TUPELO – Feasibility reports commissioned several years ago suggested that a downtown conference center could be profitable within a year of opening.
The BancorpSouth Conference Center opened in November 2006 and, true to form, recorded profits for the first year. But since then profits have been slipping and the management company, Master Hospitality, said it has had to put money into it annually.
Tom Ricketts, owner of Master Hospitality, and other managers in his company cite the troubled economy as the source of their business’s slow growth.
Earlier this month, the Tupelo Redevelopment Agency granted Memphis-based Master Hospitality a year’s reprieve from making its $25,000 monthly lease payments. The payments go to TRA, which owns the conference center.
The reprieve came after Master Hospitality already had missed six months of payments totaling $150,000.
The decision fueled an old argument from some in the business community who say downtown operators get an unfair advantage over others. But the people who offered Master Hospitality the grace period stand by their decision, saying a conference center is vital to growth downtown.
They also say the reprieve won’t hurt the city financially.
Management at Master Hospitality say they view the reprieve similar to a routine refinancing a private business might do.
“Where we’re indebted to the TRA, they’re indebted to the bank,” said Phil McKay, general manager of the Hilton Garden Inn and a Master Hospitality employee since 1996. “This is the only avenue we have … In my mind, we’re doing what a normal business would do to be viable and profitable.”
The conference center is the result of a public-private partnership between the Tupelo Redevelopment Agency and Master Hospitality.
TRA is an urban renewal organization created by the City Council 10 years ago to revitalize 50 acres in downtown Tupelo, including the approximately 30-acre Fairpark District.
The TRA board is made up of five volunteer members who oversee $22.7 million in bonds to fund the renewal project. They are appointed by the mayor and confirmed by the City Council. The council also approves TRA’s annual budget.
In 2004, TRA sold the property of the former J.C. Penney building to Master Hospitality. The land is north of Main Street, sandwiched between the current Hilton Garden Inn and the BancorpSouth Arena.
The contract called for construction to start within seven months on a conference center that would be operated in conjunction with the Hilton, which also is owned by Master Hospitality
The company then built a $4.5 million conference center to the city’s specifications and sold it back to TRA in September 2005. As part of the contract, Master Hospitality would operate and manage the conference center and make monthly lease payments to TRA for 20 years.
At the end of the 20 years, said city attorney Guy Mitchell, there would be a shortfall of about $300,000 between what the city owed and the amount Master Hospitality had paid. Master Hospitality then would have the option to buy the conference center for the difference.
Other cities in the state also have used a public-private partnership to complete a project, but it doesn’t happen too frequently, Mitchell said.
“It’s not totally unique, just rare,” Mitchell said.
Before the conference center was built, TRA and the city extensively studied the possibilities for downtown development, including building a conference center.
Hyett Palma did the first study in 1992, planting the seed for a mixed-use development project in the downtown area.
Clarion Associates issued a report in 1998 about the potential development and enhancement opportunities in the Main Street, fairgrounds and coliseum areas.
Two years later, PKF Consulting followed up with a $35,000 report that had a prospective financial analysis for a convention center and a hotel. This study evaluated converting the former J.C. Penney building into a convention center.
PKF said that after three years, the convention center would attract more than 99,000 people annually and have 243 days of use. The projections were based on 32,000 square feet of exhibit space and 5,600 square feet of meeting space.
The report warned that deficits were likely for at least the first three years of operations.
TRA later ruled out converting the J.C. Penney building when bids came in above the $5 million budget.
TRA then commissioned Pinkowski & Co. to do a study, which was completed in February 2004. It recommended a 110-room, full-service hotel with an adjoining conference center and a later 40-room expansion to the hotel.
Make it bigger
The Pinkowski study recommended that Master Hospitality and TRA increase the meeting hall space in the planned conference center from 9,000 square feet to at least 12,000 square feet to accommodate larger conferences.
The BancorpSouth Conference Center’s meeting hall currently measures 10,230 square feet, which can be subdivided into smaller rooms.
Construction costs for a larger meeting space would have caused the project to go over budget, Ricketts said.
According to Pinkowski, if the facility opened with at least 12,000 square feet of meeting space in July 2005, the conference center would net about $119,042 for the year. By 2009, projections called for an annual net income of $448,127.
But the opening statement couched the projections, saying they were based on estimates and assumptions and Pinkowksi was not representing them as “results that will actually be achieved.”
The study said the projections were based on several factors, including the local and national economy recovering from an economic slowdown in the wake of 9/11 and no additional competitors entering the market.
The BancorpSouth Conference Center opened in November 2006, with the smaller meeting hall. The economy in Tupelo had recovered and was buoyed by Toyota’s announcement in February 2007 that it would build a plant near Blue Springs.
The relief was short-lived. The country officially slipped into a recession in December 2007. Toyota also delayed its Mississippi plant indefinitely.
In addition, Tupelo faces stronger competition from conference centers, casinos and meeting spaces in Oxford, Tunica, Natchez, Vicksburg, Olive Branch, Columbus, Starkville, Jackson and Biloxi.
The other towns are trying to get their share of the more than 400 conferences, conventions and meetings held in Tupelo last fiscal year. According to the Tupelo Convention & Visitors Bureau, the events had an economic impact of $5.7 million and drew about 42,000 participants.
Jimmy Pappas, who owns The Summit Hotel and Summit Center in Tupelo, has been in the meeting business for 34 years. Each year, he sees added pressure as casinos and other cities build or upgrade their conference spaces.
“Every town is now becoming a stronger competitor,” he said.
Pappas also said there is tough competition in town to lure business.
“We probably have more facilities than the local market can support,” Pappas said.
He mentioned meeting space at the BancorpSouth Arena and the Tupelo Furniture Market, in addition to his center and spaces inside area hotels.
“We do have a lot of space for a small community,” Pappas said. “It’s very competitive out there. There’s no question about it.”
McKay and Shari Neely, the sales director for the Hilton Garden Inn and the BancorpSouth Conference Center, agreed with Pappas that other cities are stepping up the competition for statewide organizations. However, they said the customers they go after are looking at other cities, not other Tupelo venues.
“Our goal is not to take any business from other venues in town,” Neely said. “Our goal is to get unique business in Tupelo and have the events here … I think we have a little different strategy because we realize that it’s about more than the conference center. It’s about Tupelo.”
The problem, Neely said, is that the economy is hurting the conference and meeting business. Manufacturers that usually would have a big meeting and rent space aren’t doing so this year. Municipal groups are planning smaller meetings because of smaller budgets.
All of this leads to lower volume than expected, which led to Master Hospitality asking for a yearlong reprieve of making lease payments, McKay said.
Ricketts said, “It’s been a challenging year. Northeast Mississippi is in a major recession … I think we will survive. I think we’ve got a strong brand that will push business for us.”
Under the newly amended contract, this year’s payments for the conference center will be tacked onto the end of the 20-year contract, said TRA Chairman John Oxford.
“This gives them a little breathing room without letting them off the hook for their obligations,” Oxford said at the July 14 meeting where the board members present voted unanimously to approve the change.
Master Hospitality also will not take a management fee this year, essentially agreeing to not log any profit this year for the conference center.
The TRA board said it will review the issue next year to see if circumstances have changed.
Even though Master Hospitality will have to eventually make the lease payments, Pappas said the situation is a “sore subject with me along with other hotel operators in town.”
“Obviously, we don’t feel it’s the fair thing to do because we pay our full taxes and we have to find a way to get it done,” he said. “We don’t go to people to get a break and even if we did, I don’t think we could. When you are in business, you have to handle your obligations.”
Road deal negotiated
When it comes to the obligations for the past-due lease payments, Master Hospitality and TRA have worked out a deal.
According to Mitchell, when Master Hospitality bought the land from TRA, the contract called for a road between what is now the Fairpark Grill and the Hilton Garden Inn.
TRA retained a 30-foot easement for the construction of the road, Mitchell said.
Earlier this year Master Hospitality built the road and resurfaced and paved a parking lot north of the hotel. Mitchell said the majority of the parking lot is owned by TRA.
Along with the contract amendment for the lease reprieve, the TRA board also voted to buy back the road and pay for the costs of improvement.
As part of the contract, TRA stipulated that Master Hospitality must apply the $150,000 gained from the sale to its past-due lease payments. After the money is applied, Mitchell said, Master Hospitality will be current on its payments.
The reprieve, according to Mitchell, is “an effort to assist the conference center through a most difficult time.”
He added that agreement hasn’t been finalized, even though TRA has voted on it. The next step is getting Master Hospitality’s lawyer to sign off on the contract amendment.
Oxford stands by his board and the vote, saying that retaining businesses downtown is just as important as attracting new ones.
“Over a 20-year period, giving a reprieve for a limited period of time is not as damaging as having an empty building and the city should still make a good and full return in the long run,” he said.
“Our job at TRA is to oversee the urban renewal project of the Fairpark area, which includes finding creative ways to both recruit and retain businesses and make our downtown community as attractive as possible.”
Contact Carlie Kollath at (662) 678-1598 or firstname.lastname@example.org.
Carlie Kollath/NEMS Daily Journal