Houston had a problem. It had a state-of-the-art convention center — the George R. Brown Convention Center — but no headquarters hotel. Without a large, 1,000-plus-room hotel near the center, Houston languished as a convention destination. But 16 years after the convention center was built, the city finally got its headquarters hotel, the Hilton Americas, which opened in December 2003. “It's made a significant difference in our ability to attract business,” says Jordy Tollett, president and chief executive officer, Greater Houston CVB.

In recent years, Houston has averaged 426,000 room nights per year. The annual pace for 2006 and 2007 is 607,000 room nights — a 44 percent increase. The city has attracted several large groups for the first time, like the American Medical Association, which Tollett doubts would have come to Houston without the hotel.

With exhibit space growing by about 22 percent since 2000, cities are aggressively fighting to attract meetings. Experts say a headquarters hotel is essential because planners and attendees demand it, largely for the convenience factor. “If a city doesn't have a convention hotel, they're not in the game,” says John Keeling, senior vice president, PKF Consulting.

Boston, Baltimore, San Antonio, Hartford, Conn., Denver, Dallas, St. Louis, San Diego, Los Angeles, and Washington are just some of the cities that have headquarters hotels in the pipeline, according to Lodging Econometrics, based in Portsmouth, N.H.

Robert Canton, director, sports, convention and tourism services, PricewaterhouseCoopers, Tampa, Fla., says the activity is a result of the need to “ensure the return on investment a city has made in a convention center is realized.”

Many new convention center hotels are funded at least partially, if not entirely, by public dollars. “Unless you've got Mickey Mouse or gaming, it's very difficult to finance a 1,200-plus-room hotel,” says Tollett.

The reason is that developers don't want to take on the risk of building one large hotel when they can construct multiple smaller properties for the same cost. “Most investors are going to want to diversify their portfolio and are not going to put that kind of capital in one place,” says PKF's Keeling. And once the developers discovered that public entities were willing to foot some of the bill, they may have become even more reluctant.

These days, it is certainly easier to get the attention of public officials to buy into the idea of financing large downtown hotels, particularly when they have made significant investments in their convention centers and are not drawing the events, says PWCs Canton. If they don't, meeting planners have the option of taking their business to places that do.

Natalie Fleet, director of meetings at the American Association of Airport Executives, Alexandria, Va., says it's critical. “We want to make it as easy as possible for attendees to move from one place to another and not have to make extra efforts to drive or walk a lot to the exhibit hall from the hotel.”

Convention center hotels, particularly those that are privately owned, aren't required to commit a percentage of their rooms to citywide groups. But many cities that subsidize some portion of the hotel with public funds demand it in their contracts. “A typical room block agreement might require a convention hotel to commit up to 80 percent of available rooms for a convention up to two years before a given date,” says Keeling. In cases where a certain room pickup is not required, groups that want a discount off the going rate or are going to high-demand cities at peak times may find it difficult to get all the rooms they want. But most hoteliers will cooperate with large blocks because it is often not in their best interest to spurn large groups, Keeling says.

Exceptions to the Rule

Not all headquarters hotels are being built with public funds. In San Diego, the expansion of the Manchester Grand Hyatt, adjacent to the convention center, was funded entirely by the developer. The expanded property, which has 1,625 rooms, opened in August 2003.

Reint Reinders, president and CEO of the San Diego CVB, believes that floating public funds to build hotels can be “a recipe for disaster.” The way Reinders sees it, the convention and trade show market is not growing enough to support all the new square footage of exhibit space. Quite often, however, city officials see convention centers and headquarters hotels as a panacea to jump-start the city's economy, he says. “I think these [hotels] should be built because there is a market for them.”

San Diego now has two headquarters hotels near the center: the Grand Hyatt and the Marriott Hotel & Marina, both owned by the same company. A third headquarters hotel, a 1,200-room Hilton, will open in 2007.

San Antonio is a little different. A deal with developer Faulkner USA to build a 1,000-room headquarters hotel connected to the Henry B. Gonzalez Convention Center was announced in December. The city is using federal empowerment zone bonds to purchase the land and improve infrastructure, while the rest will be funded by the private sector. The hotel is slated to open in 2008.