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HomeMy WebLinkAbout2/27/2002 - STAFF REPORTS I DATE: February 27, 2002 I MEMO TO: City Council FROM: Director of Finance & Treasurer RE: Convention Center Expansion — Funding of Preliminary Costs RECOMMENDATION: It is recommended that the City Council approve a Budget Amendment transferring $300,000 from the General Fund to the Convention Center Projects Cost Center of Capital Projects Fund. SUMMARY: The proposed action would create an account to fund the preliminary costs of the Convention Center Expansion such as a financial feasibility analysis, architectural reviews and cost estimates, and initial engineering costs. BACKGROUND: The voter approved increase in the Transient Occupancy Tax (TOT) rate was effective January 1, 2002. The increase will produce about an additional $1 million through the end of this fiscal year, and about $1.7 million per year thereafter. The additional tax is deposited into the General Fund. The major use considered for the increased TOT was an expansion of the Convention Center. The consulting firm Economic Research Associates (ERA) prepared a Market Opportunities report for the Convention Center. The report was ordered and paid for by Leisure Management International (LMI), the company which has been managing the Convention Center for the City for the last nine years. ERA recommended an expansion of about 100,000 square feet (Exhibit Hall, Meeting Rooms, and Support Space), and estimated that the new and recaptured markets would increase the number of events from 123 in year 2000 to 177. The attached Executive Summary of the report summarizes the assumptions and recommendations. There are two key questions that must be answered before beginning an expansion project: how much will the project cost and is the project financially feasible? The $1.7 million annual revenue will support a bond issue with a construction budget of about $20 million. We will need at least a conceptual design with input from architectural and engineering firms to determine if the expansion envisioned by the ERA report can be accomplished within that budget. Concurrently, we also need to review whether the additional revenue to the Convention Center (in direct rental fees), to the City (in increased TOT and Sales Tax) and to the community in general (hotel rentals, retail sales, etc.) offset the additional operational costs of the expansion. This study could be completed by ERA as an extension of its original report. Page 2 i The estimate cost of the financial feasibility study is a range of$5,000 to $25,000. The architectural study may be considerably more. The contracts will be entered into pursuant to the provisions of the City's revised Procurement and Contracting Ordinance. A Resolution of Intent allowing the City to reimburse itself for the costs from the bond issue will be brought back to a later agenda. If the architectural study and financial feasibility review determine that the expansion project is viable, the next step will be to hire the design team. A bond issue could be ready for a December, 2002 construction start. A resolution amending the Fiscal Year 2001-02 budget is attached. Submitted by Approved Thomas M. Kanarr r David H. Ready Director of Finance & Treasurer City Manager Attachments: Executive Summary— ERA report Budget Amendment I I i i Economics Research Associates -MARKET OPPORTUNITIES FOR THE PALM SPRINGS CONVENTION CENTER PREPARED FOR THE PALM!SPRINGS CONVENTION CENTER PREPARED BY ECONOMICS RESEARCH ASSOCIATES OCTOBERR is,2001 ERA PROJECT NO.14313 Ifi 43 10990 Wilshire Boulavarn Suile 1500 Loa Angeles. CA 110024 ERA 14•1101aul w1eF orlrara ianag 310.477.8606 FAX 310-476.1060 www.*Gunraa.00rh Le• AnVaba Lon FfAnclado San 04ye I EXECUTIVE SUMMARY INTRODUCTION In September 2001, Economics Research Associates (ERA) was selected by the City of Palm Springs to undertake an overview of new market opportunities available to the facility, and to assess if the physical characteristics and size of the existing Palm Springs Convention Center. (PSCC) were adequate to compete effectively for meetings and conventions. This report is an independent, third party analysis of these market opportunities, and provides recommendations for a proposed PSCC expansion, based on a forecast of market demand. In order to accomplish this, the report presents an overview of trends in the meeting and convention industry at a national and regional level, a review of supply factors in the Southern California market, and an analysis of potential demand. Key findings of the report include: • The rnix of amenities, transportation infrastructure, and hotel stock in Palm Springs is sufficient to compete with the.most desirable facilities in the region including Anaheim, San Diego, and Los Angeles. From the perspective of the national market,the existing PSCC is closer in size to a competitive hotel exhibit hall while being considerably deficient in the available meeting space provided by those facilities. • The importance of the number, size, and quality of meeting rooms is cited by meeting planners as the primary factor in facility selection. • As the meetings market continues to grow in the U.S., it becomes increasingly specialized and more highly focused towards information and educational opportunities. This trend has been reflected in the design of new facilities which are being developed with a 2:1 or 2.5:1 ratio of exhibit space to meeting space. The current configuration of the PSCC is 5.2:1. Fkentoda Re e,.'r Mpdato ldm SpHAv C rrwxdon Center A&Ft*jeMNa 14313 Page L&.1 I I • I • Given its present size and configuration, the PSCC is stuck between two categories of convention center products. It is approximately the same size, in terms of raw available space, as in-hotel meeting space. However, the number of meeting and break-out rooms available in the Center is ;not sufficient to meet the demands of the highly desirable association and corporate market segment. • By expansion, the PSCC has the opportunity to move into the next category of competition allowing it to pursue additional high value business in the corporate and association meetings segment, a prime market for PSCC. • The mix of users targeted and using PSCC is appropriate to the market with no appreciable market segments underserved. • Based on our analysis of lost business reports, the PSCC has lost over 75 events that have been specifically attributable to a lack of meeting or exhibit space in the current facility. • At present,the PSCC cannot accommodate over 42 percent of the total number of groups that bring their meetings to California. . • After the recommended expansion PSCC could accommodate 73 percent of the groups that have met in California. RECOMMENDATION'S In order for the PSCC to continue its position as the premier:meetings and convention facility in the Coachella Valley,and to retain its competitive position vis-A-vis other Southern California destinations, the facility must expand the amount of space available to users. On the basis of this analysis, ERA recommends at a minimum for PSCC to be expanded in the following ways: 1. Exhibit Hall--increase space from 66,000 to 100,000 square feet of gross leasable area. 2. Meeting Rooms—increase space in the facility from 12,600 square feet (including the Springs Theater)to at least 50,000 square feet. r,mooleu Ramnvk Amd.ta P•6n Spd W Conrendnn CYafu Z Pmj=rN .14313 P•Le PSz 3. Design--that new elements of the facility be designed to allow for the ability to accommodate exhibit, meeting, and a banquet program simultaneously. 4. Support--in addition to an increase in the gross leasable area within the facility, commensurate upgrades to the facility's infrastructure, including kitchen, loading, and storage capacity, will need to be included in expansion planning. In addition, more pre-function space will need to be incorporated into any development program. If this development plan is pursued and developed at the same or better quality of the existing facility, and is appropriately managed and marketed, ERA would forecast a 44 percent increase in utilization for the facility, primarily stemming from the growth of conventions(both those with and without tradeshows) and smaller group meetings. Assuming average construction costs of between $1254150 per square foot, project costs could range from approximately $10 to $12 million. The cost could be substantially greater depending on the final design specifications and levels of finish. This would need to be established and refined through architecture and engineering studies. Furniture, fixtures, and equipment costs (FF&E) can also vary widely and will influence the final cost of the project. These costs can range from between$4 to $6 per square foot. CONTEMPORARY MARKET CONDITIONS The attacks of September 11, 2001 have significantly altered the state of the United States' travel and tourism industry. At present, all sectors of the industry, ranging from airlines to hotels and ancillary services, are undergoing a severe contraction. It is unclear at this time whether this is a short-term phenomena that is likely to last for the next 12 to 18 months, or if it represents a new equilibrium or baseline from which the industry will need to recover over the longer term. In formulating these forecasts,ERA has looked to the past performance of PSCC and the overall Palm Springs and Coachella Valley tourism market. In addition, this report considered the recent historic performance of the meetings and convention industry as a whole. If the basic underlying structure of the industry has been altered by these events, it is Epaamiea HnurtY Auadato 1-4m spdrgT t'Mm"don Cedff ERA Proles N&14313 Pate M3 1#10 likely that the results of any analysis based on past conditions will be materially different from the results eventually achieved. GENER&L LEMTING CONDITION'S Every reasonable effort has been made to ensure that the data contained in this study reflect the most accurate and timely information possible, and they are believed to be reliable. This study is based on estimates, assumptions and other information developed by Economics Research Associates from its independent research effort, general knowledge of the industry and consultations with the client and the client's representatives. No responsibility is assumed for inaccuracies in reporting by the client, the client's agent and representatives or any other data source used in preparing or presenting this study. This report is based on information that was current as of October 2001 and Economics Research Associates has not undertaken any update of its research effort since such date. Possession of this study does not carry with it the right of publication thereof or to use the name of"Economics Research Associates" in any manner without first obtaining the prior written consent of Economics Research Associates. No abstracting, excerpting or summarization of this study may be made without first obtaining the prior written consent of Economics Research Associates. This report is not to be used in conjunction with any public or private offering of securities or other similar purpose.where it may be relied upon to any degree by any person other than the client without first obtaining the prior written consent of Economics Research Associates. This study may not be used for purposes other than that for which it is prepared or for which prior written consent has fast been obtained from Economics Research Associates. This study is qualified in its entirety by, and should be considered in light ol� these limitations, conditions and considerations. VsmowtaRmnxbMiod*ft% 'Palm SPd nrntlanC&der arenr"oleax. terra Pace FS4 i i i RESOLUTION No. 20286 OF THE CITY COUNCIL OF THE CITY OF PALM SPRINGS, CALIFORNIA, AMENDING THE BUDGET FOR THE 2001-02 FISCAL YEAR. WHEREAS Resolution 20062 approving the budget for the fiscal year 2001-02 was adopted on June 6, 2001; and WHEREAS the City Manager has recommended, and the City Council desires to approve, certain amendments to said budget; NOW THEREFORE BE IT RESOLVED that the Director of Finance is authorized to record inter-fund cash transfers as required in accordance with this Resolution, and that Resolution 20062, adopting the budget for the 2001-02 fiscal year is hereby amended as follows: SECTION 1. ADDITIONS Fund Activity Account Amount 261 4282 43200 $300,000 Capital Projects Convention Center Contractual Services Purpose: To provide funding for Convention Center expansion feasibility studies. SECTION 2. SOURCE General Fund Reserves FUND Activity Account Amount 001 29301 $300,000 General Fund Fund Balance Adopted this 7 b day of Febjj,,j v , 200 J- AYES: Members Mills, Oden, Reller-Spuxgin and Mayor Klelndieust NOES: None ABSENT: None ATTEST: CITY OF PALM SPRINGS, CALIFORNIA By City Clerk City Manager REVIEWED AND APPROVED 5