Saturday, January 23, 2010

An Interview with Chuck Skelton

Chuck Skelton is the President of Hospitality Advisors Group of Ann Arbor. As such, he is an authority on hotel business, especially in Michigan. He was quoted at length in an article in Ann Arbor Area Business Monthly. Here is a quote from that article, originally published in 2006:

"Hotel occupancy rates averaged about 67 percent for 2005, up 4.5 percent from the previous year. The average daily rate was $89.00, says Charles Skelton. President of Hospitality Advisors Group of Ann Arbor. The city's hotels achieved an occupancy rate eight points higher than the Southeast Michigan area as a whole (59 percent), and an ADR of one dollar higher. "

The following is an account of an interview a member of our group, Leslie Morris, conducted with Chuck Skelton on January 22, 2010. ("I" refers to Leslie.) Her account is presented verbatim with minor editing for typography.


I asked if it would be normal in the hotel feasibility business for RFP's to exclude any firm with a local office, as it seemed to me that local experience would be valuable. He said he had had experience only in responding to RFP's, and not in writing them, but that he had not seen such an exclusion before. I said it seemed strange to me that only a week was allowed to respond to the RFP. He said it was an indication that the RFP was "wired". His firm would be unable to turn around to respond in such a short time, and he thought others would have difficulty also.

(Ed. note: Leslie and Chuck are evidently referring here to the RFQ that the City of Ann Arbor issued for a financial consultant to help evaluate proposals from the RFP for the Library Lot.)

He recounted an experience he had about twenty years ago. He was asked to serve on a citizen committee, which was formed to react to a study that the city (Ann Arbor) had commissioned to assess feasibility of a convention center. The study was done by a nationally known firm, but was so poorly executed, and included so many erroneous assumptions, that he refused to sign off on it. As an example, he said that the producers of the study had assembled a list of all the groups that meet at large midwestern conference centers, including McCormick Center in Chicago and other convention centers in cities like Cleveland (I didn't get down all the names). He said they then claimed that an Ann Arbor convention center would have access to 100% of these groups. He said his opinion was that Ann Arbor would be lucky to have access to 1% of the groups that meet at the McCormick Center, which is very large, and can accommodate big trade shows. He thought that Ann Arbor might have access to 10% of the groups that meet at the other larger midwestern convention centers. He thinks that this poorly-done study is the one that Jesse Bernstein is carrying around and citing currently.

He brought up the Valiant proposal, which he said he was familiar with. He said the ADR (average daily rate) in Ann Arbor is about $100, that we are not a "high end" market. He had noticed that the Valiant proposal had indicated an ADR that was $80 above the Ann Arbor average, and that they had projected an 80% occupancy rate. He thinks this is unrealistic and impossible to achieve. He had talked earlier with some of the Valiant proposers, as indicated in Sabra Briere's memo on her meeting with him. They thought it was very difficult to get a room in Ann Arbor, and that the rate was $200 a night. He asked when they had this experience, and they said "homecoming and graduation". He said those were among the highest occupancy and highest rates of the entire year, and that the winter business was nothing like that. They did not believe him.

I asked Chuck to react to the Acquest hotel proposal, which projected a $135 ADR, rising to $150 by 2016, with occupancy to begin at 55% and rising to 67%. He answered that this is noticeably above the $100 ADR of other Ann Arbor hotels. Faced with this competition, local hotels like Weber's would be likely to cut their rates to keep up their own occupancy, and that the new hotel would not be able to reach its projected occupancy figures.

He described the Ann Arbor hotel season: May, June, July, August, September, and weekends in October. This is less than half the year, and hotels have to survive through the very meager and long Michigan winter. Another local problem is the University of Michigan's insistence on its $85 per night rate, which it can demand because it is the "gorilla". Much of the winter hotel occupancy is generated by the UM. They have refused to back any of the current proposals, and based on past history would refuse to pay the projected rates.

(Ed. note: some individuals from the UM have written supportive letters attached to proposals, but according to Jim Kosteva, the UM's public spokesperson, the UM as an institution does not back any proposal.)

He said another problem with the Valiant convention center is that it is too small. It is similar in size to other private or University-owned meeting spaces, and would not bring in new business in the form of larger groups, but would essentially move existing business around, causing other facilities to be under-utilized. The conundrum is that small conference facilities won't bring in much new business, and larger convention centers (60,000-80,000 sq. ft.) would be empty much of the year, during the long, unpleasant Michigan winter.

Convention business across the country is down not only because of the poor economy, but because of the increasing popularity of video conferencing. This trend is expected to continue. All Michigan convention centers are subsidized. The Grand Rapids convention center could not survive without the generous private support from the Van Andel family.

As a citizen, Chuck has major problems with the proposition that the city government should aid one commercial business venture at the expense of other existing businesses. In his view, this is simply not fair. And as a citizen, he does not want to have the city (and its taxpayers) involved in a risky, speculative business. The hotel and conference business is extraordinarily risky right now. The proposers could not do their projects without city aid.

Chuck thinks anybody who wants to build a hotel on the library lot should get their own financing, buy or lease the land from the city at a fair price to the city, and take all the risk themselves. If this is not possible now, the city should wait until it is possible. In the meantime, the land could be a nice park, or even a surface parking lot, as it is now.

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