Hilton deal a critical step

The Gazette Editorial Board

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Cedar Rapids leaders are on the verge of forging a pact with Hilton Hotels to brand, manage and market the city's new convention complex and refurbished downtown hotel.

And judging from the details that have emerged so far, it sounds like a soundly constructed, long-term deal that will put an experienced management team in command of the new facility.

Under terms of proposed agreements reviewed by the City Council this past week, the hotel would operate under the Doubletree by Hilton brand name for 15 years. Hilton also would manage and market the hotel and convention complex for 10 years, with an option for a five-year extension.

The city, under the agreements, cannot sell the hotel during the first five years. But during the duration of its management contract, Hilton agrees to waive a $500,000 annual franchise fee. That saves the city at least $5 million.

The Hilton/City revenue-sharing structure appears to address the city's desire for a stream of dollars to pay back bonds issued to renovate the hotel. And it provides incentives for Hilton to both grow revenues and keep expenses in check.

As a publicly owned facility, the City Council will oversee its operation. The facility's annual budget and any expenditure of more than $25,000 are among decisions that require council approval.

Hiring one, experienced company to manage both the hotel and convention complex is a smart business decision.

An analysis by HVS Global Hospitality Services found that the venture's future potential for profitability would decline significantly if separate companies managed the facilities. With separate managers, HVS found that the convention complex would operate at a roughly $1 million loss. With the efficiencies of joint management under one company, the hotel and complex turn a projected profit in excess of $2 million.

That's critical, considering that the stiff regional competition for conventions, meetings and events, coupled with a still sluggish economy, makes the convention complex project a significant gamble. A streamlined management operation that squeezes the most from every dime is crucial to its success.

Hilton clearly understands how to manage hotels and meeting facilities, and will bring its expertise to bear on marketing the complex and hotel to potential guests and event organizers. The global company manages 3,750 hotels in 84 countries and 5.8 million square feet of meetings in 665 managed properties. “They didn't get in to fail,” said John Frew, whose Frew Nations Group is overseeing construction of the convention complex and renovation of the hotel.

The convention complex's success is far from assured, but this deal is a huge step in the right direction.

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