Lack of Hotel is Not a Market Failure -- It Was a Market Success

For some reason, it appears that building hotels next to city convention centers is a honey pot for politicians.  I am not sure why, but my guess is that they spend hundreds of millions or billions on a convention center based on some visitation promises.  When those promises don't pan out, politicians blame it on the lack of a hotel, and then use public money for a hotel.  When that does not pan out, I am not sure what is next.  Probably a sports stadium.  Then light rail.  Then, ?  It just keeps going and going.

I thought we in Phoenix took some kind of prize with this:

The city-owned Sheraton Phoenix Downtown Hotel has lost so much money — more than $28.2 million total — that some city leaders say the hotel must be put in the hands of the private sector.

They also worry that the hotel, Arizona's largest with 1,000 rooms, could harm other projects in the downtown core.

When Phoenix leaders opened the Sheraton in 2008, they proclaimed it would be a cornerstone of downtown's comeback. They had one goal in mind: lure big conventions and tourism dollars. Officials argued the city needed the extra hotel beds to support its massive taxpayer-funded convention center a block away.

But apparently things are even worse in Baltimore:

The city-owned Hilton Baltimore convention center hotel lost $5.6 million last year — a worse performance than 2013 despite its close location to Camden Yards and the Orioles' playoff run.

It was the seventh consecutive year that the hotel has underperformed financially, according to an audit of financial statements presented Wednesday to the city's Board of Estimates. Under the deal's initial projections, the hotel was supposed to be making $7 million in profit by now — pumping that mone into the city's budget....

The hotel has lost more than $70 million since it opened.

I am sure that politicians in both cities called the lack of a hotel a market failure.  But now we see that it was a market success.  All the companies who chose not to build a hotel with private money obviously knew what they were doing, and only the political benefits of pandering the the public at large and a few special interests in specific made it seem like an attractive investment to city politicians.  Which is all pretty unsurprising, since hotels have pretty much been built off every exit ramp in this country, so there seems to be no private inhibition towards building hotels -- just towards building hotels in bad locations.


  1. Incunabulum:

    Hmm, I wonder if the pols in Phoenix and Baltimore understand that the proles can afford *cars* nowadays (and those that fly are *renting* them) and don't have to take lodgings near their business.

    And see no need to stay in a dreary hotel in a dreary part of the city when there are far better places to stay at within 30 minutes drive.

  2. Adam:

    Your first paragraph just described downtown Houston perfectly. Massive convention center, 3 sports stadiums (basketball, soccer, baseball) and most recently lightrail. No idea what the city owns down there.

  3. SamWah:

    Rather like Portland, OR. Built convention center. Built hotel. Want to build another. Money pits, all three, I read.

  4. TucsonToo:

    Include Tucson in the hotel discussion. It's been downhill here since the '70s during the first incarnation of a new upscale downtown.

    Of course meanwhile, we've managed to already lose what few events we had in the past - many moving north 120 miles.

    Meanwhile the Rio Nuevo people keep right on spending million$ of other peoples money (thank you - federal taxpayers, too.)

    "At one time, talk about downtown Tucson centered around lost opportunity, corruption and failure. Judging from an expert panel recently assembled by Arizona Forward, that’s no longer the case. Now, discussions are optimistic as experts talk about growth, development and the positive impact the modern streetcar has had.Arizona Forward assembled a panel consisting of Fletcher McCusker, CEO of Sinfonia Healthcare and chair of the Rio Nuevo Board, Michael Keith, CEO of the Downtown Tucson Partnership, and Arthur C. Nelson, Associate Dean for Research and Discovery for the University of Arizona." (Inside Tucson Business, 4/1/2015)

    The good news is that our streetcar is already running between downtown and the university - two hot beds of entrepreneurial commerce, er, make that government central planning, overcontrol, and short-lived fads.

  5. raiderphan:

    ...and then there is Oakland: Convention center that needed a hotel, so they subsidized one. The hotel goes through a series of "name" operators without success. The "civic brains" decide a second hotel is needed because the one hotel, although seldom full, could not supply the lodging needed for big conventions... no takers. Its been languishing for decades.

    To complete the pincer movement they sign on to refurbish the sports complex to lure the football team back and keep baseball and basketball. They take on huge debt and now, years later, want to build a new, downtown sports center as the teams are actively seeking venues elsewhere. An empty sports complex downtown is better than an empty one out in the avenues, evidently.

    They make ends meet (in their eyes) by cutting staffing in police and fire. There is nothing like a well conceived plan.

  6. Mercury:

    Not sure what's next? My guess is "immigrant housing

  7. awp:

    "Then, ? It just keeps going and going."

    In Houston,

    The government builds

    Convention center


    Baseball Stadium

    Light Rail

    Basketball Stadium

    Subsidize a three block badly designed shopping center that almost immediately goes bankrupt

    Mega Park (Discovery Green seems to actually have been worth while, but even some libertarians agree with govt. building parks)/under ground parking garage

    Subsidize a Soccer Stadium

    Subsidize apartments to the tune $15,000 a piece

    Another Hotel

    Another Light Rail Line

    An office building for the "Authority" that oversees all this

    Then issue a press release that the local media picks up about how much development the convention center is creating

    All the listed projects are Government, quasi government, or subsidized by government.

  8. Not Sure:

    All within the state, nothing outside the state, nothing against the state.

  9. MJ:

    Call it "social housing". That gives it that vaguely European appeal.

  10. A Critic:

    ". I am not sure why, but my guess is that"

    politicians get a kickback. A chunk of the construction budget goes into their personal pockets/secret bank accounts/mattresses/etc.