Plans for Meeting Spaces Faulted

With the nation’s convention industry in a sharp -- and possibly permanent -- decline, Los Angeles and other cities are in a publicly funded race to attract a dwindling number of trade shows, a study says.

More than 40 U.S. cities are planning to erect new convention centers or expand existing ones, the Brookings Institution study, due to be released today, found.

The building binge is underway even though there has been a 50% jump in the amount of available meeting space since 1990. Meanwhile, attendance at the 200 largest trade shows is at 1993 levels and unlikely to grow, the study found. And many convention centers operate at a loss and routinely resort to offering discounts or free space to attract business.

The findings raise “some serious questions about the wisdom of these investments and the way the political process seems to favor convention centers rather than other types of urban renewal,” said the study’s author, Heywood Sanders, professor of public administration at the University of Texas at San Antonio.

In an interview, Sanders singled out a plan to build an estimated $300-million hotel next door to the L.A. Convention Center. He noted that the city’s convention business plummeted 65% from 2000 to 2003 before recovering last year.

The convention center’s “performance is so miserable,” he said, “why reward them with more public funds?”

The L.A. City Council hasn’t voted yet on a proposal to support the hotel project.

Industry experts questioned the study’s findings, contending that the convention industry, hard hit by the 9/11 terrorist attacks and the 2001 recession, is in the midst of a recovery. They contended that the most popular convention cities still had room to expand, although they conceded that ambitious projects in marginal cities might not make financial sense.

“You can’t make blanket statements about this industry,” said Rob Canton, director of the PricewaterhouseCoopers convention and tourism practice in Tampa, Fla.

“There’s been a recovery underway in the past two or three years in those destinations that should be in the business. Of course, there has been a lot of overbuilding” in cities that don’t have as much appeal to convention planners.

Conventions are irresistible to city officials desperate to create jobs and increase revenue from sales and hotel taxes. Municipalities that are building or expanding meeting facilities include New York, Denver, Palm Springs, Las Vegas, Hickory, N.C., and Fort Wayne, Ind.

Hickory, a city of 35,000 an hour northwest of Charlotte, is enlarging its convention center for the second time in eight years, even though its roster of trade shows fell from 24 in 2000 to 18 last year.

Steven Rosenblatt, executive manager at the Hickory Metro Convention Center, defended the project, noting that “some of our shows are starting to outgrow us.”

Nationally, however, the market for trade shows is unlikely to recover sufficiently to fill all the convention space available, according to the Brookings study.

Weakness in the trade show business was already apparent in the 1990s even before the recession and the terrorist attacks of 2001 began to hurt the industry, Brookings said. Consolidation in certain businesses, better communication technology and the new hassles of travel have made conventions less attractive.

“Simply put, the overall convention marketplace has shifted dramatically, in a manner that suggests that a recovery or turnaround is unlikely to yield much increased business for any given community,” the study found. “Less business, in turn, means less revenue to cover facilities’ expenses and less money injected into local economies.”

Solid numbers on the convention business are hard to come by because there’s no standard way to measure performance, the study said. Brookings tracked attendance at the 200 largest trade shows and found that it declined to 4.1 million in 2003 from a high of 5.1 million in 1996.

The study disputed industry claims of an increase in attendance in 2003 and argued that a trend toward ever-larger shows was waning.

At least one Wall Street analyst is seeing the same trend.

“Nationwide what we are seeing is an increase in convention center space at the same time that the demand for space has declined both in terms of the number of trade shows and in attendance,” said Anne Van Praagh, an analyst with Moody’s Investors Service, a bond rating firm.

Van Praagh recently downgraded a $98-million bond issue for a hotel near the St. Louis convention center, as occupancy rates predicted in 2000 have not materialized. The bonds, now rated junk by Moody’s, may go into default next year, she said.

“We’ve seen a number of cities make bad choices when it comes to a struggling center,” Van Praagh said. “Expansion doesn’t always work.”

Officials said that wasn’t the case in Los Angeles, which they described as an attractive convention destination that only needed more nearby hotel rooms.

“Los Angeles will win in the convention game if we have a hotel that makes us competitive,” said Michael Collins, executive vice president of LA Inc., the city’s convention and visitors bureau. “It is the missing link in a winning proposition.”

City assistance would be needed to build the proposed 55-story hotel here, said Lew Wolff of Wolff Urban Development, one of the developers of the project, which would be operated by Beverly Hills-based Hilton Hotels Corp. But Wolff said it was unlikely that tax-exempt bonds would be issued.

Based on preliminary numbers, convention attendance rebounded in L.A. last year, although the number of conventions fell for the third year in a row. Convention center officials didn’t return calls seeking information on the center’s financial performance last year.

A new luxury hotel would be no guarantee of success for L.A. In an example of the never-ending escalation of the convention wars, Las Vegas last week announced a $400-million expansion plan for its convention center -- the latest in a series of improvements.

Los Angeles also has a formidable competitor in nearby Anaheim, which has hotels next door to its convention center and saw a 7% attendance improvement in 2003 from 2002. Anaheim expects the final numbers for 2004 to show another gain.

The options for cities facing that kind of competition are limited, especially for those that have already invested hundreds of millions in sprawling facilities.

“What do you do?” asked Wolff. “Shut it down?”