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How many convention centres do we need?

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On Friday the Wellington City Council announced it had signed a deal for a convention centre in Shed 6 on the waterfront. Today councillors are being told why they should also support (and pay for) a convention centre in a new Hilton Hotel. How many convention centres do we need?

Shed 6, which can hold 1000 people, is to be rebranded as the TSB Convention Centre, in a ten-year deal that the council says will make it able to stand alone financially . TSB has also extended its sponsorship of the TSB Arena. (The arena held 5400 people for Lorde’s sold-out concert on Friday night.) The two council-owned buildings have been linked so that they can be used as one massive space. The council spent $9.6m refurbishing Shed 6 for its new role. When it was reopened in August last year, Councillor Coughlan said “Wellington now has a large-scale venue offering all under one roof.”

But today councillors are being told that one large-scale venue is not enough. They’re being told that the city should spend five or ten times as much to pay for a new convention centre as part of a new Hilton Hotel (which won’t be built without the new facility).

The council has been enthusiastic about the Hilton convention centre since the plan was first announced earlier this year. It has also been less than forthright about the cost to ratepayers, talking only about an “average net cost” of $2m a year. The reality is that the proposal is for the council to lease the convention centre for twenty years, and then to sub-lease the building back to the hotel operator who will run it. The real cost will depend on whether or not the convention centre makes a profit by attracting enough conventions.

A paper to be presented to councillors on Wednesday – when a final decision is expected – predicts that the net cost to the city could be as low as only $18.5million after accounting for rates and insurance costs, operating profit and what is cryptically described as additional rates income to the council. The figure is unreal. Till the centre is up and running, no one will know if any profit can be achieved. And there’s also a worst case scenario to be found in the Convention Centre proposal paper that councillors will be debating on Wednesday:

This paper shows that for the lease plus rates and insurance, the council is being asked to pay $4.09m in 2017-18, $4.23m in 2018-19, and $4.30m in 2019-20, with the figures continuing to increase till the council is paying $5.17m in 2024-25. If there’s any net profit, it won’t start to arrive till 2021.

And ratepayers, who’ll be paying the bills, are not to be given any information on the deals that the council plans to make with the developer. Wednesday’s meeting is being told:

due to the commercially sensitive nature of the terms of the development, lease negotiations and Hilton management agreement, these will be discussed in a separate public excluded report

The developer is Mark Dunajtschik, the man who wants to demolish the heritage Harcourts Building in Lambton Quay. He has twice appealed against the council’s decision to refuse demolition. And he has twice lost his appeals in the Environment Court, the second judgement being announced on Friday on the same day the TSB Convention Centre was announced.

The council’s Hilton deal with Mr Dunajtshik is a convoluted one, which would keep it removed from any direct control.

Council would lease the convention centre from the Developer for 20 years. The Council would then enter a sub-lease of the convention centre back to an operating company (being a wholly-owned subsidiary of the developer)to be managed and operated by Hilton in conjunction with the hotel. The operating company, not Council, would enter the management agreement with the Hilton, although Council will retain oversight and input into all operational matters of the convention centre through participation in the owners’ liaison group. Council would receive the net profits of the convention centre in return for making available the convention centre to the operating company and Hilton Hotel.

No doubt the definition of “net profits” is one of the details to be discussed behind closed doors. But councillors should be wary about the fact that the city council will be pushed back into a last-out position, receiving none of the profits unless the developer has first recouped all his costs:

The developer will underwrite all pre-opening costs and operating losses of the operating company thereby taking on all operating risk of the convention centre, with the ability to recoup all underwrite payments made from future operating profits prior to any distributions to Council.

And councillors should also be considering the fact that though they were initially told that the new convention centre was needed for big events, it will in fact be in direct competition with the TSB Convention Centre and the other council-owned facilities run by Positively Wellington Venues. They’re being told that “the optimal conference size for the facility would be in the range of 800-900 delegates, which meets the needs of the largest proportion of the market.”

The proposed [Hilton] facility will be purpose built and flexible. It will be able to host up to 1,200 persons in a multi-day, full format conference, have a flexible range of spaces for events of a smaller size requirement, but can also be used to hold events for a maximum capacity of 2,000 theatre style. It will have the latest audio visual technologies to meet modern demand managed by a third party provider. The nature of the design means it will be highly flexible and be able to cater for anything from small to large conventions, host a number of small and medium conventions concurrently, or host large exhibitions, galas and show dinners that are currently difficult to cater for within existing facilities.

As a 2000-seat theatre, the new privately-owned convention centre will even be in direct competition with the council-owned Michael Fowler Centre. And made possible by twenty years of lease payments from the city council.

December 23, 2014: Hilton Hotel plan cancelled