Wednesday, December 26, 2007

City Brokers Empty Promise From Hotel Developer

City taxpayers will subsidize the construction of a new, 1,000-room J.W. Marriott Hotel next to the Indiana Convention Center to the tune of at least $50 million. In return, the hotel's developer is kindly sharing its profits with the city, or at least that's what the city and the developer thought they could fool us into believing. As the IBJ reports, the profit sharing agreement will probably never generate a return to taxpayers:

City officials have agreed to pay $48.5 million of the $300 million cost of building a 1,000-room JW Marriott hotel in downtown Indianapolis, but a profit-sharing agreement that is part of the deal isn't likely to yield payments for the city, a hotel industry expert said.

Developers of the convention hotel signed a final deal with the city Dec. 20. The contract calls for the city to receive 25 percent of adjusted profits--but only after the developers make at least a 16 percent return on all development costs.

That means the developers, Merrillville-base White Lodging Services and Indianapolis-based REI Real Estate Services, can cover their expenses and make about $48 million in profit before passing anything along to the city--a situation that certainly won’t occur anytime soon, if ever, said Rob Hunden, president of Chicago-based hotel consultant Hunden Strategic Partners.

“It’s a nice gesture,” but probably only a gesture, he said of the profit-sharing requirement.

Is there ever anyone in the room looking out for the taxpayers when these deals are brokered? You hear me bitch about it all the time, but it's a point I keep making when you put in key positions of government people who are totally beholden to the city's largest law firms and key business interests. The best interest of the public as a whole will always take a backseat to the interests of a select few who believe our government operates for their benefit first and to the public's benefit secondarily. These one-sided deals have got to come to an end. Our city is financially broke. If we were a business, we would have to declare bankruptcy. As a governmental entity, the city will simply tax and borrow more to make up for these bad decisions.

Remember who is behind this deal for the J.W. Marriott. It involves the billionaire family of Dean White. It also involves Michael Wells, a close adviser to former Mayor Steve Goldsmith. The old Goldsmith gang is moving in quickly to take control of the new Ballard administration. People should never forget the smoke and mirrors budgeting of the Goldsmith administration, which saddled us with more than a half-billion dollars in debt for which we will be paying for many years to come. Mayor-elect Greg Ballard would be wise to read up on the Goldsmith Myth before biting off too much of the governing ways that old gang will most assuredly try to sell him on in the coming months.


Anonymous said...

Gary, Thanks for staying on top of these issues. Somebody needs to get to Greg Ballard and tell him that Bob Grand is going all over town telling people that you will have to go through him and his law firm if you want to do business with the Ballard administration. If Greg could only hear what Grand is saying, I'm sure he would kick him out of his inner circle. It is absolutely appalling what Grand is doing.

Anonymous said...

Well, with Pat Kiely overseeing the Capital Improvement Board don't look for anything to change except the city falling deeper in debt.
Then of course, is the Chamber of Commerce too.
What do you think Mickey can get out of the Water Company he's overseeing for Ballard.
This crew of Ballard is not just going back to Goldsmith. They're going back to the old Indianapolis GOP ideology of Country Club government.
If you aren't living in the Mile Square or way out on the fringes of the townships your cheeks are about to pucker up real tight pretty soon.
It's clear. Ballard is nothing more than a Gomer Pyle.
Mayor Gomer Pyle.

Anonymous said...

Ain't life Grand? Good old Bob is Mayor Gomer Ballard Pyle's social escort.
I'd trust an eastside crack whore more than Bob Grand and that's the damn truth!
What's Ballard's golf handicap? Crooked Stick needs your handicap Mayor Pyle before they'll send you your honorary membership.

Eclecticvibe said...

Let the lesson be that you can't elect either Democrats or Republicans and expect them to change the system. It will take a Green candidate, or other political outsider if we expect to take back our government from business interests. Check out Robert Reich's book, Supercapitalism. I think he offers a very real assessment of the problem we have with corporations (read here law firms) running our government.

Anonymous said...

906---> Why must she be an "EASTSIDE" crack whore?
Are there no crack whores on the WEST, SOUTH, or NORTH sides of Indianapolis? Or are they the only crackwhores who are trustworthy?

Anonymous said...

The workers will also see precious little benefit either. Indianapolis hotels are some of the lowest paying in the country. At some point we, the citizens of Indianapolis, must demand something substantial from these corporate beneficiaries of TIFF districts, property tax abatements and public subsidies.

Gary R. Welsh said...

Let's not forget this deal was brokered by the Peterson administration.

Wilson46201 said...

Supposedly the Peterson administration was running by Ballard all important decisions (such as this hotel deal) before signing such big contracts. Did Greg Ballard give the unofficial go-ahead for this deal?

Anonymous said...

Excellent points, excellent post.

Anyone worried about smoke and mirrors Goldsmith budgeting should be, as rumor has it the Goldsmith controller is trying to make a comeback.

Should be some must see TV trying to see how we cut the spending to control taxes, bump up services (police, Mayors Action, 911, etc), and fund ecodevo without using the kind of accounting that creates massive unfunded future obligations ala pension problems.

Anonymous said...

"Supposedly the Peterson administration was running by Ballard all important decisions (such as this hotel deal) before signing such big contracts. Did Greg Ballard give the unofficial go-ahead for this deal?"

Wilson the BS slinger has struck again.
Ballard has no hand in this deal.
This deal was brought before the CC and has been in committee for months. Those on the left were the ones spearheading this develoment deal. Put the blame where it belongs, squarely on the shoulders of Peterson and the outgoing democrat controlled CCC.

Anonymous said...

Interesting post, now here's some info not commonly found, but true:

The City needed a 1000-room hotel for the convention center business. In order to more-often fill the convention center with larger meetings, and thus spread money around town, another large hotel was required. That's not my opinion or that of the outgoing Mayor--it's a cold, hard economic fact among those who book and plan these large meetings.

The subsidies are outweighed by the economic impact of the larger convention space and those visitors spreading their moeny around.

The unfortunate ugliness of this situation is: in order to justify that extra convention space, the hotel was needed, therefore the subsidies became a prime negotiating point.

I happen to know that White sought substantially more in subsidies and virtually no "profit-sharing."

So the deal was altered by city negotiators. Maybe not enough for you or me, but it was changed. I wasn't in the room, so I'll take their word for it.

In the rumble-tumble world of real estate negotiations nationally, this was an average deal. Not to sweet for the city, not too sweet for the developer. I know that doesn't make good news copy, and it doesn't fuel the rumor mills like some would like. But it's true.

I harken back to the pre-Dome days, when the deal for building that facility, and expanded convention space, was being tossed around. It almost died, but enough legislators bought into the convention/economic impact idea. Then, it was promised that Indianapolis would become a hub for the mid-level tier of conventions, and the business would be a bigger economic impact on the city than anything previously seen.

Flash forward to 2007, and that prediction has come true, in spades. Associations, businesses and related groups, make convention plans whether the economy is good or mediocre. Those folks come, they love our residents' friendliness, and the pricing of just about everything. Often, if they have a choice, they come back.

Conventions have become the region's second-biggest business.

I grit my teeth and swallow hard, but those kinds of numbers, and that kind of performance record, are hard to debate.

No major American city can ignore this booming business, and the competition for conventions gets harder every year. We're in the business up to our necks now, and we cannot afford to let go of it. It will require constant investment in the future.

It's no replacement for the once-robust 40s-50s manufacturing-based economy, but it's close.

A little perspective, that's all. I'm not saying I love it, but it's important to consider all the facts when discussing these kinds of issues.

Happy New Year. I am seriously looking forward to this new Mayor and his approach to such issues. I think he'll do a good job. I believe he recognizes BS for exactly what it is--whoever is packaging it. He may not recoil and shout about it instantly--but I believe still waters run deep, and this guy takes everything in. He owes no one, and that's a first, for either party.

More power to him.

Anonymous said...

To 8:46 AM:
The convention business jobs are nowhere close to being a replacement for manufacturing jobs. From the state's own statistics:

In 2002 avg annual earnings for
accomodations and food services
workers was $ 13,372, in Marion County. For 2006 it was a whopping $14,885. An 8.4% increase in 4 years.

The trickle down theory for wages
isn't valid in this industry, at least not for hotel maids and waiters/servers.

See the stats yourself:;C097&page_id=7

Anonymous said...

1:34--many convention workers don't work full time. I know four folks who supplement their regular or retirement income, with convention jobs, 20-30 hours a month.

The economic impact of conventions in this city is enormous. Doubt it? Ask any restaurantuer, bar owner or retailer downtown. They plan their work shifts around the conventions.

We'd be lost without that money being spread around. Nothing came close to replacing it in the last 30 years, especially as industrial jobs declined.

Anonymous said...

I have no problem with the convention center being built. It will bring in more money in one year into our economy then the new Dome will in 5 years. In my opinion it should have been built before the Dome was built. The problem with the hotel is someone would have built it regardless of the 46 million giveaway. As my grandfather would say follow the money trail. Who makes all the money for issuing the bonds and don't forget the lawyers that that write up the terms to these agreements. Just wait till IPS comes knocking for their big tax increase. Looks to me like Indianapolis is going to keep writing blank checks to developers and the tax payer will be the ones picking up the bill.

Anonymous said...

3:41, you clearly don't know what you're talking about.

Without subsidies, a hotel would've been built. But it would've been smaller, and it wouldn't have held a large ballroom that the city desired, so that the city could use convention center space for meeting rooms.

Much of the expanded CONVENTION CENTER will sit on land currently occupied by the RCA DOME. Couldn't build the Convention Center Expansion without knocking down the Dome. Couldn't knock down the Dome without having another one.

Already, five large recurring conventions have booked the newer Convention Center and the newer Dome floor for use.

There will be many, many more.

I don't want to sound like an apologist for Fred Glass and the city negotiators, because I think they left some money on the table for an alert developer to snatch up. But the basic economics of the deal were fairly routine on a national scope.