Orange County seeks $700M to expand center
Orange County may borrow as much as $700 million to expand its already Pentagon-sized convention center — even as tax revenues collapse amid the coronavirus crisis and industry executives warn they will want even bigger public subsidies to prop up the convention business once the pandemic passes.
Construction has not yet begun on the pricey expansion project, which would add a 200,000-square-foot exhibition hall, an 80,000-square-foot ballroom and another 60,000 square feet of meeting rooms to the sprawling campus.
The expansion is a top priority of Central Florida tourism executives, who profit
off the money-losing meeting facility through attendee-spending at hotels, restaurants and attractions. Boosters say the expansion would make the convention center more flexible for events of all sizes and make it easier and more comfortable for attendees to move around the enormous property.
Mayor Jerry Demings said this week that Orange County is evaluating a range of options, from splitting the expansion into phases, delaying it or even canceling it altogether. But he said it is too soon to make any decisions.
“As we move forward in an uncertain period of time, it will become clearer to us what those final decisions need to be,” Demings said.
County leaders have shown few signs of slowing down yet.
In March — while conventions were canceling en masse due to COVID-19 concerns — Orange County signed three new contracts tied to the expansion plan. In April, architects delivered design schematics to convention center managers. And in May, Demings and county commissioners took an important procedural step toward taking on up to $700 million in new debt to pay for it all
Just last week, engineers began surveying and ground-testing the site.
County officials say they have only spent a little more than $3 million so far — and that they can cancel all of the contracts they have signed without penalty.
Heywood Sanders, a professor at the University of Texas at San Antonio who studies the convention industry, said Orange County should shut down the project. Sanders said it makes no sense to take the nation’s second-biggest convention center and make it even bigger at a time when the outlook for the industry has been so clouded by the coronavirus.
“The future of the convention business — and the likely performance of any major convention center — going forward at this juncture is very much open to question,” Sanders said. “There is just an enormous amount of uncertainty.”
First built in 1983 and repeatedly expanded over the years, the Orange County Convention Center today encompasses more than 7 million square feet — including more than 2 million square feet of exhibition space. The original building could fit the Brooklyn Bridge inside its exhibition hall. The second building, which opened in 2003, would cover 200 NBA-sized basketball courts.
Encouraged by tourism industry lobbyists and executives, Orange County has been mapping out its latest expansion for more than five years. The process kicked into higher gear in December, when commissioners approved a nearly $40 million architectural and design deal for the project.
The coronavirus pandemic, which brought most travel to a halt, suddenly scrambled the math.
The convention center itself — which often loses money even in good years — is now hemorrhaging cash. Orange County budget officials have said they expect the facility will finish the year $30 million in the red, triple the deficit they had prepared for before the pandemic.
At the same time, Orange County’s hotel tax — which is supposed to pay for the expansion — has evaporated. Tax collections plummeted 97 percent in April, from $25.9 million a year ago to less than $800,000. It was the smallest amount of money Orange County has ever collected from the tax since it started four decades ago, Comptroller Phil Diamond said.
“We believe that May’s collections will probably be comparable to this month’s collections,” Diamond said when announcing the April totals.
County leaders had been squirreling away extra hotel taxes over the last few years in hopes of paying for at least half of the expansion in cash. But that plan may no longer work because Orange County expects it will need to tap those reserves to cover other obligations — including the convention center’s existing debt, which runs through 2048.
It’s not at all clear when conditions will get better — particularly for group travel, which hotel executives say will be the last segment of the business to recover.
“Until we have a vaccine, it’s not likely you’re going to see group come back in any meaningful way,” James Risoleo, the president and CEO of Host Hotels & Resorts Inc., told Wall Street analysts during the company’s quarterly earnings call last month. Host, which was once a part of Marriott International Inc., is one of the world’s largest owners of luxury and upscale hotels — including the 2,004-room Orlando World Center Marriott.
Demings said he’s still hopeful that business at the convention center will rebound later this summer and fall. He pointed to an Amateur Athletic Union volleyball tournament that is scheduled to be held at the convention center in July that could draw more than 10,000 competitors, coaches and chaperones, a fraction of the tournament’s usual size. The tournament has already postponed once, pushing back from June.
“The hotels are excited about that because it will bring people here and that will likely be a good test for us,” he said.
The mayor also noted that many of the conventions that canceled this spring have rescheduled for late summer or fall. Convention center officials say they have more than two dozen events on the books for July, August and September.
Executives at other big hotel companies say they, too, have rebooked group events from the spring to the fall. But they also say that many of those groups were likely trying to avoid an immediate cancellation fee — and that they are likely to cancel in the fall.
“I don’t think we have a lot of faith in what’s on the books right now in the back half of the year,” Sean Dell’Orto, the chief financial officer of Park Hotels & Resorts Inc., said during the company’s earnings call last month. The company, which was spun off from Hilton Worldwide Holdings Inc. in 2017, owns all or part of three Hiltons and the Waldorf Astoria in Orlando — including the 1,424-room Hilton attached to the Orange County Convention Center.
“We’ve counseled our property teams to assume that none of the group on the books will materialize, and they should plan and staff accordingly,” added Jon Bortz, the CEO of Pebblebrook
Hotel Trust, on his company’s earnings call. Pebblebrook owns nearly 60 hotels around the country, including four in Florida.
“You don’t even know when in the fall they’re going to say it’s okay to come back to the office, let alone take a trip,” Bortz said.
What’s more, the convention business may very well become more expensive in the future — especially for taxpayers.
Last month, a coalition of businesses and other organizations from across the meetings and events industry launched a new advocacy group — dubbed “Go LIVE Together” — that plans to lobby local, state and federal leaders for things like new tax breaks and other incentives for trade show organizers, convention exhibitors and attendees, and corporations that spend money on meals and entertainment.
The coalition is led by Texas-based Freeman, a multibillion-dollar company that produces conventions
and trade shows and has a big presence in Orlando. The Orange County Convention Center is listed as a “partner,” though county officials say they have not contributed any money to the lobbying group.
Despite the uncertainty, several Orange County commissioners say they still want to press forward with the expansion.
“I think the economy will come back at some point and we’ll be happy we have the extra capacity,” Commissioner Betsy VanderLey said. “I think we have to take a long view in this for the sake of our economy and the sake of our future. You know, the people who had the vision to do the convention center to begin with gave us a gift we continue to benefit from and it would be irresponsible for us to ignore that and not support it long-term.”