Indianapolis is embarking on a $155 million endeavor to expand the Indiana Convention Center amid a global pandemic.
To city officials, the decision is a prudent one that will position Indianapolis for more lucrative tourism opportunities once the world has recovered from the coronavirus.
Indianapolis successfully expanded the convention center and helped pay for the construction of the J.W. Marriott hotel around the time of the Great Recession, they note, and the city will return to its bustling self again.
But to other observers, including downtown hoteliers who will face competition from the future hotel rooms, the endeavor comes as the city, reeling from the economic effects of the pandemic, faces an unknown future.
The cost for the expansion itself will be paid through property taxes in the Downtown Tax Increment Finance District. Kite Realty, meanwhile, will pay to develop two hotels.
But another question looms: Will the economy be healthy enough to justify an even bigger convention center when it is expected to open in 2024?
The housing crisis of 2007 is not the global pandemic of 2020. Will vaccines prove ineffective and the pandemic linger? Will people eschew crowded places? Will businesses in their newfound embrace of teleconferencing shy away from conventions even when things return to some state of normal?
"Now, I know what some may say: It's a gamble to plan ahead like this during a pandemic," Mayor Joe Hogsett said during his State of Downtown address last month. "To me, it seems like a gamble not to."
Lessons from the Great Recession
Indianapolis is familiar with the risk.
The 2008 construction of the J.W. Marriott and its 1,005 hotel rooms also raised eyebrows at the time. The undertaking required about $60 million in city bonds amid the Great Recession.
Marion County needed at least a few years to recover from that economic downturn.
One indicator of how the county recovered from its economic slump is to look at various revenues from a host of taxes related to activity from tourists and residents alike.
Food and beverage tax revenues dipped in 2008 and didn't rebound until 2011, according to figures from the Capital Improvement Board, which owns and operates downtown's large athletic event venues. Taxes on admission tickets such as to a sporting event or concert didn't recover until 2012.
Revenues from hotel room taxes experienced a similar brunt, dropping from $34.8 million in 2008 to $30.7 million in 2009 before rebounding to more than $40 million in 2011.
That was despite a slight increase in the hotel tax rate during the time period. The comparison does not account for inflation.
One policy expert even suggests that Marion County is still grappling with the effects of the Great Recession.
Marion County still has not reached its 2008 level of $84.2 billion in gross domestic product, accounting for inflation, according to U.S. Bureau of Economic Analysis data.
"We haven't really fully come out of it is what the data shows," said Tom Guevara, director of the Indiana University Public Policy Institute. "Based on the value of things we're producing ... we have yet to achieve, in inflation-adjusted terms, the same levels that we had in 2008."
But comparing that comeback to the ongoing 2020 recession is difficult.
How long this recession will last is one issue, Guevara said. How our economy will change from a more severe and devastating recession is another.
"This one is a short but far more severe, more devastating recession," Guevara said. "And the question that's still to be decided is what's the long-term effect on our economy?"
To build or not to build?
Visit Indy, the city's marketing and tourism agency, has repeatedly pointed to a 2019 study as key support for the case to expand the convention center.
But that study by HVS, a hospitality consulting firm, does not conclusively state that Indianapolis should build. Instead, it lists numbers.
Visit Indy declined to give IndyStar a copy of the report, completed in February and again in March of 2019, but allowed an IndyStar reporter to view it.
The study, which analyzed occupancy rates for existing and projected hotels, predicts that occupancy rates for downtown hotels from 2018 to 2027 will range from 72% in 2018 to a low of 63% in 2023, when the two new hotels, including a Hilton Signia, were originally slated to open. Hotels at 68% occupancy rate, according to Visit Indy, indicate healthy activity.
Chris Gahl of Visit Indy also noted that the outlook has changed for the better since the study. Kite Realty will build only one hotel at a time instead of opening both at once, waiting at most five years between the two.
The first, a Hilton Signia, will be built on the corner of Georgia and Illinois streets at Pan Am Plaza. It's now slated to open in 2024 and not 2023, a delay that Gahl notes will provide more time to ensure the market is healthy. The second will be built right next door along Illinois Street.
And while the study projected a future pipeline of 3,100 new hotel rooms in the downtown area through 2023, Visit Indy now estimates the pipeline has shrunk to 1,500, including the 800 rooms in the new Signia.
"We see this expansion and the Signia as a catalyst for additional growth," Gahl said. "And it will be a nice complement to our city skyline and in no way a competition to eroding what we've currently built up in our market."
A forecast from Tourism Economics and the U.S. Travel Association projects that travel will begin to return to pre-pandemic levels in 2023, one year before the convention center expansion is expected to open.
Total travel spending in the U.S. is forecast to reach $1 billion by then, approaching the 2019 levels of $1.1 billion, according to the forecast. Domestic trips are expected to reach 2.3 million by 2023, hitting the same number of trips as in 2019.
People should be confident that travel will recover, said Aran Ryan, the group's director of Lodging Analytics.
"To the extent that someone's looking at a construction or an expansion that isn't going to be complete until several years out, then it's a situation where you have greater confidence about (that)," Ryan said. "It's that near-term performance, the next 12 months, the next 18 months, that there's a lot more uncertainty."
Where to spend
Doug Noonan, a professor at the IUPUI O'Neill School of Public and Environmental Affairs who was commissioned by downtown hoteliers to study the issue, said the city should study its proposal again.
There may be more pressing places to invest the money, he noted, given how the economy is suffering from the pandemic. A newer analysis should include what that money could fund instead.
"The argument can't possibly be, 'We have to spend it on the convention center expansion or the Hiltons or else we lost the money and it goes down the toilet," Noonan said. "And so let's talk about where we could be spending the money, especially as we are trying to recover an economy."
Mike Wells, president of REI Real Estate Services that co-developed the J.W. Marriott and also co-owns the downtown Marriott with White Lodging, points to a number of other issues that need to be addressed in the downtown area including homelessness, public safety and cleanliness.
"Right now you've got a number of hotels that are really struggling. Our Marriott still has not reopened since March because of lack of business," he said. "It's kind of a slap in the face, we've said, just to be doing this."
The successful construction of the J.W. Marriott during the last big recession is not comparable, Wells argued, because it was the city's first "convention hotel" — a game-changing project.
"There's not this untouched opportunity that existed when J.W. came into the market," he said. "That's kind of the big difference."
State law does restrict how the TIF funds could be spent if not on the convention center expansion.
Guevara said there are other options, but they exclude the option to fund the operations of general government.
"To the extent that you can improve streets or sewers that are used by the general public, yes it does help, as it also helps businesses," Guevara said.
The downtown TIF had a $121.4 million balance at the end of 2019.
'We're out to the suburbs'
Although the city's economic future is uncertain, some of its largest conventions say they would easily fill the extra hotel space.
And even in a post-pandemic world, those convention organizers say, there is no substitute for in-person meetings.
The National Rifle Association, which held its convention in Indianapolis in 2014 and 2019, books room blocks in over 40 hotels far outside the downtown area, said Jeff Poole, the group's managing director of shows and exhibits.
"We're out to the airport. We're out to the suburbs," he said. "And certainly the experience for those people that are staying out there is different than the ones that are able to stay downtown within walking distance."
Future Farmers of America, which will hold its conventions in Indianapolis through 2033, says it will absolutely use the space.
The organization has had a 1% to 3% growth in membership each year, which tends to reflect a growth in convention attendees, said Mandy Hazlett, the group's associate director of convention and events.
"For us to have another ballroom and for it to be on the south end of the campus, it's going to be huge," she said. "I cannot wait for the job to be completed and for us to be able to take advantage of that."
Call IndyStar reporter Amelia Pak-Harvey at 317-444-6175 or email her at apakharvey@indystar.com. Follow her on Twitter @AmeliaPakHarvey.
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