WHY SAVE L.A.'S 'WHITE ELEPHANT?' OPPOSITION RAGES OVER PLANS TO 'HELP' CITY'S CONVENTION CENTER PAY OFF.

Byline: Beth Barrett Staff Writer

In a controversial deal that critics say throws good money after bad, Los Angeles officials are looking at spending tens of millions of dollars to lure a luxury hotel downtown in a bid to salvage the failed Convention Center.

City funding for the project just north of the Staples Center includes a $16 million loan to be considered Thursday by the Community Redevelopment Agency, and a preliminary package of $66 million in tax breaks and fee exemptions that includes a 25-year waiver of the hotel room tax.

The subsidies for the 56-story, 1,100-room Hilton hotel with penthouse condos have intensified debate over the emerging contours of downtown, including city-backed plans for a $1 billion private entertainment complex in the Staples Center-Convention Center area and the $1 billion Grand Avenue streetscape project.

Critics question whether the hotel would really boost the Convention Center - which costs more than $30 million a year in debt service and racks up nearly $1 million in additional net losses as rental rates are discounted.

In an interview Saturday, Mayor Antonio Villaraigosa called the Convention Center an ``albatross ... that is choking the lifeblood out of the financial condition of our city.

``The Convention Center has been L.A.'s big white elephant ... and so clearly we have to do something. The question is, is this what we must do to take the burden of this Convention Center off our backs?''

Villaraigosa said he would review all options - from details of the proposed public subsidy that are still being worked out to whether the city should get out of the convention business by selling, leasing or hiring a private operator. He said a final decision would have to make ``good fiscal sense'' and be part of a broader discussion on the use of public subsidies to spur economic development throughout the city, including the San Fernando Valley.

``What we have now is killing us,'' said the mayor.

Private-sector backers and some city officials insist subsidizing the hotel is the only way to salvage the center.

``This would be the most important magnitude, largest development at one time in the history of Los Angeles,'' said Timothy Leiweke, president of AEG, the company owned by Denver billionaire Philip Anschutz and the owner of the Staples Center.

``We're talking about 5 million square feet, the size of Long Beach in one shot. ... If we're all wrong ... it's $1 billion in private dollars lost. We're taking all the risk.''

Leiweke said the hotel remains the ``heart and soul'' of ``LA Live'' - the entertainment development that has been eight years in the making - and has allowed the company to market the development internationally, with ``juggernaut'' brands to be announced Sept. 15, when final plans are unveiled.

``We see the entertainment district around the hotel as a content campus bringing the best events in the world to L.A. ... tens of millions of tourists to the heart of the city.''

He said the deal also is the only way to transform the Convention Center from a money-losing ``exhibition hall'' into a world-class facility.

But critics question the plan, noting convention business nationally is shrinking and the hotel could simply cannibalize from existing downtown hotels already struggling with vacancy rates as high as 40 percent.

``It's an unlevel playing field for other hotels, and it could put the city ... in a worse situation,'' said Peter Zen, representative for the owner of the downtown Westin Bonaventure who is suing to block the city subsidies.

Zen said that, if the hotel fails to spur business, it could ``kill all the hotels'' with a glut of rooms, and without having to pay the city's 14 percent ``transient occupancy tax'' - which was increased to service the center's debt - also could undercut other hotels' rates.

Developers say city participation is needed now more than ever because soaring construction costs have made the hotel deal even riskier, with cost estimates rising from about $450 million to more than $500 million.

Lew Wolff of co-developer Wolff Urban Partners and owner of the Oakland A's baseball team, said he was convinced the development would ``force'' success downtown.

The modern Convention Center cost $550 million, including land, in 1993, with $460 million remaining to be paid off by 2021. Even with the increased room-tax revenue, the city still needed an additional nearly $3 million from the general fund last year to cover the cost of the debt.

``There's no market for this hotel, for the number of rooms,'' Wolff said last week. ``We're forcing it. The city, Anschutz, Hilton, ourselves are trying to make something (happen) that wouldn't happen in the natural course of economic events.''

As it stands, Century City developer Apollo Real Estate, as the principal partner, would make a substantial investment in the hotel and own the building, with Hilton Hotels Corp. as the manager loaning $30 million, and Wolff Urban Partners being a residual partner, he said.

AEG is selling ``at cost'' roughly 10 acres for the hotel out of its entertainment district property, which runs from the Harbor Freeway to Figueroa Street and from Chick Hearn Court to Olympic Boulevard, Leiweke said.

City officials who put the public-participation package together are relying in part on a cost-benefit analysis by PKF Consulting that says the hotel would be a ``net positive contributor.''

But Heywood Sanders, who studies U.S. convention markets and facilities as a professor in the University of Texas' Public Administration Department in San Antonio, said PKF's projections haven't been realized in Houston, where the firm did a similar analysis.

There, a $650 million public bond financed a doubling of the convention center, a Hilton Americas hotel and a 1,600-space parking garage. The downtown Hyatt Hotel, the former major convention hotel, went into foreclosure earlier this year.

Dawn Ullrich, director of Houston's Convention and Entertainment Facilities Department, blamed the foreclosure on Enron's collapse and other factors, adding that business was improving.

Ullrich also said the convention complex helped Houston win the 2004 Super Bowl, but Sanders remains steadfast in his belief that a new hotel alone will not resurrect L.A.'s lagging convention business.

``If convention attendees come to a downtown that's dead after 5 p.m. and there are no visitor amenities compared to other destinations, they're not likely to come back,'' Sanders said.

The center already deeply discounts its rates and ``still (conventions) haven't come,'' he said.

The Convention Center collected $10.7 million in rent from about 14 conventions last year - down from a peak of 31 in fiscal 2000 - along with 103 other events in exhibit halls, and 190 smaller meetings, according to City Administration Office records.

``The question is, how does L.A. stack up historically - is it historically a strong market, and the answer is no,'' said Sanders, who has noted that, in the last decade, convention building doubled to $2.4 billion annually, increasing convention space by more than 50 percent since 1990.

At the same time, ``many cities have seen their convention attendance fall by 40 percent, 50 percent, and more since the peak years of the late 1990s.''

But Michael Collins, executive vice president of LA Inc. - the private corporation that receives more than $16 million in public and private funds to market the center - said the city can't compete with cities that have convention hotels because convention organizers won't overlook the inconvenience.

Brian Stevens, president of L.A.-based ConferenceDirect, the largest booker of conventions and meetings in California, said the city could ``easily double'' its annual conventions if the hotel is built.

Daniel Flaming, president of the Economic Roundtable, which did a study on tourism and lodging for LA Inc., said a ``nuanced,'' comprehensive discussion of downtown - including the costs and benefits of a publicly backed hotel at the Convention Center - is called for.

The study found L.A.'s lodging industry to be underdeveloped and underutilized, and that, despite a $21 billion annual tourist industry, the region's hotels - particularly downtown - aren't strong destination spots.

Debate over a publicly backed convention center hotel should be evaluated against plans for downtown as a tourist destination, including development of the historic core and new jobs that might be created, he added.

Councilwoman Jan Perry, who represents downtown and parts of South Los Angeles, said the hotel will not only add new jobs but benefit the entire city as well as San Fernando Valley.

``The more revenue that comes into the city, the more we can rebuild the city from the inner core out,'' she said. ``It does go to everybody's benefit.''

Still, Bruce Ackerman, president and CEO of the Economic Alliance of the San Fernando Valley, said it's hard to justify a large public financial commitment unless there's convincing evidence it will result in a ``jump in the economy'' and the city will recover its investment.

Otherwise, he said, ``that's downtown again.''

Beth Barrett, [phone]

beth.barrett(at)dailynews.com

CAPTION(S):

3 photos, 2 charts

Photo:

(1 -- color) no caption (Convention Center)

(2) no caption (Convention Center)

(3) The Los Angeles Convention Center, which has been struggling to lure business, cost $550 million, including land, in 1993, with $460 million remaining to be paid off by 2021.

Gus Ruelas/Staff Photographer

Chart:

(1 -- 2) L.A. CONVENTION BUSINESS

SOURCE: The Economic Roundtable

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