Thursday, April 12, 2007

Several random thoughts

1. We have 31 tax returns to go...

2. Robert Enders has decided that he will be allowing anonymous comments once he
takes over this blog.

3. I am starting a new blog. I am currently leaning towards starting it after my
family gets back from Germany this summer.

4. Has anyone seen ANYTHING concrete from Fort Wayne regarding projected hotel
occupancy rates for the new hotel they want to subsidize downtown?

Mike Sylvester

25 comments:

Andrew Kaduk said...

Mike,

What you are requesting is not actually possible to accomplish with any acceptable degree of accuracy. It is such for a variety of reasons:

1. We have no model on which to base projections.

2. We have no idea (yet) who will be responsible for generating event-driven business that will directly influence said occupancy rates.

3. We have no idea how successful the person(s) described in #2 will be.

This means that any forecasting on the topic is complete conjecture, and therefore fairly useless.

Now, on the other hand, it is reasonable to start your query assuming 100% occupancy and to determine what margin of underperformance is acceptable...whereby creating a type of "low level" warning, and also establishing goals for the person(s) in #2...but trying to guess how humans (especially in large groups) will behave seems somewhat futile.

But, I could be wrong. It just seems to me that trying to quanitfy the unknown with so many unconrollable variables would leave unacceptable margins of error in the data.

Robert Enders said...

Yes. I project that the hotel's occupancy rate will be less than what other local hotels are now. IPFW already wants to build a new hotel, so there will be two additional hotels drawing from the same pool of customers. The pool might be bigger next year, but this will be attributed to normal economic growth. Nevertheless, none of the hotels in Fort Wayne will have an occupancy rate above 50% if another hotel is built. I should know, because I have worked in both hotels and I have taken economics my senior year in high school.

LP Mike Sylvester said...

Andrew:

You cannot actually be serious, can you?

Any time a private enterprise builds a hotel they should always have a projection of occupancy rates. They absolutely have to project the occupancy rate so that they can project revenue, number of employees, etc.

Crowe absolutely had to have a projected hotel occupancy rate and a parking space usage rate and an attendence for Wizards games over the life of the financial projection.

Without the above estimates the entire projection could not have been created. The above estimates are the "heart" of the projection.

Interestingly enough, none of those projections are included in the report...

Imagine that...

Mike Sylvester

Andrew Kaduk said...

Those projections are not in the report because they don't exist...

Too many variables with not enough quantifiable data.

I'm not sayting that people don't/won't try to forecast, I'm simply saying that any results yielded will be utterly speculative at best based solely on the data available at this moment.

Besides, Mike, anytime a PRIVATE ENTERPRISE builds a business plan to calculate risk/reward factors, they are under no obligation to divulge their findings to you or anybody else. They are called private for a reason...being, they are not public.

LP Mike Sylvester said...

Andrew:

YOu are correct; however, Fort Wayne has promised that the projections will be revealed to us and that is what I want.

We are spending public money to prop this project up...

Also read the Crowe report on the project.

Crowe had to project the items I listed above, that report was paid for with 100% public money, and I want to know what their assumptions are...

Mike Sylvester

Robert Enders said...

Andrew, while I am predicting failure for the hotel, you are insisting that it is impossible to know whether it will succeed or fail. Most businesses would not invest that kind of money unless they had a reasonable chance of success. Now, as a business grows, it can afford to take bigger risks. The demand may be such that Fort Wayne will need another hotel in 10 years. But when that happens, whoever builds the hotel will be willing to use his own money and funds from private investors who hope to make a profit.

Andrew Kaduk said...

If performed privately, it would likely be done as follows:

1. Assume 100% occupancy
2. Reduce occupancy incrementally until red ink appears
3. Record results in #2 as your first benchmark, and establish a time-table by which it must be reached
4. Determine the feasibility of accomplishing #3. If feasible, go to #5. If not, reduce capital expenditures and operating expenses, then go back to #1.
5. Since #3 is feasible, proceed with project.

So really, the hotel assumes much risk if they are not satisfied with the numbers and proceed anyway. I'd be more worried about a quietly-proposed publicly funded safety net than what the actual projections may or may not be. Such a safety net would assuredly enable the hotel to take unwise risks.

This scenario, particularly the latter part of bullet #4 above might be exactly why the size and scope of the hotel has been mysteriously reduced.

Andrew Kaduk said...

Robert, although your logic is fairly sound, I certainly hope you are able to see the "Catch 22" that you have stumbled upon.

Downtown needs to be revitalized, which means it needs to be a destination, of sorts. Downtown cannot truly be a "destination" because there are not enough hotel rooms to house the significant numbers of people it takes to reach "destination" status. Hotels will not independently decide to build until "destination" status has been reached.

See? It's just a chicken/egg scenario...and the city is just trying to introduce the chicken and egg simultaneously to reverse the current downtown trend which is

a) Blight
b) Bulldoze
c) Move to suburbs

Kat Coble said...

Andrew's right, bless his heart. There is not a way to get accurate projections.

Which is why the hotel wants the City to eat a lot of the cost.

And which is also why the City doesn't think it should have to eat a lot of the cost.

Still, Andrew, do you think the STADIUM will draw enough of a crowd to ensure occupancy in the black? I don't.

I don't know what will.

Tim Zank said...

If the hotel is built on the hope that baseball fans will fill it on game nights, they will be really disappointed.

Andrew Kaduk said...

I haven't the foggiest idea. Truth be told, I don't even like baseball.

It will most certainly draw more traffic than will a vacant liquor store or gated surface parking lots.

I am vastly more entertained and interested in observing the magnetic effect that the project may have on other businesses. That is where the speculation becomes pretty intense, but also where the possibilities become pretty cool.

bobett said...

Speaking of random thoughts,
(regarding Federal taxes)
Read and send a fax to elected
officials by April 17th about HR25 bill at Fairtax.org

This tax season, don’t just send the IRS another check. Send your elected officials a clear message: We’re fed up with a convoluted tax code written by D.C. lobbyists to the benefit of special interests. You'll be able to personalize a fax to send to your senators and representative.

Educate yourself and elected officials about bill HR25.

Kindest thoughts and crunch time
this tax season.

LP Mike Sylvester said...

I think the Fair Tax would be an improvement over what we have and I also support the Fair Tax.

Mike Sylvester

Jeff Pruitt said...

When the city hands over millions of dollars to a hotel developer and the city is basing THE ENTIRE success of Harrison Square on the hotel revenue they had better damn well have SOME numbers in mind.

We can quibble over whether we call them projections, break-even points, whatever. The point is they MUST provide those numbers.

Evidently they DID because the economic imapact study was based on numbers from the CRED consultant's study - whatever that is. The city must provide that document (by law) and I'm sure they will...

Robert Enders said...

Ok, Andrew, the question is then what constitutes "revitalization"? The city has already shut down two successful businesses, Belmont Liquors and the Palace, in pursuit of this project. The problem is that there are no tangible goals for the city to reach, no way to define success. It is sort of like Vietnam only no one is getting killed. President Bush- I mean, Mayor Richards is bulldozing the village in order to save it. What they should have down was declared victory after the library and Grand Wayne Center were expanded.

Andrew Kaduk said...

Are you suggesting that it is actually impossible for Fort Wayne to create a downtown where you might actually see living adult humans walking around, having fun after 7pm on any given night? Or how about on a weekend in the afternoon?

Declaring victory after the library and GWC would have basically been the local equivalent of "Mission accomplished," only without the dead people...as you have appropriately noted. Downtown is still unexciting and mostly unwelcoming.

Robert Enders said...

For one thing, its still cold out. Secondly, that's highly subjective. The library seems to be a big hit. I like going downtown when it is warm out. But I usually only go when its along the way to someplace else.

Robert Enders said...

I should have put this in my previous comment. My point was that you cannot use pedestrian traffic as a measure of success. I looked at a map recently and it showed that Fort Wayne is in a country full of people who will get in their car to drive two blocks. I don't see adults, but I do see cars parked there after 7pm and last time I checked, usually those are owned and operated by adults.

Jeff Pruitt said...

Andrew,

There is Columbia Street, Club Soda, Oyster Bar, Park Place, 412 Club, Henry's

I'll admit that these aren't nicely co-lated into a "square" but there are people downtown at night.

I still say that most of the people claiming:

1)there isn't enough parking
2)there isn't anywhere to go

don't ever bother to try and go downtown...

bobett said...

Enjoy your blog,

Thanks for thinking beyond
Fort Wayne...and including
Fairtax.org.

I so much appreciate
the opportunity to get the message out... the Voices of everyday America....that can be heard via e-mail to the Federal government.

Jeff Pruitt said...

The fair tax is a lie.

They say it's 23% "as compared to current rate terminology for the
taxes the FairTax replaces)"

That's crap.

It's a damn 30% sales tax rate. If I buy something that's $1 it will cost me $.30 extra. The fact that they lie about the rate should send up a red flag to everyone...

Andrew Kaduk said...

Robert,

A hearty chuckle and touche on the observation of the "drive 2 blocks" phenomenon. Although very true here, I should mention that due to some rather extensive travel in the last 10 years, I can honestly say that it's not like that everywhere.

Every town has a library, so that's hardly a measure of success either. I have one here, in Hicksville, OH (population 4300). Nor is a library a viable business...it's a black hole for public money too.

"But I usually only go when its along the way to someplace else."

Exactly.

Jeff, I agree with your points, but you probably knew that already, didn't you? :)

david said...

It is 44 degrees and raining in DC this week, people are still going out because there is a reason to do so here.

Robert Enders said...

Our library kicks butt though. Have you seen it? It looks like a mall, but all the books are free. It has a coffee shop, and the largest archive of genological records outside of Utah. This actually does attract out of state visitors. I keep meaning to go there and look up whether or not any of my great-grandfathers fought in WWI.

Robert Enders said...

You'll see more foot traffic year round in cities that have good public transportation systems. Fort Wayne's buses stop running after about 7pm. I wish I could take the bus to work, but I work third shift. I probably wouldn't bother with owning a car at all if I worked days. But that would put a lot of hard working American autoworkers and Iranian nuclear scientists out of work if we all did that.