Hotel owners voice concerns over Pan Am Plaza project to state lawmakers

Some of the most prominent hotel operators in downtown Indianapolis told state lawmakers Wednesday that the process that led to developer Kite Realty Group Trust and Hilton being selected for the Pan Am Plaza project was unfair. They also reiterated their concern about the potential harm the project could have on the existing hotel industry and said they hoped to find a compromise.

The development, which includes a $120 million publicly-financed expansion of the Indiana Convention Center and two Hilton-branded hotels with a total of more than 1,400 rooms, is tied to legislation that would give the Capital Improvement Board an additional $15 million annually through various tax funds. The bill would also keep the Indiana Pacers in the city for another 25 years and could help fund a permanent soccer stadium for the Indy Eleven.

The CIB is requesting the funds to replace the $8 million it has been receiving annually from the city’s downtown tax increment financing district that would be redirected to pay for the convention center expansion. The CIB is also looking ahead to future needs, which would include upgrades to Bankers Life Fieldhouse.

The legislation does not directly fund any the convention center expansion or Hilton hotels, but the extra revenue sought by the CIB comes from various taxes attached to downtown hotels and would include the two hotels at Pan Am Plaza. If those two hotels were not built, that would reduce the available tax revenue for the CIB.

The House Ways and Means Committee listened to nearly four hours of testimony on the bill Wednesday afternoon.

Even though the CIB issued a public request for information for a new downtown hotel in December 2017 and had a meeting with interested parties in January 2018, several hoteliers told the committee they felt the process leading up to the project being announced in October was rigged to favor the selection of Kite as developer.

Joe Young, senior vice president of development with Columbia Sussex Corp., said he attended a meeting and, after seeing the timelines that were proposed, believed the city was trying to work with White Lodging Services Corp. Chairman Bruce White to build another hotel in downtown Indianapolis.

White Lodging owns the JW Marriott, the Marriott Indianapolis Downtown and the Fairfield Inn & Suites Indianapolis Downtown. Columbia Sussex Corp. owns the Hyatt Regency. 

Young said the proposal requested that a developer have a site adjacent to the existing convention center under contract within 45 days, and he said they were told at the meeting that there wouldn’t be significant public incentives to build the hotel. 

“In retrospect, we kind of feel like we were misled,” Young said.

White said his company sent a representative to the meeting but the company was never personally consulted by the CIB or Visit Indy about the proposal. 

The CIB received three responses to the RFI, including the one from Kite that ultimately was selected. Visit Indy did not participate in selecting the proposal. 

White said that number of responses is “minimal” compared to how many should have been received.

“The end result was somewhat predetermined,” White said.

In addition to being upset about the process, the hotel operators also reiterated their concerns that the downtown hotel market won’t be able to handle 1,400 more rooms on top of the 1,700 rooms already in the pipeline. 

General Hotels Corp. CEO Jim Dora Jr. said the hotel industry in Indianapolis lives off the convention center and they want to see it grow. But he’s worried the additional hotel rooms won't be sustained by the proposed convention center expansion.

“We need to find the right balance,” Dora said. “We need to have the discussion to say: 'What is going to work? What works for everyone?'”

On behalf of the hotels, the Indiana Restaurant and Lodging Association recently commissioned New York-based LW Hospitality Advisors to conduct research that showed hotel occupancy would drop from 73 percent in 2019 to 65 percent in 2023 after the hotels are built at Pan Am Plaza. 

But, according to data compiled by Colorado-based HVS on behalf of the CIB, occupancy would drop to 65 percent in 2023 but would rebound to 72.5 percent by 2026.

Daniel Lesser, president and CEO of LW Hospitality Advisors, said he had doubts about the HVS study because of the amount of induced demand it added into the market. 

“We also induced demand into the market, but not to the extent that they did,” Lesser said.

City leaders and tourism officials have said the 50,000-square-foot ballroom and 30,000 square feet of meeting space that would be added to the convention center and the 1,400 new hotel rooms are all needed to keep existing conventions in the city and to attract new ones in the future. Otherwise, huge events such as Gen Con and the national FFA Convention & Expo could move elsewhere.

Several hoteliers also testified that building hotels with 600 and 800 rooms without meeting space within the hotels is extremely uncommon. But city officials say the two hotels are expected to include meeting space in addition to the 80,000 square feet that would be added to the convention center. It’s just unknown exactly how much meeting space the hotels would offer. 

When asked by Rep. Ed DeLaney, D-Indianapolis, what the financial impact would be if the hotel project was dropped from 1,400 rooms to 800 rooms, Thomas Cook, chief of staff for Indianapolis Mayor Joe Hogsett, said he wasn’t sure what the exact impact would be, but “my guess is it would be significant.”

MLS sticking point
Supporters of including a funding mechanism for a permanent soccer stadium also testified during Wednesday’s hearing.

The bill would allow up to $8 million annually in new tax revenue to be used to fund a soccer stadium if the CIB signed a 25-year agreement with a Major League Soccer team within three years. The Indy Eleven currently play in the second-tier United Soccer League but have expressed a desire to join the MLS.

Indy Eleven owner Ersal Ozdemir said regardless of whether the team can join the MLS, the team needs a permanent home. The proposed $150 million, 20,000-seat soccer stadium would be part of a $550 million, mixed-use project called Eleven Park. The residential and commercial parts of the project would be privately funded, but Ozdemir proposed that the stadium would be funded with tax revenue generated by the larger Eleven Park.

“This is an exciting time for soccer in Indiana,” Ozdemir said.

But Indy Eleven’s chances of joining the MLS within that three-year window might not be very good. The St. Louis Post-Dispatch reported Tuesday that MLS commissioner Don Garber named St. Louis and Sacramento, California, as the two cities being considered for an expansion of the league right now.

Ozdemir said the team can be successful financially even if it remains in the USL.