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Another disaster in the making?

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Illinois

* This probably won’t end well…

After enduring 15 years of shrinking convention attendance and persistent budget difficulties, the government agency that owns Chicago’s sprawling McCormick Place convention center is trying to outgrow its problems through a $650 million expansion. […]

The $250 million figure comes from a McPier-funded study that assumes DePaul fans will fill almost all of the arena’s 10,000 seats for games — nearly tripling the team’s recent average attendance. The Blue Demons, who now play in suburban Rosemont, haven’t had a winning record since 2007. […]

If the arena does not at least break even, that will add to the financial pressures on the new hotel, seen as the project’s cash cow. McPier already plans to divert some of the Marriott’s revenues to pay off a $250 million construction loan. Competition for guests will also be tough, as hotel construction in Chicago is expected to accelerate in the next two years, records show. […]

If the project’s benefits don’t materialize and McPier runs more budget deficits, taxpayers will ultimately pay the price. Since 2008, Illinois has spent about $50 million in sales tax dollars helping McPier cover its debt payments.

In interviews, more than a dozen experts raised doubts about whether the project would have the economic impact McPier officials predict, questioning in particular the wisdom of building the arena. Stadiums are not successful catalysts for economic growth, they said, and nothing about the planned McPier arena suggests otherwise.

Go read the whole thing.

posted by Rich Miller
Monday, Mar 7, 16 @ 1:39 pm

Comments

Ouch. Just read the complete article. I was flabbergasted, when I first heard about this plan, merely because of the financial circumstances of both the city and the state — coupled with the fact that DePaul is still a private institution… Ouch. Just, ouch.

Comment by Justin Observer Monday, Mar 7, 16 @ 1:56 pm
I’ve said it before, and I’ll say it again: “There ain’t no right way to do the wrong thing”.

Comment by Colin O'Scopey Monday, Mar 7, 16 @ 1:58 pm
It was obvious from the beginning that the arena only made sense as an entertainment venue tied to a proximate hotel and casino.

How’s that casino coming along?

For crying out loud, it’s analytical malpractice to bank on 10,000 fans per DePaul basketball game.

Comment by wordslinger Monday, Mar 7, 16 @ 1:58 pm
Those Lincoln Park students, with so few entertainment options, are just waiting to take a ten mile bus/El ride to see the Blue Demons…ain’t gonna happen

Comment by 100 miles west Monday, Mar 7, 16 @ 1:58 pm
The McPier Event Center certainly has to meet very optimistic projections just to break even.

What about the MPEA?

The MPEA bond debt service is about to double from another Jim Reilly payment “ramp”.

Jim Reilly is also credited with the “pension ramp” that kept Jim Edgar in the Governor’s Office and kicked that can down the road 20 years.

For example, in FY 2019, the MPEA will pay $231,888,000 in bond debt service repayments, which are $93,502,000 more or 67.57% more than what was paid in FY 2015.

And then the payments goes up 133.09% after that.

Then add for the bank loan.

The MPEA gave away all of the MPEA profit centers during the reforms.

Their only option now is to increase floor space revenue or raise taxes.

By the way, it was Bruce Rauner who was on the MPEA board and approved the MPEA new business plan which gave away all of its profit centers to private connected contractors and allowed the MPEA to bury itself in debt.

Comment by Chicago 20 Monday, Mar 7, 16 @ 1:59 pm
===This probably won’t end well…===

I guess time will tell. Convention centers are almost always, at best, break-even facilities. THey serve to generate visits to Chicago, hotel nights, cab rides, restaurant meals, etc. Currently. McPier doesn’t have a site that can accommodate 12,000-14,000 show attendees to hear a keynote speaker, for example. So those shows go elsewhere.

The Tribune has expressed its opinion on this time and again. They can’t seem to find any experts to quote who don’t also think this is a bad idea. In fact, in another story, it said they couldn’t find any experts that were familiar with a public entity partnering in a facility with a private university.

I guess they never heard of Bradley University in Peoria, or Creighton University in Omaha. Oh well, I’m sure the Tribune reporters will keep looking for experts that have a different opinion.

Sure they will.

Comment by 47th Ward Monday, Mar 7, 16 @ 2:01 pm
Wow Chicago 20. Thanks.

Comment by NoGifts Monday, Mar 7, 16 @ 2:02 pm
I predict this will boost DePaul’s attendance to nearly 5k per year.

Comment by Carhartt Representative Monday, Mar 7, 16 @ 2:09 pm
Loyola has a difficult time getting more than a few dozen students to attend games held *right on campus*. Without checking numbers, I’d guess Loyola and DePaul have somewhat comparable numbers of alums in the area. While DePaul is in a much, much more high-profile conference, Loyola has put together some slightly more competitive teams over the past several years. Both Loyola and DePaul games draw fairly strong numbers of fans of opposing teams. Kind of sad when the opposition has to pad your attendance figures.
I realize it’s not the best comparison, but banking on this type of attendance for DePaul games is wildly unrealistic. Concerts and other events held at the stadium along with the other elements of the development will need to produce that much more revenue.

Comment by Father Ted Monday, Mar 7, 16 @ 2:14 pm
The only thing that will boost Blue Demon attendance is a lineup of Aguirre, Cummings, Strickland, Booth, and Stephen Howard.

Comment by nixit71 Monday, Mar 7, 16 @ 2:17 pm
“the government agency that owns Chicago’s sprawling McCormick Place convention center…”
I thought McPier was one of the governor’s favorite things - a public/private partnership, not subject to FOIA requests. They sell bonds to raise money but if they default, it’s the taxpayers who are on the hook. What could possibly go wrong? This was always a disaster just waiting to happen.
According to Wikipedia, it’s a private corporation.

Comment by TinyDancer(FKA Sue) Monday, Mar 7, 16 @ 2:18 pm
The MPEA is a municipal corporation and subject to FOIA requests.

Navy Pier Inc. and Choose Chicago hide behind a very questionable 501C3 charity status and do not comply with FOIA requests.

Comment by Chicago 20 Monday, Mar 7, 16 @ 2:37 pm
Dumb, dumb, dumb, dumb. The southside DePaul arena has been a terribly dumb idea since the beginning.

If building a brand new state of the art arena for the Blue Demons was such a great idea, why doesn’t DePaul privately finance it? If it’s such a winner, seems like DePaul’s endowment might be interested in participating in such a worthwhile investment? Public financing of an arena for a University that already doesn’t pay property taxes while sitting on some of the most valuable land in Chicago. For pete’s sakes.

Stupid, stupid, stupid.

Comment by jerry 101 Monday, Mar 7, 16 @ 2:46 pm
Not charity, should be non-profit.

Comment by Chicago 20 Monday, Mar 7, 16 @ 2:50 pm
Yikes!!!!!

Comment by Precinct Captain Monday, Mar 7, 16 @ 2:59 pm
Oh wait, it gets better.

The MPEA projections for the Events Center have no expenses for the building construction and land acquisition costs.

No expenses for interest payments, no expenses for bond payments.

It’s as if the building was given as a gift.

Comment by Chicago 20 Monday, Mar 7, 16 @ 3:21 pm
This wouldn’t have been necessary if Soldier Field has been torn down and rebuilt with a dome. Thank the idiots who demanded it be saved and then out of office Pat Quinn for demanding that the name Soldier Field remain.

Comment by Irishpirate Monday, Mar 7, 16 @ 3:22 pm
So it’s a good ahead to build a stadium for a private college using public funds… Shocking hat Chicago & Illinois claim to have no money. Shocking.

Comment by Nicole Anon Monday, Mar 7, 16 @ 3:23 pm
Thievery at its best. I get what I want and stick the other guys with the bill.

Comment by Joe Biden Was Here Monday, Mar 7, 16 @ 3:28 pm
Tony Soprano - and the Esplanade. Same thing.

Comment by Anonymous Monday, Mar 7, 16 @ 3:39 pm
Before everyone tees off on DePaul, remember that they are paying $82 million toward this project. And this property will have a lot more going on than just their games. They are paying their fair share.

Comment by Fusion Monday, Mar 7, 16 @ 3:41 pm
But the city is supposedly broke? This is going to be a disaster.

Comment by Anonymous Monday, Mar 7, 16 @ 4:06 pm
After reading the whole article it is clear my first impression is wrong: it is not a dumb idea.

It is an epic debt disaster in the making.

Comment by Touré's Latte Monday, Mar 7, 16 @ 4:06 pm
“By the way, it was Bruce Rauner who was on the MPEA board and approved the MPEA new business plan which gave away all of its profit centers to private connected contractors and allowed the MPEA to bury itself in debt. ”

Interesting.

Comment by Mama Monday, Mar 7, 16 @ 4:07 pm
The MPEA Events Center has little to do with DePaul, it’s really about Jim Reilly’s ego.

Back in 1993, the Kiwanis International Conference cited the lack of a meeting hall that was capable of holding 10,000 conventioneers for a general session was a key reason why Kiwanis skipped Chicago. Reilly then floated the idea of a 20,000 seat McCormick Place Ampitheatre to which Richard M. Daley dismissed as “the silliest thing”. “I’m against it,” Daley said.

But Jim Reilly never let that go, and he was bound and determined to get his amphitheater whether it makes financial sense or not.

http://articles.chicagotribune.com/1993-11-05/business/9311050034_1_mccormick-place-chicago-bid-mayor-richard-m-daley

Comment by Chicago 20 Monday, Mar 7, 16 @ 4:08 pm
Rauner also hired Don Welsh, another proclaimed SuperStar.

So how are Chicago’s hotels doing?

Choose Chicago posted the STR hotel numbers for January 2016 on the Choose Chicago website, and they are beyond horrific.

Especially unbelievable, when you consider the on-going $35.2 million Choose Chicago yearly budgets and their sponsorship of the Mario Lopez’ hosted Chi-Town Rising New Year’s event.

Here a Chicago’s nhotel metrics from Smith Travel Research.

http://www.hotelnewsnow.com/Articles/29618/STR-US-results-for-week-ending-30-January

Chicago, Illinois, reported the only double-digit drop in occupancy (-13.5% to 50.0%)(N=57.1%) as well as double-digit decreases in ADR (-12.2% to US$105.44)(N=$116.87) and RevPAR (-24.0% to US$52.75)(N=$66.77).
(N=STR reported national average)

Don Welsh and Choose Chicago, with one of the largest tourism budgets in the nation are now well behind the STR national averages in all three hotel performance metrics.

Keep in mind that this is during the same period of time when the national averages increased, Chicago’s hotels had a double digit decrease.

Since the reforms 12 shows have now left McCormick Place.

Comment by Chicago 20 Monday, Mar 7, 16 @ 4:18 pm
Huh? The stadium is owned by McPier. DePaul is contributing half the cost for use what 20 times/year?

Comment by Tone Monday, Mar 7, 16 @ 4:18 pm
Chicago 20 appears to be ignorant of the fact that the past three years have seen progressively higher tourist visits, higher hotel prices and more hotel stays with more hotels. The 2016 convention calendar was going to be bad due to clearing it for the Olympics that never came. Conventions plan things out years in advance.

Comment by Tone Monday, Mar 7, 16 @ 4:22 pm
This thing has been BS since the start. It was part of Rahm’s one billion in public works promise to the CFL to make sure they didn’t back a challenger in the last election. And it worked.

When they were pressed in community meetings as to how this made sense, Mooney and others pointed to how Louisville had an event center making money hooked into their convention center. The initial plan was to have the event center connected to a “discount” 500 room hotel in order to compete with Louisville, Columbus, Memphis and other cities of that size for conventions. This never made sense. Even if you get a discounted hotel there (it was to be built with private dollars and offer rooms at $99 a night so as to compete with smaller towns and at the same time not compete with the Hyatt) folks who enjoy going to Louisville with free parking and reasonably priced entertainment coming to Chicago was always a stretch. Why would a world class city be mucking around trying to steal conventions from small towns?

Then on top of that they used Louisville basketball to project attendance (note that the original plans had a larger event center seating — Louisville’s seats 22k) and Louisville revenue generated by naming rights, suites and club seats. The break even projections include sell outs of the suites and club seats at nearly United Center prices. Does anyone believe that folks are going to pay $150 a ticket to go to a DePaul BB game? Or 30k a year for a suite?

I truly hope this thing ends up being a great success. But I would give odds it will lose money and add to the tax burden. The fact that they haven’t booked in advance a single event is pretty telling. And they don’t have the discount hotel attached to it which they originally claimed was critical to the success.

And the worst part of the whole deal is they used TIF tax dollars and MPEA bond money to “buy” tax producing parcels in an area that has been undergoing serious private development and turned those parcels into government ownership taking them off the tax rolls. A double whammy.

The bottom line is what it usually is in Chicago. Labor was making noise about a challenger, Rahm needed labor support so steal the tax dollars and find a location and project where you could trade tax dollars for political support with public works. Never mind that it wasn’t needed, will only add to the tax demands down the road and even when the initial ill advised plan fell apart because McHugh wouldn’t hand over the site they wanted for the hotel-event center location just make a new plan and forge ahead.

Sad.

Comment by truthteller Monday, Mar 7, 16 @ 4:36 pm
I’m thinking of a phrase.

Yep, white elephant.

Comment by Sir Reel Monday, Mar 7, 16 @ 5:09 pm
Sure is great when someone else holds the bag when projections are not met.

In this case when you build it, they will still not come…..

Note there is no personal responsibility on the Board when the vote for this kind of expenditure.

Comment by plutocrat03 Monday, Mar 7, 16 @ 5:27 pm
- Tone

Ignorant, maybe. Gullible, no.

Since 2011 the Average Daily Rate in Chicago increased $20.49, or 11.2% while the occupancy rate increased 0.75%.

During Don Welsh’s tenure from 2011 – 2015 the national average hotel occupancy rate increased 13.7%.

Choose Chicago reported a 19% increase in visitors last year, and paradoxically Choose Chicago is also reporting that hotel occupancy only increased 0.14% last year to 75.72%.

Under Don Welsh’s tenure from 2011 – 2015 the national average hotel occupancy rate increased 13.7%.

It would appear that somehow, virtually none of this reported 19% increase in visitors last year, or 9,769,480 additional people who visited Chicago last year, didn’t stay in a Chicago hotel while here visiting.

Choose Chicago is reporting a current room supply of 34,553 hotel rooms.

http://www.choosechicago.com/articles/view/Current-Chicago-Hotel-Supply-/73/

Multiply that by 365 and you have 12,611,845 room nights.

At a 75.72% occupancy rate that makes 9,549,689 total occupied room nights.

51.8 million visitors / 9,549,689 rooms = 5.42 average guests per room.

The 2016 Olympics are scheduled for August 5th - 21st 2016.

August is traditionally a very slow time at McCormick Place.

Conventions do plan a few years in advance, but Chicago lost the Olympics 7 years ago, plenty of time for shows to schedule at McCormick Place and plenty of time for 12 shows to leave McCormick Place for other venues.

The 12 shows that have left McCormick Place, left long after the 2009 Olympic announcement, and none of these shows mentioned anything about the Olympics or scheduled additional shows after 2016.

Comment by Chicago 20 Monday, Mar 7, 16 @ 5:30 pm
Scott Farwell wasn’t behind this?

Comment by foster brooks Monday, Mar 7, 16 @ 5:46 pm
=The MPEA is a municipal corporation and subject to FOIA requests.
Navy Pier Inc. and Choose Chicago hide behind a very questionable 501C3 charity status and do not comply with FOIA requests.=

I believe that MPEA IS McPier.
They are one and the same.

Comment by TinyDancer(FKASue) Monday, Mar 7, 16 @ 6:32 pm
McPier is a colloquialism.

I guess it depends on whatever you think it means compared to what it was and what it is currently.

Comment by Chicago 20 Monday, Mar 7, 16 @ 6:50 pm
And Jim Reilly went on to head the Regional Transit Authority.

Comment by NoGifts Monday, Mar 7, 16 @ 7:52 pm
Also known as the Republic Transit Authority.

Comment by NoGifts Monday, Mar 7, 16 @ 7:53 pm
When George Ryan was elected Jim Reilly jumped over to the Chicago Convention and Tourism Bureau. That ended when the CCTB board unanimously voted not to renew Reilly’s contract. Reilly then went to work at Metra and opened a B&B in Union Pier called the Sandpiper. Reilly’s golden business touch at the Sandpiper quickly lead to severe cash flow problems and heading to a loan default on that property. The Sandpiper was placed for sale in July 2008. (15 months before the McCormick Melt Down)Reilly returned to the MPEA in 2012 for an 18 month job where he eliminated the CCTB. Reilly is still collecting a MPEA paycheck over 4 years later.

Comment by Chicago 20 Monday, Mar 7, 16 @ 9:12 pm