SIOUX CITY | Faced with declining revenue, some local hotel owners view the city's plans to bring one or more new hotels to Sioux City with hesitation, wary that supply will soon exceed the market's demand if the city doesn't make more of an effort to bring in special events.
The city plans to offer financial incentives for a $21 million Courtyard by Marriott that would connect to the Convention Center. The city also is talking to potential developers for another hotel near a proposed ag expo center in the former stockyards area. Both hotels are part of the city's application for $14 million in future hotel and sales tax revenue from the state's Reinvestment District program.
Shailesh Patel, owner of Sioux City's Hampton Inn at Sunnybrook Plaza, said with only three to five large-impact events like the NAIA tournaments each year, adding new hotels without adding events and marketing won't help the industry.
"The city can't build a hotel saying, 'If we build it, they will come,'" Patel said. "It doesn't work that way. You have to raise demand first, then raise supply. You can't raise supply first."
Patel cited recent reports that show during the past nine months, local hotels have on average lost about 20 percent of their revenue -- a drop attributed to the departure of thousands of construction workers who began returning home last summer.
CF Industries' $2 billion expansion, at its peak, brought 5,300 temporary workers to the metro area. Provided with housing stipends, many workers booked rooms in hotels for the duration of their stay.
Pradip Desai, part-owner of the Howard Johnson, the only hotel currently connected to the Convention Center via skywalk, said he doesn't see an additional nearby hotel as a threat, but he fears what he perceives as a lack of a coordinated effort by the city to bring in increased event traffic.
"The existing hotel business is not even fully occupied," he said.
While some hotel owners believes new hotels are a "cart before the horse" scenario, the city has taken a differing philosophy, saying a new high-brand hotel connected to the Convention Center and a renovated ballroom area are necessary to attract more events.
Staff say some conferences have turned down the city's bids because of a lack of quality hotel, and that the potential for increased traffic at the Convention Center will likely reduce the city's yearly subsidy and be a boost to area hotels. The ag expo center would provide an additional draw for regional equestrian, rodeo and show animal events.
Representatives of nearly a dozen metro hotels gathered at the Hampton Inn Wednesday afternoon to discuss how they should approach the city. The hospitality association supports the formation of a mayor-appointed Convention Visitors Bureau consisting of four hotel representatives and three other members. The board would focus on marketing the city.
For funding sources, Patel pointed to the city's share of the hotel-motel tax, a large portion of which currently supports shortfalls at the Tyson Events Center and Convention Center.
Sioux City collected $2.47 million through its 7 percent hotel-motel tax during the fiscal year ending June 2016, its highest total in the past five years. According to city code, the city is required to allocate 50 percent of the hotel-motel tax toward events and facilities projects, debt or promotion.
According to a sheet showing the city's Events Facilities Department's fund analysis, hotel-motel tax has helped the city cover maintenance expenses at the Tyson and Convention Center, venues that have experienced shortfalls in the hundreds of thousands of dollars in recent years.
Previous discussions between hotel owners and city leaders about reallocating the city's portion of hotel-motel tax have fallen flat, as redirecting the funds most likely would require an increase in property taxes.
Patel said he's tired of seeing the city funnel money into facilities that lose money every year and believes the city needs to invest more in marketing what it has to offer. He suggested shifting the Tyson Events Center to private management.
Hotel owners Wednesday formulated plans to enter into a dialogue with city leaders to make their interests known, pointing out that increased event traffic from outside cities will not only help hotels but also local restaurants, convenience stores and shopping establishments.