.

“As time goes on, it (Convention Center business) will be a significant part of my business,” Woodside said.

Chuck Kovar is a partner in the Cabo Cabo Grill, a seafood Mexican restaurant and bar built in an old trolley barn at 203 5th St., the closest restaurant to the center. When asked what impact the center has had on the grill, Kovar replied: “It’s kind of like the difference between Vietnam and Cabo San Lucas. It’s had a major impact from the git-go.”

Although Kovar said his base is among the locals, the Convention Center business is giving his restaurant more financial “breathing room.”

Farther from the center, at Reidy O’Neil’s restaurant on 4th Avenue near Broadway, the impact has been less dramatic, though still felt.

“It’s an irregular flow,” said Michael McDade, a partner in the restaurant and head of the Gaslamp Quarter Planning Board. “It’s like you’re having a slow night, and then 49 people walk in the door. That kind of stuff is hard to staff.”

“It definitely is not the panacea some people predicted,” McDade said. “It’s a nice increment but not enough to make or break a business.”

Ingrid Croce, owner of popular Croce’s restaurant, said “there’s no question that, when conventions are here, we feel it . . . but it’s not consistent yet.”

The Gaslamp Quarter as a whole, with its transients and street people, still is a pockmarked melange of vacant and boarded up storefronts standing next to thriving restaurants, bars with live entertainment and new apartments.

At Horton Plaza, four blocks from the center, out-of-town conventioneers have had a mixed impact. Volker Schmitz, general manager of California Cafe, said his lunch business in particular has increased 15% to 20% when large conventions are in San Diego. “Although it’s a bit of a roller-coaster right now, I think it’s only going to get busier over the years.”

Some shops that don’t feature food, drink or entertainment have seen increased numbers of people coming into their stores, but not necessarily more spending. “We’ve had more traffic-wise than dollar-wise,” said Christina Bremner, manager of Williams-Sonoma Inc., which sells gourmet kitchen products and cookware.

Harold Queisser, marketing director of the Marriott Hotel & Marina next to the Convention Center, said that, in the last year, occupancy levels have remained flat though sales at the hotel have increased by 12%. He attributes the increase to the center and higher “quality” convention groups who spend more money. “It’s a very positive situation, and we’re really happy.”

While the center prepares for its second year of operation, it also is getting ready for the possibility of hosting the Republican National Convention in 1992. The center is on a short list of potential cites being evaluated by GOP officials.

City and Convention Center officials say the Republicans will have to pay to underwrite the convention, because they can’t afford to subsidize it.

When the Convention Center was being built, center officials said they didn’t want to host a national convention of Democrats or Republicans because it was a money-loser. The reasons were plentiful: The facility would have to be closed for several weeks before, during and after the convention; the summer date would hit hotels and motels during the city’s peak tourist season; the whole ordeal, in short, was more hassle than it was worth.

But today, city and Convention Center officials have formed a uniform wall behind Mayor Maureen O’Connor’s effort to woo the Republicans. Privately, though, some officials still hold to their initial misgivings.

Another old problem that might again haunt the center in the coming year is the debacle over attempts to rename the center after Dr. Martin Luther King Jr. The effort by blacks and the Urban League to rename the facility led to an emotionally and racially charged debate that lasted for several weeks and fell one vote short at the Board of Port Commissioners. Some blacks protested last year’s Nov. 24 opening and called for a boycott of the center, which has had no impact.

The National Urban League, for example, is still scheduled to hold its national gathering at the center.

CONVENTION CENTER BUDGET

The San Diego Unified Port District’s budget for building the San Diego Convention Center:

* $127 million--Construction of the building: * $5.5 million--Excavation of the site. * $11.2 million--Payments to architects, other design costs, structural testing. * $4 million--Payments to Fluor Constructors Inc. for construction management. * $7.5 million--For furniture, fixtures and equipment. * $3 million--For inspectors, soils and laboratory testing. * $2.6 million--Miscellaneous expenses. Total: $161.1 million. Source: San Diego Unified Port District