Thursday, June 7, 2012

What am I missing?

If you think you've got an easy answer to a hard problem, you're likely wrong. So I'm likely wrong here.

The Press reports that the Christchurch Convention Centre was insured for $30m but that like-for-like replacement would cost $60m. Whatever external benefits come from holding conferences in town are mostly internalised by the local hotel and restaurant industry; solutions letting the convention centre build internalize those external benefits helps ensure an efficiently sized convention centre. Here's one way of doing it, conditional on Council wanting a convention centre.
  1. Council buys options on a few appropriate sites around town.
  2. Council gets in touch with the big hotels to tell them that Council's going to build a much smaller convention centre for $30 million, but that they want to site it so it can be linked by skywalks* to adjacent blocks if the hotels want to be linked to it. If the hospitality industry really wants a bigger convention centre, they can come back with a proposal where the hotels fund an expanded facility. But even with a smaller convention centre, they can still host big conventions by holding plenary sessions in the big convention centre facilities and having breakout sessions in the different connected hotels' conference rooms. 
  3. Figure out the set of sites on which you have options that best suits the set of hotel partners. The hotels buy the options off Council for their parts of the build.
  4. Exercise the options and get on with it. Make sure there's room on the site to put a few restaurants; put restaurant provision up to competitive bidding so that any rents from conventioneers get capitalized into the purchase price and help fund the place, internalizing the external benefit. 
I expect that I'm missing some fights between Council and the insurers on what "full replacement insurance" really means when building codes change to become more expensive consequent to the insured event happening.

If Council's insurance policy lets them keep the cash rather than forcing them into building a convention centre, that's really not all that bad an option. Are the economics of convention centres that much better than stadiums?

Update: Please note that a decent part of the reasoning here comes from a lunchtime chat with co-blogger Seamus.

* Winnipeg term for covered heated overhead pedestrian corridor. Much of downtown is connected through series of tunnels and skywalks - the Winnipeg Walkway. Most buildings at the University of Manitoba campus, in a different part of town, were connected by their own underground tunnel system. It's lucky that the economics courses were taught in buildings accessible by tunnel; when I lived in a residence hall connected up to the tunnel system, I avoided enrolling in classes that would require going outside. All campuses should have heated tunnel access from the residence halls to the campus bar.

4 comments:

  1. Well, if you are missing something, I must be two, as I had had exactly the same idea. The model here should be the ASSA meetings when they are held in Boston. These meetings held each year in early January are too big to ever be confined to a single convention centre or hotel; when held in Boston, they are confined to several hotels, all connected with covered walkways, removing the need to put on galoshes to go out in the snow.

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    1. Hmm... you're right. I might have lifted it from you from the lunch room. Will have to update post with attribution.

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  2. what Eric is missing is the obvious,
    Christchurch is fucked Eric, absolutely and completely fucked,
    'this is a dead parrot Eric, it can not sing',
    and the good money has already left,surely you have heard that,
    and we need a convention centre like we need an overhead cover on Jade stadium,call in Lancaster park if you like call it AMI but find the money not from me I have left, and we need Bob Parker,
    and we also need a nice new 100 million dollar sports stadium on the East side , yes we need a sports stadium in the East because Tony Marryat said so, poor little east side, so dead nobody there, but lets build a stadium or a useless Pier to nowhere in memory of Vicky Buck etc, and lets not forget Hereford street, City Council, it needs its new upgrade and no body with any brains is going to run a convention in Christchurch, Eric, they are more likely to transport their people up and down from Queenstown and from Kaikoura nice day fun, maybe even Blenheim but not dead Christchurch

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    1. I put some weight on that, Paul. But surely in that case Council would just say "Sorry, no convention centre here. Hotels, plan on there being no convention centre and stop waiting for us to pick a site."

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