Lawsuit Takes Aim at L.A. Hotel

Competing hotelier takes issue with public funds for headquarters hotel

By Margo McCall -- Tradeshow Week, 5/9/2005

Just as city officials are finalizing details on the $1 billion L.A. Live development, a local hotelier has filed a lawsuit opposing public funding for the project's long-awaited headquarters hotel.

Peter Zen, president of Westin Bonaventure hotel owner FIT Investment, said if the 1,200-room hotel adjacent to the Los Angeles Convention Center is a good idea, it shouldn't need any public funds.

Zen said he doesn't object to the added competition, but believes that a public subsidy will create "a very uneven playing field." In addition, he alleges that no one in the city has delved into the project's economics. "I think a convention hotel nearby is fine, as long as it's not subsidized. If you want us to subsidize it, I'm not fine with that at all."

The suit was filed just weeks before the Los Angeles City Council was scheduled to give final approval to Anschutz Entertainment Group's plan to develop a 7,000-seat theater, a 4,000-seat multiplex theater and numerous restaurants and bars on land adjacent to the city-owned convention center and AEG's Staples Center sports arena.

A key part of the development — at least in the eyes of those in the tradeshow industry — is a 55-story headquarters hotel, scheduled to be run by Hilton. Although Anschutz requested no public funds for L.A. Live's other parts, a $177 million benefit package was being considered for the hotel.

It remains unclear whether the suit will halt progress on L.A. Live, which was scheduled to break ground this summer. "There's going to be groundbreaking, but whether it's for the hotel or some other part of the project remains to be seen," said Michael Collins, executive vice president for LA Inc., the Convention and Visitors Bureau.

The suit is the latest wrinkle in the city's eight-year quest for a convention center hotel. Zen was against a public subsidy for an earlier hotel plan that called for the creation of a public benefit corporation, and his point of view prevailed in a validation suit.

However, proponents believe that this time, things might be different. "The forces that are at work here in the city and in the private sector are all so focused on the need for a hotel and the development immediately around it, that I think it's going to move forward. There is no doubt that this is one of those things that has widespread support, with the exception of Mr. Zen," Collins said.

According to John Stoddard, vice president and general manager of the Wilshire Grand Hotel, the city's hotel community, except for Zen, largely supports plans for the L.A Live project.

"That hotel is going to help everybody, including him," said Stoddard, a member of the LA Inc. board.

Stoddard said city officials were talking about constructing a convention center hotel when he arrived in Los Angeles in 1998. "This is exactly what L.A. needs to attract citywide conventions. Here it is over seven years later, and we're still waiting for this thing."

Currently, the city of Los Angeles contributes $20 million per year from its general fund to help the underutilized convention center make its construction bond payments. Stoddard argued that construction of an adjoining hotel would allow the convention center to draw more events, and thus become self-supporting.

"This hotel will turn that convention center around and make it a self-sustaining operation. I'm not personally aware of one politician that was opposed to this," Stoddard said. "The only person on this planet that's opposed to this is Peter Zen."

LA Inc. has been under increasing pressure to draw conventions. The bureau booked 15 major conventions in 2004, down from 35 in 2001. As of several months ago, 12 had been booked for this year.

The L.A. Convention Center underwent a $525 million expansion in 1993. But its 650 nearby hotel rooms are dwarfed by the 5,000 near San Francisco's convention center, 4,500 near the Anaheim Convention Center and 2,700 near the San Diego Convention Center, CVB officials say.

One of the city's largest shows is E³/Electronic Entertainment Expo, drawing 400 exhibitors and 65,000 attendees to a 540,000 net sq. ft. showfloor in 2004 and placing 29th on the 2005 Tradeshow Week 200.

"There's not a reason why we shouldn't have two E³s a month," Stoddard said. "Then we're going to have jobs downtown, we're going to have economic vitality, we'll have tax revenues, more policemen, more firemen. It's just absolutely the catalyst that it's going to take."

Zen, however, doesn't subscribe to that vision. Citing the recent Brookings Institution report that questioned whether publicly funded venue expansions resulted in higher bookings as promised, Zen blames the city's dearth of large conventions on LA Inc. "The bureau can do a better job," he said.

Zen was an outspoken critic of the late George Kirkland, the bureau's former president. In 2002, the Bonaventure's CVB membership was revoked after it stopped paying its dues in protest. The hotel has since rejoined, and Zen said he's more optimistic about the bureau's new leader, Mark Liberman.

But he charges that city officials are trying to push the subsidy package through. "I think the downtown City Hall has made up their mind," he said. "If it's such a good idea, why don't they do it on their own dollar?"