Markets don't lie

Submitted by Ed Morrison on Tue, 08/14/2007 - 04:54.

The mind boggles.

We now have airplanes flying over Jacobs Field exhorting people not to sign petitions. In the home of the City Club, this is civic debate?

Perhaps we can bring a little market reality to the situation. From this perspective, the petitioners seem, well, rational and responsible... guardians of the public purse.

Let's look to Pittsburgh to see why.

Here's what an economic development analysis for a convention center looks like. Prepared by Carnegie Mellon, the analysis looks at the benefits and costs of building the new convention center in Pittsburgh. Download the PowerPoint.

The conclusion: the costs outweigh the benefits. Pittsburgh went ahead and built the center anyway. And now the folks in Pittsburgh have got a beautiful big box. They are not meeting their attendance projections (but, then again, neither are Baltimore or Washington). No meeting of minds at Downtown convention center

Maybe the petitioners are right to slow things down, get a plan in place, then focus on figuring out how to finance it. (Those are the rational steps Portland, OR is taking with its center, as this flow chart shows.)

A chart from Jacksonville's recent market analysis shows the problem: convention space is outstripping demand. It will likely take some years for the market to rebalance.

We all want Cleveland to succeed. However, a convention center is placing a very big bet on a very soft market. The medical mart might be able to mitigate this risk by providing a base load of demand.

The whole equation needs a sharp pencil, though. We have yet to see a plan. (In the face of perilous market conditions, how will this whole project work? The County's grades for managing capital projects are not all that high, according to Governing magazine. Learn more.)

Years ago, Richard Shatten cautioned Cleveland's leaders against simplistic strategies to complex challenges. Read more.

In the end, we all must face a cold reality: markets don't lie.

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Leadership void

Some of your readers may not realize that although this article was published recently, Richard Shatten can not physically help us today, but his thoughts still inspire.   I can not believe that there is not one living person out there to fill the void? 

Will Fred Nance save Cleveland?

I can't link to the Crain's article (Crain's Cleveland Business; 7/30/2007, Vol. 28 Issue 30, p1-21, 2p), but Jay Miller reports that Fred Nance, chairman of the Greater Cleveland Partnership, has been awarded the responsibility of negotiating with th private developer, if the plan for a new convention center in Cuyahoga County, Ohio comes into effect. Nance will be the intermediary between the Merchandise Mart Properties Inc., and developers and land owners.  Hagan is reported to have said that "we won't pay 40 million dollars for air rights," refering to Forest City/Sam Miller's previous package for the first convention center proposal.

Crain's recorded Hagan's estimates of the tax raising 37 million dollars/year and caps the projects costs at 450 million.  How does that add up to a convention center and medical mart by 2010?

Regional Reflections

I agree with many of your thoughts, Ed.  In regards to simplistic strategies combating complex connundrums - its a bit of a trade-off - we need to assure that the strategies assimilated and employed toward meaningful economic development are thoroughly understood by a maximal number of included and diverse stakeholders.  This helps ensure a more ubiquitous and diverse stakeholder set supplying stewardship.

In terms of regional advancement beyond the Voices and Choices efforts which predominated the last few years I received a recent economic development update reporting some positive things: the MAGNET (Manufacturing Advocacy and Growth Network) has succesfully drawn a base of job offerers and job seekers to launch and propel its new online initiative,   Added incentive has been provided by offering free postings to employers until November of this year, after which time an annual fee will be billed.  It is critical to drive whichever engines possible to enrich manufacturing success with either homegrown or recruited talent to ensure global competitiveness for our region's factories.

Thanks much for your post.