Hotels and Hospitality

I believe hotels and lodging are a hole in Pittsburgh’s economy waiting to be filled.  What got me thinking on this topic, just when I was afraid that after two blog postings I had run out of ideas for thinkingPittsbugh?  A stroll across downtown Austin headed to a friend’s condominium in the W Hotel inspired me.   No it’s not the W Hotel that has me thinking – in my opinion the W chain is simply a limited amenity/high price point product that if you want something “hip” better to stay at the local Aloft.  Most of the time W hotels are only marginally comfortable and oddly styled.  If Pittsburgh never sees that marque on its skyline it will validate the City’s reputation for integrity.

 

No, I was passing the gaping block long crater on Congress  Avenue that will become the Austin JW Marriott.  JW Marriott is relatively upscale and sized large for convention business.  This is the big hole in Pittsburgh’s hospitality offering and one that many in City Hall, the Convention and Visitor’s Bureau, and more than a couple developers have been trying to fill for decades.  More certainly since Pittsburgh’s shiny, acclaimed LEED Platinum convention center opened up.  So why is Austin, with a convention center half the size of Pittsburgh’s, not to mention a smaller airport and overall population, getting this 1,000+ room monster as well as a new Westin and Fairmont downtown?  “Hospitality” is my theory.

 

A knowledgeable friend who manages real estate investments for wealthy foreign investors tells me that his clients basically trust three markets in the world: London, New York and San Francisco; and mostly just the first two.  So with that as background he takes a very skeptical view of supposed tier one markets in the US, Austin being one of those along with Boston, DC, and Los Angeles, among others, and tier two and below markets, where Pittsburgh lies.  Right now he says it is almost impossible to obtain financing for large hotels on either the construction loan phase or the long term take out that commercial investors provide.  Obviously up front equity is key to getting a project out of the ground.  But what determines the environment where deep pocketed equity partners fund a large hotel project?

 

Turns out it’s more apparent than one would think.  The city where a project gets built needs to have a reputation, a culture, a history of hospitality.  Think New York, New Orleans and San Francisco.  Places that welcome visitors as well as have attractions that people want to see.  How did Austin get on that list having only been around for some 100 plus years and with maybe a live music and a restaurant scene a little different than most other places?  Well, that’s exactly how it got on that list.  That and hard work by folks who believe they have reasons people will spend travel dollars to access a concentration of live music, a whole bunch of Tex-Mex restaurants, and a college town atmosphere where bar hopping in fewer than the usual amount of clothing is not considered anything to be remarked upon.

 

They put that together and came up with what I call The Big Three: South by Southwest Music Festival [expanded to Interactive Media, Film, and Education festival weeks], ACL Music Festival [about to go to two separate weekends], and now, Formula One racing on the only dedicated F1 track in America [strategically situated driving distance from Mexico and a short flight from the rest of Latin America].  I won’t go into the economic details of these three events.  Let it stand that all three bring in visitors for at least a week, with SXSW accounting for over two and a half weeks of activities.  Each event brings in over 100,000 visitors who are ready to spend money on a good time.  And with SXSW, where corporate sponsors and attendees use it as essentially a marketing event, the money spent on local hospitality is astounding.  Hotels are filled for literally 70 miles in all directions.

 

The economic benefits are many and varied but to the point of this post, it’s how three events can really generate the business to sustain both hospitality and general development in hundreds of millions of dollars and adding thousands of jobs.  My aforementioned real estate investor friend confirmed to me a while back that the economics for hotel owners is simple.  During the total six weeks these events represent annually, the room revenue is high enough [sometimes triple and always at least double rack rates for the rest of the year] that the hotel operators make their base line revenue within these weeks.  The rest of the year is gravy.  And those new condo towers in downtown Austin with prices that few locals can afford?  Well, local reports note that eight condos valued over $500K each were sold in one building as a result of F1 weekend.

 

Pittsburgh is a city of “real men” who “build things”.  That’s engrained in its collective DNA; its mental image of itself.  Whether the resident is actually male or female, it’s the internal perception that creates a big part of the reality.  The most common factor spoken by local economic development officials whenever the Pittsburgh area scores a development win: XYZ Company came here due to the “work ethic” of local residents.  There is little room for partying in Pittsburgh, nosireebob.  Jobs related to hospitality and entertainment are somehow second rate.  The question needs to be asked, “Really?”  When good hospitality jobs pay more than average salaries in most other business sectors, when an outsider’s perception of a city as being enjoyable can lead to future investments, and when a welcoming environment yields overall benefits to the quality of life, can anyone still say a city, Pittsburgh or any city, doesn’t need more party?  Laissez les bon temps roulez!   Government officials, third-party economic development agencies, and energetic local boosters of all stripes need to encourage “hospitality”.  Entertainment events involving collective activities centered on enjoyment, that is.  The City has examples already of how the Steelers and Penguins generate economic vitality downtown whenever they are playing.  Fun should not be only related to sitting in a seat watching a sporting event.  It’s time to get creative on the fun factor, Pittsburgh.