What to expect from the convention center

HARLINGEN — The Rio Grande Valley’s biggest convention centers are not cash cows built to pump strong revenue streams into city coffers.

Instead, they give residents and organizations venues to hold events and might help boost tourist dollars.

And even after years of operation, they struggle to break even.

In Harlingen, the city is banking on its partnership with a private company to maximize any profits and minimize any deficits in the operation of its upcoming $16.7 million convention center.

As part of the public-private partnership, the city will share any profits or deficits with BC Lynd Hospitality, the San Antonio-based developer that is building a 150-room Hilton Garden Inn to be attached to the convention center.

“It mitigates any risk,” Mayor Chris Boswell said last week.

Under an agreement, the city and BC Lynd are setting aside a total of $1 million to offset any deficits during the convention center’s first two years of operation, the so-called “ramp-up” period.

Boswell calls the partnership with BC Lynd part of a formula that is unique across the Valley.

“This is a huge advantage for the operation of a facility,” Boswell said. “Any profits or losses are shared equally.”

As part of the agreement, BC Lynd will also operate and staff the convention center.

“The better the operator, the better revenues are going to be,” Boswell said.

The city would budget for any deficit as it does for any operation.

“It’s the cost of operation,” Boswell said. “If you want to label it as a loss, go ahead and label it as a loss.”

It takes time

In McAllen, city officials planned for years of deficits when they built the 174,000-square-foot McAllen Convention Center in 2007.

“When the convention center opened, it was a given we were going to be in a deficit for several years,” City Manager Roy Rodriguez said last week. “It takes a while to ramp up. It takes a while to get conventions to come — one, two, three, five years.”

Now, he said, the convention center is booking about 300 events a year, everything from conventions and cook-offs to fashion shows, quinceaneras and weddings.

“We’ve had, in the last several years, an upturn in conventions,” Rodriguez said.

Local deals

In Harlingen, the agreement with BC Lynd requires the city to cover any deficits in the convention center’s operation. That doesn’t include the building’s debt service

Under the agreement, the city is required to set aside $500,000 to cover any deficit during the facility’s initial two-year ramp-up period.

The $500,000 is included in the project’s financing, which city commissioners approved last year, Assistant City Manager Carlos Sanchez said.

“Hopefully, we won’t be in a situation that we’ll have to tap into it,” Sanchez said.

Boswell, who has said he does not expect the facility to turn a profit during its first year of operation, said the city plans to determine the convention center’s budget only after its first two years of operation.

The city would use its revenues to cover any deficit, Boswell said.

“We’ll have to budget for that,” he said.

Boswell said the city will consider using hotel occupancy tax revenue to help fund convention center “activities.”

In Harlingen, where several hotels have been built in the past few years, the city collected $998,175 in hotel occupancy tax revenue during the 2016 fiscal year.

Now, with two hotels being built along with BC Lynd’s Hilton Garden Inn, the city is counting on boosting its hotel occupancy tax revenue, Boswell said.

“If there are more rooms available, there’ll be more hotel-motel tax,” he said.

Meanwhile, at the convention center’s site, the Hilton Garden Inn will stand near a Marriott Residence Inn that opened about three years ago.

Competition plenty

In the Valley, the 44,436-square-foot convention center will compete for bookings with such venues as the South Padre Island Convention Center, the McAllen Convention Center and the Brownsville Event Center.

Last month, Mission opened its own $17 million, 40,000-square-foot Mission Event Center.

In many cities, officials turn to hotel occupancy tax revenue to help offset any deficits.

In McAllen, the city counts on hotel occupancy tax revenue to help offset any deficits.

When do profits come?

In 2015-2016, the McAllen Convention Center, which opened in 2007, reported total revenues of $2.4 million and total expenditures of $4.69 million.

“At budget time, the commissioners always want to know when we’re going to be at parity with revenues and expenditures,” said Rodriguez, the McAllen city manager. “They obviously want revenues to increase at the convention center.”

During the past four years, the city has strategized to draw four hotels to the convention center district, Rodriguez said.

“It wasn’t so long ago that there wasn’t a single hotel in the convention center district,” Rodriguez said. “Now, everybody loves it because it’s such a beautiful part of the city.”

Drawing the four hotels to the district has helped boost the city’s hotel occupancy tax revenues along with sales tax revenue, said Rodriguez, who declined to disclose the “strategy” the city used to lure the four hotels.

Still, the convention center operates at a shortfall.

Another example

Like McAllen, South Padre Island uses its hotel occupancy tax revenue to help offset any deficits.

Last year, the Island’s convention center, built in 1992, reported revenues of $2.1 million, of which hotel occupancy tax revenue made up $1.7 million.

Meanwhile, the convention center posted $1.7 million in expenditures.

Most convention centers are not built to become big money-making operations.

“Is it a financial bonanza? I don’t think so,” Brownsville Mayor Tony Martinez said. “What you all will find out is they break even and every so often you make a little money.”

Same story

In Brownsville, the city’s Event Center, which opened in 2001, reported total revenues $714,223 and total expenditures of $709,737 in 2015-2016.

“For Brownsville, it’s been a good asset,” Martinez said.

Martinez said the event center gives residents and organizations a venue in which to hold community events.

“It becomes a business proposition and a community resource,” Martinez said.

Profits vs. amenity

In Harlingen, Boswell compared the convention center to city amenities such as the soccer complex, which was built for residents’ use as well as to draw visitors, not to turn profits.

“We spend money to have amenities available for the community’s residents and visitors,” Boswell said. “Every park and every municipal building costs money.”

In South Padre Island, Mayor Dennis Stahl describes the South Padre Island Convention Center as an economic engine fueled by about 30 hotels.

“Most convention centers don’t necessarily make a lot of money but they create hotel occupancy taxes and sales tax and other sources of income,” Stahl said. “It is doing, in my opinion, very well. It’s booked up quite a bit. When that happens it creates room nights and visitors. They eat, dine, go to area attractions.”

Like Stahl, Harlingen City Manager Dan Serna said he sees the city’s convention center as a catalyst for economic development.

As the city broke ground at the eight-acre construction site at Brazil Road and Teege Avenue last August, developers were planning to build a strip center across the street.

Serna said the city is also counting on the convention center to draw more tourist dollars.

“We’re looking at bringing conventions into the city to bring more visitors and that, in turn, will boost retail sales in our shops and restaurants,” Serna said.