HomeMy WebLinkAbout1998 06-15 CCP Work Session AGENDA
CITY COUNCIL WORK SESSION
JUNE 15, 1998
7:00 P.M.
CONFERENCE ROOM B
1. Presentation of survey results from survey conducted by Riverwood Neighborhood
Association.
2. Time line for Council review of social service requests.
3. Earle Brown Heritage Center
4. Miscellaneous
5. Adjourn
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June 10, 1998
MEMO
TO: Michael J. McCauley, City Manager
FROM: Jane A. Chambers, Assistant City Manager[HR Director
SUBJECT: Earle Brown Heritage Center Capitol Improvement Program
Attached, please find the following information:
• The summary sheet (page one) showing projected funded and unfunded capitol
expenditures for both buildings and equipment for the five year period between 1998-
2002.
• Summary sheet page one was developed after an itemized listing of building needs for a 20
year period was developed. This itemized listing can be found on pages two through five.
The itemized listing was created by working with both EBHC staff and by gathering input
from the expertise of a construction management firm.
• EBHC also developed an itemized listing of equipment needs for a 20 year period. A
summary of the itemized equipment needs for 1998 -2002 appears on page eight.
In order to meet both building and equipment capitol needs during this five year period, it is
estimated that $1,000,169 in funding is necessary. Some capitol expenses have been absorbed into
the operations budget of the EBHC on an annual basis. It is anticipated that some funding will
continue to available through the operations budget for capitol expenditures. I have inserted
$35,000 for the years 1998 and 1999, and increased that to $50,000 for the balance of the five
years to represent funding that may be available. The difference between the capitol needs total
and that available from retained earnings is the approximate amount of capitol expenditures which
are currently unfunded. There is potential for increased retained earnings as the H and G barns
come on line for space rental.
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Earle Brown Heritage Center I I I J
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Projected Funded and Unfunded Capitol Expenditures 1998 -2002
6/9/98
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Buildings 1998 1999 2000 2001 2002 Total Five Years
Convention Center $ 85,958 $ 103,958 $ 143,533 $ 56,958 I $ 51,958 I $ 442,365
D Barn I I $ 17,016
H Barn . I $ 28,000 , , I $ 28,000
Black Smith Shop I $ 11,260 I I I I $ 11,260
INN $ 15,499 I $ 14,599 I $ 49,667 I $ 17,599 I $ 14,599 I I $ 111,963
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Total Buildings $ 101 157 210,216 74,557 66,557 610,604
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Equipment $ 44,631 $ 135,119 I $ 105,778 I $ 69,037 $ 35,000 I I $ 389,565
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Grand Total
Buildings and Equipment $ 146,088 $ 292,936 I $ 315,994 $ 143,594 $ 101,557 I $ 1,000,169 Projected Needs
Less Anticipated Retained $ 35,000 $ 35,000 $ 50,000 $ 50,000 $ 50,000 $ 220,000
Earnings used toward Capitol
Expenditures
$ x.....5...2 .. fi
.......................................... .......,..............�........ ...................�......... ,......:.:.. �::........... ...:::.....::.. .:.:�:::::::::: :.::�.::::::.:.� ...,7 .. 8..:: Unfunded :::::::::::::.::::::..::::
Year 2000 includes $91,000 for roofing material replacement
Page 1
• CAPITOL IMf*,EMENT PROGRAM
EARLE BROWN HERITAGE CENTER
SUMMARY BY BUILDING AND YEAR
6/10/981
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.......... ..
.t .. M.
...... .... .....
... .... ........ ... ... .......... .......... ... ..........
Convention Center
Roofing 1 $ 91,575 $ 67,130
Divider Walls $ 21,000
Carpeting 1 $ 26,358 $ 26,358 $ 26,358 $ 26,358 $ 26,358
Wall Coverings $ 72,000 $ 72,000
HVAC - Mgt. System $ 34,000 $ 34,000
pumps and motors $ 2,400 $ 2,400 $ 2,400 $ 2,400 $ 2,400 $ 10,000 $ 10,000
MUA & AHU $ 6,500 $ 6,500 $ 6,500 $ 6,500 $ 6,500 $ 13,000 $ 13,000
FC & VAVJ $ 14,800 $ 14,800 $ 14,8 $ 14,800 $ 14,800 $ 81,400 $ 81,400
Water Heaters $ 1,900 $ 1,900 $ 1,900 $ 1,900 $ 1,900
Chiller $ 100,000
B 1 $ 50,000
Water Softner $ 10,000
Trash Compactor $ 14,900
Parking Lot
Resufacing
Sealcoat 18,000 $ 15,000
Patch/crack seal $ 5,000 $ 10,000 $ 6,000
Mill & Overlay $ 35,000
TOTAL $ 85,958 $ 103,958 $ 143,533 $ 56,958 $ 51,958 442,366 $ 319,530 $ 362,300
GRAND TOTAL $ 1,124,195
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• CAPITOL IM*EMENT PROGRAM •
EARLE BROWN HERITAGE CENTER
SUMMARY BY BUILDING AND YEAR
6/10/981 1 1
:. <..,.
,...., ...........:::...2t? Qty:::........,.. 2:t: ....:::..,<:�.:�c7t3.2<ri�::... ; ... `
D Barn
Roofing I I I I I I$ 5,040
I I I I
Carpeting $ 17,016
Forced Air - 2 units I I $ 5,000
Two Cooling Units I I I ! $ 6,400
Water Softner I I I I ( ! $ 10,000
TOTAL $ 17,016 $ 17,016 $ 21,440 $ 5,000
GRAND TOTAL I I I I I I I I I$ 43,456
Page 3
CAPITOL IWO EMENT PROGRAM 1 0
EARLE BROWN HERITAGE CENTER
SUMMARY BY BUILDING AND YEAR
6/10/98
...... ..........,: ............ :.::::::::. �: ��► 99::» �:::;::<:.:;.:;<.;:. 2....,....... ..c�+'�1:<:<:<<::: >:�:22:.:� >:. � tot :. ..:f � :; _ "S
.:.:
H Barn '
Roofing I I $ 1,260
Carpeting I I $ 28,000
Water Softner I I I I I I$ 10,000
TOTAL j I $ 28,000 I I I $ 28,000 I $ 10,000 $ 1,260
GRAND TOTAL I I I I I I $ 39,260
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• CAPITOL IMFOEMENT PROGRAM •
EARLE BROWN HERITAGE CENTER
SUMMARY BY BUILDING AND YEAR
6/10/98
Black Smith Shop
Roofing $ 46,200
Carpeting 1 1 $ 11,2601
Chillers (2) 3 ton, 1 ton i $ 6,400
TOTAL I $ 11,2601 i + $ 11,260 I $ 46,200 $ 6,400
GRAND TOTAL $ 63,860
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i CAPITOL IMFrEMENT PROGRAM •
EARLE BROWN HERITAGE CENTER
SUMMARY BY BUILIDING AND YEAR
6/10/981
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Roofing $ 24,075
Carpeting J $ 35,068
Hardwood floors $ 900
Water Heaters $ 3,000
Boilers and Pumps $ 12,000
Fan Coils I $ 9,482 $ 9,482 $ 9,482 $ 9,482 $ 9,482 $ 66,374 $ 75,856
AC Units $ 12,800 $ 12,800
Water Softner I $ 10,000
Refurbish Inn Rooms $ 5,117 $ 5,117 $ 5,117 $ 5,117 $ 5,117 $ 30,702 $ 35,819
TOTAL I $15,499 $14,599 $ 49,667 $17,599 $14,599 $ 111,963 $ 133,951 $ 146,475
GRAND TOTAL $ 392,389
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• CAPITOL IMSEMENT PROGRAM •
EARLE BROWN HERITAGE CENTER
CAPITOL IMPROVEMENT PROGRAM
SUMMARY SHEET
6/10/98)
BUILDINGS 1998 1999 2000 I + 2001 2002 Total Five Years 2003 -2010 2010+
1 1 1 I _
Convention Center $ 85,958 I $ 103,958 1 $ 143,533 $ 56,958 1 $ 51,958 $ 442,365 $ 319,530 1 $ 362,300
D Barn I 1 $ 17,016 1 1 $ 17,016 $ 21,440 1 $ 5,000
H Barn 1 $ 28,000 1 1 1 1 $ 28,000 $ 10,000, 1 $ 1,260
Black Smith Shop 1 $ 11,2601 1 1 1 $ 11,260 $ 46,200 1 $ 6,400
INN $ 15,499 1 $ 14,599 1 $ 49,667 1 $17,599 1 $14,599 II $ 111,963 $ 133,951 1 , $ 146,475
$ 101,457 $ 157,817 $ 210,216 $74,557 $66,557 $ 610,604 $ 531,121 $ 521,435
Grand Total I + $ 1,663,160
Page Seven
CAPITOL IMI•.EMENT PROGRAM
EARLE BROWN HERITAGE CENTER
ANNUAL EQUIPMENT EXPENSES
CONFERENCES AND CATERING
6,10,98 I ,
f l y +
s.......,.s.. ..... :. :::.:: ::.. :•: :•.... .. :. .:X.. r..:.:.... .......s.......... .: . ,.. .: ....::, ::•.y.. t:•:::,•::ti'.;.. _ y; � r: ;.r..,: {y
:..:.:::.•: >:•;.... ..�.9�! Eta: as::.:•.. ..'tJ�S::,<::::......:..2�Jt3f? .:. ......2€�:2�4'` :.�:1".tt���.�F.. � .:: 2W.34 l���3 .�
•...... � ......:.........::::::........:.......:.,:..:::::..,............:.., s.::: s.::!.:..............:.. �:. �:.........,.,.......:..:::.......:.,.........:.:.:•:................... �.:..............;: XfFE. T,:; 3;!':... s .�:��Rs�..•...�� ..:.:... il.FxiL�s. �.✓��i;.•"Flr.�.:.'.N�.
AMOUNT, 1$44,631 $ 135,119 $ 105,778 $ 69,037 $ 35,000 $ 389,565 $ 383,137 $ 274,060
Average per year , $77,913 ,
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Page Eight
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JJrii EAR.LE BROWN
HERITAGE CENTER
OPERATIONS AND
MARKETING REVIEW
FINDINGS, CONCLUSIONS
& RECOMMENDATIONS
SEPTEMBER 1993
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MAP,Q vEITE P ARTNEJL \ Q Q
PROFESSIONAL REAL ESTATE SERVICES
Consulting Services Division
700 Northstar East • 608 2nd Ave. So. 0 Minneapolis, MN 55402
Phone: 612-333-6515 • FAX: 612-338-2216
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EARLE BROWN HERITAGE CENTER
OPERATIONS AND MARKETING REVIEW
TABLE OF CONTENTS
Letter of Transmittal
Page
BACKGROUND
1
CONCLUSIONS & RECOMMENDATIONS 2
FACILITY PROFILE 10
PERFORMANCE EXPECTATIONS 13
PROFILE OF BUSINESS 15
' MARKETING ISSUES 22
OPERATIONAL ISSUES 25
COMMUNITY IMPACT 31
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L MAkQ UEITE PARTNEP _
PROFE SS t O N AL REAL ESTATE SERVICES
Brooklyn Center Economic Development Authority
City of Brooklyn Center
6301 Shingle Creek Parkway
Brooklyn Center, MN 55430
Pursuant to our engagement letter dated April 30 1993 we are leased to resent the
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accompanying report entitled "Earle Brown Heritage Center - Operations and Marketing Review:
Findings, Conclusions and Recommendations."
This report presents a summary of the tasks which we performed in studying the operations and
marketing efforts of the Earle Brown Heritage Center; the conclusions which we have drawn
from our analysis; and our recommendations to improve future performance. As in any study
of the operations of an on -going business, the operating profile continues to change and evolve,
even as the shady and reporting process are underway. Indeed, operations at the Earle Brown
Heritage Center are being steadily improved and refined by management on an overall time line
which is largely consistent with the profile of comparable facilities during their initial operating
F years. As a result, recommendations presented in this report may in several cases, either
already be in place or under consideration. Such recommendations are included to reinforce the
importance of the actions which management has taken or which they may be about to take.
We consider the Earle Brown Heritage Center in its present state to be a high quality, well
managed facility of unique value to the community, which is making steady progress toward a
stabilized position in the competitive market and a corresponding peak in potential operating
performance. Certain characteristics, both of the facility itself and of its ownership by the City
of Brooklyn Center, affect the speed with which the Center approaches these goals and its
ultimate ability to achieve them at the desired level. We believe that the potential exists to
overcome or at least mitigate the limitations which these characteristics impose, together with
certain operational refinements, to improve the prospect of achieving the desired performance
within the desired time.
} We would like to thank the management and staff of the Earle Brown Heritage Center and the
i representatives of the Brooklyn Center Economic Development Authority and the City of
Brooklyn Center who provided assistance in this study for their ready cooperation and candor.
SPETEMBER 24, 1993
MARQUETTE PARTNERS
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Stephen W. Sherf James M. Klas
Vice President Associate
Hospitality Consulting Group
700 Northstar East • 608 2nd Ave. So. • Minneapolis, MN 55402
Valuation
Phone: 612 -333 -6515 • FAX: 612- 338 -2216 +! ! + network ,M.
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BACKGROUND
Marquette Partners was engaged to study the operations and marketing
efforts of the Earle Brown Heritage Center and to develop recommendations in these
areas that will improve the financial success of the facility. To accomplish this
objective, we have performed the following tasks:
- Toured the facility;
- Interviewed key management and sales personnel;
- Reviewed historical operating results and utilization
patterns;
- Reviewed current staffing levels;
- Reviewed event evaluation forms;
- Interviewed five former users of the facility to gain
greater insight into evaluation form comments;
- Interviewed seven potential users who have not yet tried
the facility; and,
- Gathered data on competing facilities to evaluate
relative strengths, weaknesses and pricing policies.
The recommendations which we have developed are presented in
summary form in the following section. A detailed discussion of our findings,
conclusions and recommendations for various facility components and operational and
marketing issues is presented in the body of this report.
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CONCLUSIONS AND RECOMMENDATIONS
Performance:
The Earle Brown Heritage Center consists of three components, which
operate largely independently of one another. Although management is unified,
providing certain operating efficiencies, each component provides, at best, limited
support for the others.
The Inn:
Attractive and popular among users
too small to support cost structure
to„ small to provide effective lodging support for the
convention center
• The Convention Center:
Large, attractive primary space, popular for consumer
shows and social functions (particularly with exterior
grounds)
Lack of lodging limits effectiveness as a convention
facility
Ancillary meeting space and technical capabilities
inadequate for a pure conference center
Operating subsidies typically required for facilities of
this type
The Office Space:
profitable, though not enough to balance losses in other
components
Tenant mix offers no significant support for other
components
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Performance (continued):
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The Convention Center is the anchor of the complex. The initial
feasibility study for the Convention Center clearly stated that operating subsidies
would be required. This is typical for such facilities. This does not mean that a goal
of breakeven operations is impossible. However, such a goal must be recognized as
ambitious and difficult to attain. Since various management changes have occurred,
first for the overall complex, then for the Inn and most recently the catering
arrangements, progress has been steady and encouraging.
Certain "expenses" of the Earle Brown Heritage Center are effectively
paper transfers within City accounts rather than actual cash costs. Only a fraction
of the $42,000 overhead allocation paid by the complex for City administrative
services represents actual increased cash costs to the City. In other words, if the
Center did not exist, City administrative costs would change very little. In addition,
real estate taxes of $63,000 are paid by the complex, some of which accrues to the
City. Any payment to the City or expense allocation not based on a cash outlay is
a transfer only. The City does not reap any true increase in revenue, nor are any
operating costs actually reduced. The Earle Brown Heritage Center, in turn, does
not in fact require subsidy for these amounts.
Usage of the Center by the City is treated in the opposite manner from
the administrative allocations and real estate taxes. The City does not currently pay
for use of space at the Center. Payment by the City for space used would be a paper
transfer in the same manner as the costs described above. - Money would only be
moving from one City account to another. However, the lack of payment, is
inconsistent with the way that intra -city expenses are handled.
Both consistency and a clear understanding of actual cash costs are
recommended. Treatment of overhead allocations, taxes and City payment for
facility use should be handled on a consistent basis, with either all reflected in the
accounts or none. In either case, the difference between transfers and actual cash
outlays should be clearly understood.
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Revenue:
The Convention Center has a high fixed cost structure typical of such
facilities. While the potential remains for further refinements in certain cost
components, significant improvement in operating performance will require increased
revenue rather than cost reduction. Convention centers have a practical maximum
occupancy of 60 to 65 percent. The Carriage Hall achieves occupancy levels of over
70 percent on weekends. Otherwise no space at the Center achieves occupancies over
50 percent. percent. Belgian and Morgan are used 15 percent of the time or less on - - y
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weekdays. Potential for increased revenue is available from:
Increased corporate business (motivational seminars,
sales training and other less technical functions)
Increased social functions, particularly corporate social
functions
Increased flat show business, particularly consumer
shows
Primary potential for increased utilization comes from corporate and
social segments. A 50 percent increase in corporate, wedding and social business
would increase room rental revenue alone by over $109,000, based upon current
averages. The physical capacity exists for such an increase. Achieving that level of
growth will depend largely upon marketing efforts and price positioning. Increases
in flat shows are likely to be limited. However, the average revenue per event for
such business makes even a small increase valuable. Similarly, an increase in state
association business is likely to have little impact on facility performance, although
it would increase the economic impact of the Center upon the community as a whole.
For the Inn, unlike the Convention Center, increased revenue will not,
indeed cannot, yield a breakeven performance level under the cost structure in place.
Successful boutique inns have restaurants which provide another source of revenue,
in addition to room rental. Without a restaurant the Inn cannot compete effectively
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area with boutique inns in the r
�� �� q ea which have fine restaurants that complete the
getaway experience.
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Revenue (continued):
The Inn is essentially a Bed & Breakfast facility, which is incapable
! even at 100 percent occupancy of supporting 24 -hour staffing on an hourly wage
basis, in addition to the other operating costs incurred by or allocated to the
operation. Operations of this size are typically run by couples or families, often as
a secondary rather than primary source of income. Sale or lease of the facility,
assuming an interested party could be found, is the only viable means of eliminating
the losses at the Inn. An alternative which would allow the City to retain somewhat
greater control would be a permanent live -in manager. This would reduce, but by
no means eliminate operating losses. Management is also exploring the potential to
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create restaurant facilities at the Inn, which could further alter the performance
profile. 'Reallocation of marketing dollars and other cost containment measures alone
will have a only a limited impact.
MarketinP:
The total 1993 communications budget equals slightly over $140,000,
28 percent of which is allocated to the Inn, commensurate with its proportion of total
complex revenue. However, marketing expenditures for the Inn are of little
incremental value at this stage in the project's evolution. While the Inn should be
included as a to g on marketing or the Convention Center, actual cash expenditures
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for Inn marketing should be minimal and allocations should be eliminated. Marketing
budgets should be developed based upon the needs and resources of the Convention
Center.
Over 75 percent of current business is generated from non - advertising
related sources (word of mouth, attendance at prior events and people driving past
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the facility). Corporate and social functions are typically generated by direct sales
efforts. '. However, awarenesnof the Earle Brown Heritage Center in the Twin Cities
area instill limited, particularly outside of the northwestern .suburbs. To increase
utilization on a cost effective basis, several steps should be taken.
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Marketing (continued):
- Reduce production costs for new material
Refocus public relations efforts to attract high profile
events to the Center likely to be attended by corporate
�J executives and upper- income bracket individuals
- Place greater reliance on the recently expanded sales
staff to generate business and increase awareness in the
Twin Cities area
Reallocate advertising expenditures to increase Twin
Cities awareness, particularly outside of the
northwestern suburbs
Improve highway signage in the immediate area to call
more attention to the facility and its uses
A reduction in total marketing costs and focus on direct sales and
public relations events designed to bring key individuals and companies to the Center
offers the best opportunity to improve facility performance. Consideration should
also be given to changing the name of the complex from "Heritage Center" to more
accurately reflect its actual uses.
Pricing:
Pricing at the Convention Center is general competitive with other
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convention facilities in the Twin Cities. However, the division of catering from other
facility costs and the policy of charging for nearly all equipment and ancillary
services creates an unwanted perception that the facility is expensive. In addition,
the administrative difficulties for users in planning and paying for functions with two
different entities - Center management and D'Amico Catering, are a disincentive.
Ad hoc efforts to package functions and increase cooperation between catering and
�. Center management are a positive step but should be extended further.
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PrcctnF (continued):
Several packages should be developed with predetermined per - person
prices. Packages should include specific catering menus, basic AN equipment and
room rental, tailored for various types of functions and group sizes. Potential users
should still have the option of designing their functions on an "a la carte" basis.
However, prepackaging will streamline communications, eliminate false price
perceptions and simplify sales efforts for many functions. It will also improve
management's ability to ensure proper price positioning relative to the competition.
Communications:
As referenced earlier, there are only limited opportunities to improve
facility performance by reducing operating costs. However, the most effective way
to identify costs which can be reduced and ensure appropriate margins as utilization
increases is to improve the formal communication process during the preparation of
the annual budget and subsequent monitoring of performance. Informal
communication takes place on a frequent basis within the full -time, on -site staff and
between the staff and the City. Because of the gap between the time the annual
budget is first prepared, the time it is finalized and the actual operating year, specific
formal communication policies are recommended.
- Facility management . should be fully responsible for
developing an initial budget with an agreed upon
bottom line performance level
Budgets must be based upon all relevant data, including
planned wage rates as well as hours
- Facility management should formally present the budget
to representatives of the City and Economic
Development Authority, with frill documentation for
each major cost and revenue category
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Commun ications (continued):
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- The budget presentation should be scheduled to allow
the City and Economic Development Authority
adequate time for review
Following review, comments, questions, required
changes in overall targets and suggested adjustments in
individual categories should be discussed between the
City and facility management, prior to any actual
changes in the proposed budget
- Following final budget approval, facility management
should prepare forecasts on a monthly basis, reflecting
current conditions
The operating profile of the facility should be adjusted
based upon revised forecasts to ensure performance
approximates overall budget goals as closely as possible
- Development of budgets for the following year should
expressly consider actual and forecasted operating
' performance
A clearer definition of bottom line responsibility for facility
management and a more formalized process for budget development, adjustment and
monitoring should aid both management and the City in achieving ultimate
performance goals.
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Community Impact:
Brooklyn Center is unique in having the only public exhibit hall /civic
center facility in the Twin Cities suburbs. For outstate cities, exhibit halls are civic
and economic focal points for the community, improving tourism, providing needed
assembly space and enhancing community identity and quality of life. The Earle
Brown Heritage Center provides similar benefits, not only for Brooklyn Center but
for the northwestern metro area.
Individuals and companies in the area are able to hold their business
and social functions within the community, often when it would not otherwise be
possible. Visitors attending those functions whether from within the Twin Cities or
elsewhere have the opportunity to spend money at other businesses in the community
and to become familiar with the amenities the community has to offer. The City
itself has a focal point for festivals and gatherings.
The impact of a facility like Earle Brown differs in a suburban setting,
from comparable facilities in outstate communities. By objective criteria, such as
increased tourism spending, the impact is more limited. By subjective criteria, such
as enhanced community identity, the impact is perhaps even greater. By either
measure, the Earle Brown Heritage Center is an important community asset.
Although they will have little effect on facility performance, continuing efforts to
increase the value of that asset, through increased association business and increased
community oriented activities, should continue to be an important part of the
operating strategy of the complex.
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FACILITY PROFILE
The Earle Brown Heritage Center is a truly unique facility, or group
of facilities, portions of which are not typically owned by a public entity. The Inn,
office space and even the Convention Center are entrepreneurial ventures that
function in a competitive environment. These circumstances create operational
challenges which must be recognized.
The Center consists of three components which operate largely
independently of one another. Although management is unified, each component
provides, at best, limited support for the others:
The Inn:
The 11 -room Inn is attractively designed and furnished. Although its
local market exposure is still somewhat limited, it is very popular with its users and
has established a solid weekend demand base. More recently, businesses in the
surrounding area have increased their usage of the Inn on weekdays, both for
overnight guests and small meetings. Corporate usage has increased, in part due to
' a standardized corporate rate policy and increased marketing efforts.
The Inn is designed to be, and functions well as, a bed & breakfast.
It lacks adequate food and beverage facilities and is too small to function as a true
boutique inn. Bed & breakfast facilities are typically run by couples and families
with no payroll, limited marketing, and very low overall operating costs. Such
facilities often provide secondary rather than primary income for their owners.
In its current form, the Inn cannot support the cost structure under
which it operates. There is still room to increase revenue, primarily through further
increases in corporate weekday business. However, the payroll cost of a manager,
supported by 24 -hour staffing, actual and allocated marketing costs and other
operating costs which would be lower or non - existent in a private setting, exceed the
revenue capacity of the Inn, even at 100 percent occupancy. The Inn also has far too
few rooms to adequately support the Convention Center.
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Assuming an interested party can be found, sale or lease of the Inn is
the only viable means of eliminating the operating losses entirely. An alternative
which would allow the City to retain greater control would be a permanent, live -in
manager. The reduction in payroll costs, combined with reduced marketing expenses
and other cost containment measures could reduce, though not necessarily eliminate,
j� operating deficits, if weekday utilization continues to improve. Management is also
exploring the potential to create restaurant facilities at the Inn, which could further
alter the performance profile. However, viable revenue growth and cost containment-
' under the current structure are likely to have only a limited impact upon operating
deficits at the Inn.
i The Convention Center:
■ The convention center is an attractive, accessible, average -sized exhibit
hall with supporting space of mixed quality and utility. The Center is most
comparable to civic center /exhibit halls in outstate cities, which are designed as
multi - purpose facilities. The Center, in combination with its attractive grounds, is
most effective for consumer shows and large social events, including corporate
parties, weddings, reunions and similar functions. Most such functions are weekend
oriented.
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Comparable facilities in outstate cities often house conventions for
smaller state associations and secondary meetings for larger groups. However, the
Convention Center, without a sufficient number of adjacent hotel rooms, must
function primarily on a day -use basis, unable to capture a significant share of the
more lucrative multi -day conventions or large corporate meetings. The in -house
'r technical capabilities of the Center are below the standards of corporate conference
centers. In addition, the ancillary meeting space, particularly the smaller breakout
rooms such as Belgian and Morgan, are of below average quality. While such
characteristics are common For civic centers, they reduce the effectiveness of the
Center in competing for the corporate day -use business which is its most viable
weekday market.
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This does not preclude the capture of corporate demand. Indeed, the
Center as been successful to -date in capturing corporate business and is continuing
to increase its penetration. The facility is best suited to motivational seminars, sales
training and various other types of non - technical functions, particularly for larger
groups. Growth in corporate meetings combined with continued growth in social
business represent the greatest potential for increased facility utilization. Efforts to
increase flat shows and association business will also be valuable, since even a small
increase in the number of functions would have a significant, impact on revenue. _
However, they represent secondary, rather than primary sources of future growth
potential.
The recent changes in the catering arrangements will have a
substantial, positive impact on Convention Center performance. The new
arrangement should increase both the flexibility of Center management in pricing
functions with catering components, and the overall catering revenue available.
Close cooperation between Center management and the contract catering manager and
a clear understanding of priorities will be important in capitalizing on the increased
opportunities available.
The Office Suace:
The office component essential) operates completely independently of
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the Inn and the Convention Center. The profitability of the office space partially
offsets the operating losses of the balance of the complex. However, the office space
cannot generate sufficient operating profits alone to cover other facility components.
On a long -term basis, attempts to attract tenants most likely to make use of other
facility components is a desirable goal. Nevertheless, the office space is unlikely to
provide significant direct support for the Inn or Convention Center. Maintaining its
profitability should remain the primary goal.
-12-
^l
PERFORMANCE EXPECTATIONS
Although the Earle Brown Heritage Center is comprised of three
distinct components, the Convention Center is the anchor of the facility. The initial
feasibility study for the Convention Center indicated that not only capital costs, but
on -going operations, would have to be subsidized, which is the case with nearly all
civic centers and exhibit halls. Communities support both the capital costs and a
portion of the operating costs for such facilities in return for the benefits they provide_
to the community, such as jobs, increased tourism and associated spending.
However, facilities of this kind are ideally located within walking distance of lodging
facilities large enough to support them.
Although it is less obvious, exhibit space in private facilities is
subsidized as well. Function space in hotels and conference centers generates even
less revenue directly than in public facilities. However, private hotels and conference
centers can derive sleeping room revenue from meeting participants and attendees at
various social events directly, because their lodging is connected.
Neither option is available to the Center, with only 11 rooms available
under joint management and within walking distance. While the scenario would
g g
differ markedly if a full service hotel were located in close proximity, no such facility
exists. Consequently, the Center is left primarily to compete for day business, which
' is more price sensitive and often requires the same amount of set -up time and
administrative effort as a multi -day function. Therefore, this type of meetings
business is the least profitable.
Expectations of breakeven operations notwithstanding, the lack of
synergy among the various facility components and the operating profiles typical of
such facilities will make achieving such a goal difficult, although not necessarily
impossible. The inability of the Inn to operate at a breakeven level has already been
discussed. The Convention Center, as the anchor of the complex, will need to
operate at or near a breakeven level for the complex as a whole to have any
opportunity to achieve such a goal.
I
J
a.
-13-
J
Trends in operating performance to date are moving in the right
direction. However, the inflexible cost structure of convention facilities places the
focus for improved financial performance on maximizing revenue. Despite some
P g P
P
structural inefficiencies and certain cost centers which could be improved, increased
revenue is the only realistic means to improve the financial performance of the
Convention Center and the complex as a whole.
Certain other considerations must be incorporated into any assessment
of overall facility performance. While the Earle Brown Heritage Center's financial
statements indicate that subsidy in the approximate am nt 33
at a s bs � amount f o$ 500 0 was
Y
required in 1992, this information alone is somewhat misleading. Much of the
$42,000 overhead allocation of City expenses that have been absorbed by the
Heritage Center should be considered as an offset, since actual costs to the city have
not increased by anything approximating this amount. While it is true that the
Heritage Center would need to pay for the services provided by the City if it were
not City owned, it is. There are operating inefficiencies inherent in City ownership
which have a negative impact on financial performance. Positive impacts should not
be ignored. Further, $63,000 in real estate taxes are paid by the facility. Some,
though not all, of which accrues to the City.
Payments such as these are transfers, rather than actual cash outlays.
The City has no more "spent" tax dollars to subsidize these expenses than it has
received tax revenue or expense reimbursement from the complex. The net effect is
P P
zero. While there may be internal accounting and presentation issues which support
the current structure, an accurate assessment of actual facility performance should
include a clear understanding of real cash outlays versus internal transfers.
On the other side of the equation, the use of Heritage Center facilities
without reimbursement by the City should not be overlooked. This too is a positive
impact of City ownership. For an accurate assessment of facility performance, the
treatment of City usage should be consistent with the treatment of expense allocation
and other payments to the City.
-14-
•
A
PROFILE OF BUSINESS
The sources of business at the Convention Center in 1992, shown
below, indicate that approximately half of rental income is derived from the corporate
sector. Shows contribute six percent of the functions but over 20 percent of the
rental revenue.
1992
BUSINESS COMPOSITION
Segment Events Percent Rent Percent of Average
of Total Total Rent Rent /Event
Corporate 200 58% $152,000 47.% $760
Weddings 48 14 39,000 12 $804
Social 39 12 29,000 9 $742
Religious 32 9 25,000 8 $771
Show 19 6 68,000 21 $3,608
Other 5 1 9,000 3 $1,800
343 100% $322,000 100% $938
Source: Earle Brown Heritage Center
Total revenue generally tracks closely with rental income on a month
to month basis. However, the gap is narrowest in March, when ancillary revenue
tends to be lowest, and greatest in December, when catering revenue is particularly
high. These figures are illustrated graphically on the following pages.
-15-
r _ �.r,� �w...: '. _._J Eu.: �iilii [:�::�::� ® fll� �li� L.::.,1 irM 66J L-0
1992
BUSINESS COMPOSITION
200
5
i
19
32
48
39
Events
® Corporate Weddings ® Social M Religious M Show M Other
Source: Earle Brown Heritage Center
1992
BUSINESS COMPOSITION
$152,000
$9,000
$39,000
$29,000 $68,000
$25,000
Rent
Corporate Weddings M Social M Religious M Show M Other
Source: Earle Brown Heritage Center
1992 Revenue Comparison
Total vs Room Rental Revenue
70
60 . ... ...... .. .......... . ..... ............. ........ . . ........ ... . ... . ..... ..... ................... . ......... .... ........ .. -- ............ .. . . . ..... . .... - - -
W
50 . .... ...... ..................... ... ............ . . .. ........... ...... . .... ............. .......... ... ...... . - ..................... ... . . ........
40 - . . . .. ... ... ........ ........... .... ... ....... .. ........ ......... ...... ... ................ . . .... ... ..... ....... ........... . .... ....
PO
14MA
0 30 - ................. .... . . .. ...... ....... ........ .. .... . . . .. ... ..... ......... ........ .. ............... . .. . ..... ...... ..
20 - ....... ......... .................. . . ............. ............ . . ............. ................ . ...... ... ........................ . ............. .. .......... ............ .. .. . .
10 - . .......... ....... . ......... . ... .......... . ..... . . .. ..... ..... . ...... . .. ..... ..... ... .. . . .. . .......... .... ...
O
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Months
Total Revenue Room Rental Revenue
Source: Marquette Partners
1991 Revenue Comparison
Total vs Room Rental Revenue
70
60 — ....... ..... . .... . . ..... ...... . .... . . . . ......
0 50 . .... ... .... ...... . . .... ................ . . . ............ ......................... .. . . . ... . .... . .... . . ....... .... ... ............ .... ......... ..... .............. . ............. .... ........ ...... ...... ....... ...... .... ... . .........
40 .... ... ... . .... . .. ....... . . . .....
0 30 .. .. . . ...... ..... . . . ....... . ....... . .
20 . . ...... ........ .... .......... . ........... . .... ... ................
0
10 — . .. ........................... ........ ..... ...... ... .. ......... ... ............ . ...... .. ... ...... . .. ..... .... . ..................... ... ................ ........... ............................ .................... . ...... . . ....
o 0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Months
Total Revenue Room Rental Revenue
Source: Marquette Partners
i
Usage records (shown below) indicate that even the most popular
rooms are used less than 50 percent on weekdays. Utilization on weekends is
generally, though not entirely, higher. Utilization figures are also presented
graphically on the following page. Overall occupancy at the Center was 44 percent
in 1992, up from 33 percent in 1991, according to Center records.
1992
CONVENTION CENTER
FACILITIES UTILIZATION
Room Weekday Weekend
Utilization Utilization
Carriage A 41% 68%
Carriage B 44 78
Captain's 46 44
Estate 46 44
• Tack A 34 40
Tack B 29 39
Belgian 13 27
Morgan 15 37
Blacksmith 25 16
i
Source: Earle Brown Heritage Center, adapted by Marquette Partners
t
Unlike office buildings or even hotels, convention facilities are
structurally incapable of achieving 100 percent occupancy for all available space. A
practical overall capacity for a facility of this type is 60 to 65 percent. With the
exception of the Carriage Hall on weekends, no component of the Convention Center
approaches such utilization levels. Indeed the capacity exists for an increase in
overall utilization of 50 percent above current levels. It is this excess capacity which
must be filled to enable the Convention Center, and the complex as a whole, to
achieve the financial performance desired.
•
-20-
1992 Convention Center
Facilities Utilization
0.9
0.8 -
0.7 -
0.6 -
.° 0.5 -
0.4 -
0.3 -
0.2 -
0.1 -
0
Carriage A Captain's Tack A Belgian Blacksmith
Carriage B Estate Tack B Morgan
Mee Space
P
Weekda y Utilization = Weekend Utilization
•
MARKETING ISSUES
The Earle Brown Heritage Center is in the process of successfully
establishing its position among the various exhibition and conference facilities
available in the Twin Cities area. Its facilities complement dictates that it focus on
day meetings, social events, exhibitions and shows. It takes several years to fully
develop such business and to begin to benefit from repeat business and word of
mouth experience. Business has improved at the Convention Center each year since
opening, a trend which is continuing in 1993. Review of the Center's previous
advertising budgets indicates efforts to promote the facility have been spread locally,
regionally and nationally. In 1992, $11,800 was spent on national media, $3,800 on
regional media and $17,600 was spent on local advertising.
1992 MARKETING BUDGET
Convention Center
• Communications 1992 Budget Allocation: $96,825
Target Market Media Budget Percent
Local Corporate $17,000 52.0%
Regional Corporate 4,000 12.0
National Corporate 12.00 36.0
$ 33.00 100.0
Wedding $2,000
Trade Shows $1,500
Associations $1,200
Inn On The Farm
Communications 1992 Budget Allocation: $31,825
•
-22-
•
The total communications budget for 1993 is $140,285, of which 72
percent is focused on the Convention Center and 28 percent is focused on the Inn.
While this split is in proportion to the revenues generated by each operation, the Inn
cannot afford extensive marketing, as previously discussed, and will benefit little
from such efforts. The Center, on the other hand, can increase its business by
another 40 to 50 percent and significantly improve its financial performance, before
it begins to encounter capacity constraints.
Advertising expenditures notwithstanding, review of the comment cards
from users of the Center reveals that the vast majority of the bookings originated
from three sources:
familiarity through attendance at a prior event (35 %)
word of mouth (24%)
people driving past the facility (18 %)
It is important to note that none of these categories is directly related
to advertisin g efforts. It appears that people are impressed with the facilities, once
�
they have the opportunity to visit the Center; a notion that was confirmed by the sales
personnel that we interviewed. In addition, all of the categories above clearly pertain
to business from local sources.
The interviews we performed to gather information on the general
awareness of the Center among Twin Cities area corporations revealed a relatively
low awareness among meeting planners. While, generally, companies prefer to stay
in the area of their business, larger corporations, such as 3M, Honeywell and others,
hold meetings at facilities throughout the metropolitan area, including the Riverwood
Conference Center approximately 30 miles west of the Twin Cities.
•
-23-
•
Due to the easy access provided by I -694 and I -94, all companies near
the northern loop of the beltway, as well as downtown Minneapolis can be targeted
for corporate meetings business. This promotion is most effectively accomplished
by direct contact by sales personnel, rather than through advertising. Public relations
events designed to attract key individuals are another useful tool.
The Heritage Center has an extensive selection of high quality
marketing materials already developed. Consequently, future production costs should
be lower than historic levels. Increased emphasis on direct sales efforts and targeted
public relations events should further reduce the reliance on advertising. Remaining
advertising dollars should be reallocated to focus primarily on increased awareness
within the greater Twin Cities area. This should include improved signage, to the
extent possible, along highways adjacent to the complex.
The key in all cases is to attract potential users to the facility. The
facility clearly sells itself. In addition, the strongly positive tenor of comment cards
indicates that users are satisfied, not only with the facility, but with the service they
• receive. Opportunities to display the quality of facilities and service at the Center
must be maximized to build utilization to a practical capacity and provide the greatest
potential for breakeven performance.
Consideration should also be given to changing the name of the
complex from "Heritage Center" to a more accurate and informative, or at least less
misleading moniker. Current marketing efforts are forced, not only to create
awareness, but often to overcome confusion.
•
-24-
•
OPERATIONAL ISSUES
Labor Costs:
Overall labor costs are high at the Convention Center on a
proportional basis, due to the relatively low business volume. The Center does not
appear to be over - staffed, either with full -time or part -time personnel. The nature
of a convention center requires a high fixed cost of operations which cannot be
reduced when business is slow. In addition, higher hourly wage rates are paid by the
City than are typically paid in the industry, which creates another structural
inefficiency. On average, hourly wage rates are approximately 15 -20 percent above
industry averages, which translates into an additional cost of $7,000 for the first
seven months of 1993 at the Convention Center. The graphs on the following pages
illustrate the relatively fixed nature of labor costs at the Center. Total payroll
typically ranges between $20,000 and $30,000 per month, regardless of business
volume. As emphasized previously, such a cost structure requires increases in
revenue to substantially improve bottom line performance.
• Coordination and Pricing:
The separation of the catering component from the balance of the
facility has caused operational difficulties historically. Under the new arrangements
with D'Amico, the difficulties have been partially mitigated. However, additional
steps need to be taken.
During the initial planning stages, when the sale is made, simplicity
is one of the critical factors in completing the sale. Event planners, regardless of the
type of function, want clear communication, clear pricing, and streamlined planning.
Similarly, invoices issued at the conclusion of an event are the last point of contact
for the function, leaving a lasting impression. Again, both clarity and price
perception are important.
•
-25-
1992 Operational Comparison
50 Payroll vs Room Rental Revenue
40 -
30-
-
A Ev 20 -
10 -
0 -
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Months
Payroll Room Rental Revenue
1993 Operational C
Payroll vs Room Rental Revenue
50-
40-
0
30-
20-
,29
10-
0
Jan Feb Mar Apr May June July Aug Sept Oct Nov Dee
Months
® Payroll = Room Rental Revenue
•
Although it is common to deal with caterers in addition to the sales
representative who coordinates the overall function, the need for separate contracts
and separate invoices is uncommon and introduces undesirable complications. In
addition, separate pricing for the catering component and space rental, combined with
add -on charges for essentially all ancillary equipment and services, creates an
unwarranted perception that the Center is expensive. The Center is, in fact,
competitively priced for typical meetings, once all of the costs are added together and
spread over total attendees. The Center is most competitively priced for larger
groups. However, the lack of packaged pricing on a per - person basis makes it
difficult for a customer to make an appropriate comparison, difficult even to
determine overall cost in some cases.
Both the pricing concerns and the coordination problems faced by
customers in dealing with two entities are already being alleviated on an ad hoc basis
by facility and catering management. Contracts and invoices are being mailed
n Center make an effort to
together when possible. Representatives of the caterer and Ce
g P P
meet with users together. These efforts should be strengthened and expanded to
develop a variety of packages to meet the needs of different types of users for
• different types of functions. There will always be customers who do not fit standard
criteria and need to make arrangements on an a la carte basis. However, for the
majority of patrons, prepackaged options will make the decision to use the Heritage
Center much easier to make.
Facility management and catering management should work together
to develop options, space rental and basic
standardized packages, including p
P P g g P
equipment, at pre-set prices on a per - person basis. Discounts for larger groups can
be built into the packages. Packaging will strengthen the sales effort at the initial
point of contact and reduce the potential for miscommunication. Although rental
income will vary to a greater degree from group to group and may, in some cases,
be lower, the offsetting improvements in customer service and simplified sales efforts
should boost overall utilization.
•
-28-
COMPETITIVE ANALYSIS
IDS Northland Thunderbird Radisson Convention Market
Attribute Earle Brown Oak Ridee Inn Riverwood, Hotel South Center Sauare
Day Rate No inclusive $55 $60 $50 none none none none
Room Charge Flat charge Included $99 Included Based on Based on Based on Based on
rooms and rooms and F &B F &B
F &B F &B
AN Rented Included Included Included Rented Rented Rented Rented
Meals Charge Breakfast Continental Breakfast Charge Charge Charge Charge
Lunch break Lunch
Breaks (2) Lunch Breaks (2)
Breaks (2)
Source: Marquette Partners
II I
ill
r
Communication:
At present, the Center manager submits a budget in June to the City
and Economic Development Authority, along with documentation for their review.
The City and Authority make revisions based on their interpretations and constraints
and then submit the budget for city council approval in November or December.
During this process, there is little formal contact between management and the City,
so that both parties are making decisions without complete information. For
example, hourly labor is budgeted in terms of hours only by the manager, without
the wage rates, which are added later by the City. Also, revisions to the budget may
be made by the City without prior consultation with the manager.
In order to effectively control facility performance, management must
be fully responsible for bottom line performance and must have the necessary
information to lan and execute performance goals. Budgets should be prepared by
P P g g P
management to meet a specific bottom line target, agreed upon in advance.
Submission of the budget should include both written documentation and oral
presentation in a formal setting, to explain the reasoning behind key figures.
• Adequate time must be available for review and revision. Following review, any
necessary adjustments should be made in coordination with management to ensure
their full knowledge, understanding and ability to execute.
However, a more formalized budget development process is only the
first step. Due to the time lag between budget development and the period covered,
operational and market circumstances can and do change. To ensure that the
budgeted performance goals are met despite the changing circumstances, a regular
forecasting process on a monthly basis should be developed to enable management
to foresee potential problems - or opportunities. Such a process has the added
advantage of improving the available information for preparing future budgets.
Refinements in the process for developing and monitoring operating
budgets will do more than simply help ensure costs are controlled effectively. As
mentioned several times in this report, cost control is only a small part of the effort
needed to improve facility performance to the desired degree. Refinements,
particularly in forecasting on a regular basis, will improve the ability of management
to react to changing market conditions to maximize revenue as well as control costs.
•
-30-
•
COMMUNITY IMPACT
The spending and income generated by the Earle Brown Heritage
Center and the enjoyment of its use benefit residents and businesses, not only in
Brooklyn Center, but throughout the northwestern suburbs. Brooklyn Center is
unique among Twin Cities suburbs in having a multi -use public facility. Not even
Bloomington, with its extensive array of hotels, offers a similar facility. While
several Twin Cities area hotels have function space of equal or greater size, none are
located in the northwestern suburbs and few are as well designed for exhibit oriented
functions. Indeed, it is highly unlikely that a facility comparable to the Convention
Center would be developed elsewhere in the northwestern suburbs by either private
or public entities.
The Convention Center provides the same subjective benefits as
comparable facilities in outstate cities. It serves as a focal point for community
identity both public and private.
and a gathering lace for a wide varlet of events'
Y g gP Y P P
Residents of Brooklyn Center can meet, shop and celebrate within their own
• community, often when the only alternative would be facilities in other parts of the
metro area. Facilities such as the Center add to the attraction of the community for
both prospective residents and businesses.
The Center provides objective benefits to the community as well. Full -
time and part-time employment opportunities are available to area residents. Visitors
to various functions, whether corporate, social, consumer show or other, come from
throughout the Twin Cities and even greater distances, spending their money not only
at the Center, but at surrounding hotels restaurants and shops. Even those who do
not make purchases outside of the facility in connection with the function they attend
gain an increased familiarity with the City and the many things it has to offer.
The Inn is also effective in attracting additional spending to the
community. Although a large proportion of corporate demand accommodated at the
Inn could easily choose other lodging within the City, weekend get -away business and
other tourist demand attracted to the Inn would be unlikely to stay in Brooklyn Center
if the Inn were not available. Such visitors are very likely to visit restaurants and
shops in the surrounding area.
•
-31-
A
•
As mentioned previously, cities support the development and on -going
operations of multi - purpose facilities such as the Heritage Center for the economic
and civic benefits they provide. Although they are not expected to have a significant
effect on the financial performance of the Heritage Center, continued efforts to
increase association business, exhibitions and community events are valuable for the
impact they can have on the surrounding community.
Promoting the Center to state associations should not only be the job
of Center management, but of the Convention & Tourism Bureau as well. The
possibility of Brooklyn Center developing its own convention and visitors bureau has
been raised in the past. Such a move would be designed to focus staff and financial
resources more closely upon developing potential convention demand.
While the suggestion was made that the word "Heritage" was not the
most accurate representation of the facilities and services the Center has to offer, it
is accurate in one important respect. The Earle Brown Heritage Center is a part of
the historical and cultural heritage of the City of Brooklyn Center. In developing and
maintaining the Center, the City as a whole continues to preserve that heritage in a
manner which also provides concrete benefits to the community on an on -going basis.
•
-32-
• MINUTES OF THE PROCEEDINGS OF THE
ECONOMIC DEVELOPMENT AUTHORITY
OF THE CITY OF BROOKLYN CENTER
IN THE COUNTY OF HENNEPIN AND THE
STATE OF MINNESOTA
REGULAR SESSION
AUGUST 25, 1997
CITY HALL
CALL TO ORDER
The Brooklyn Center Economic Development Authority (EDA) met in regular session and was
called to order by President Myrna Kragness at 8:41 p.m.
ROLL CALL
President Myrna Kragness, Commission members Kathleen Carmody, Debra Hilstrom, Kay
Lasman, and Robert Peppe. Also present: Executive Director Michael J. McCauley, Assistant
City Manager Jane Chambers, City Attorney Charlie LeFevere, and Council Secretary LeAnn
Larson.
APPROVAL OF AGENDA AND CONSENT AGENDA
A motion by Commission member Carmody and seconded by Commission member Lasman
to approve the agenda and consent agenda as printed passed unanimously.
COMMISSION CONSIDERATION ITEMS
FINAL REPORT ON THE EARLE BROWN HERITAGE CENTER
James M. Klas, Senior Vice President of Marquette Partners, presented the Economic
Development Authority Commission with his final report on the operational study of the Earle
Brown Heritage Center. Mr. Klas went over the full report which was distributed to the
Commission members prior to the meeting. Attached hereto and incorporated here and by
reference as Exhibit A is a complete transcript of the full comments given by Mr. Klas
regarding the operational study.
8/25/97 -1-
i RESOLUTION APPROVING SETTLEMENT AGREEMENT FOR ACOUISITION OF 610,
53RD AVENUE NORTH
RESOLUTION NO. 97 -24
Member Carmody introduced the following resolution and moved its adoption:
RESOLUTION APPROVING SETTLEMENT AGREEMENT FOR ACQUISITION OF 610
53RD AVENUE NORTH
The motion for the adoption of the foregoing resolution was duly seconded by member Lasman
and passed unanimously.
ADJOURNMENT
A motion by Commission member Carmody and seconded by Commission member Hilstrom
to adjourn the meeting at 9:10 p.m. passed unanimously.
• President
Recorded and transcribed by:
LeAnn Larson
i
8/25/97 -2-
• Transcript of Mr. Klas, Marquette Advisors Exhibit A
Mr. Klas: Thank you. It is a pleasure to be here this evening to wrap up what became a longer
process than was originally anticipated, and actually I would like to begin the presentation this
evening by apologizing for the length of time it took to get the final report done. It was longer
by a considerable amount than anticipated and certainly longer than promised and I apologize
for that. It's entirely my responsibility and in no way reflects on management of the City or
of the Center, that's simply our inability to produce the report on as timely a basis as promised,
and we have made an adjustment in the fees for the project to reflect the fact that we did not
perform completely as originally proposed.
Moving on then to the study itself, basically all of the members present went through a working
session with us back in, I think, April or May. There has been no substantial change to the
conclusions or findings or recommendations to the study since that time. The recommendations
have remained substantially the same. There were no major substantive issues which we were
directed to address following that. The only matter of any substance that we incorporated into
the final report that was not specifically discussed at that working session was there was a
direction to obtain some additional quantitative data to provide some more support for the
benefits of the Inn to the remainder of the complex. At the time, we had simply a listing of
numbers of functions or companies rather that helped functions at the convention center that
had also used the Inn or had first used the Inn. We were since able to obtain from facility
management some more specific data, in particular some revenue figures, figures for revenue
generated by those types of functions. They did not in any way alter our recommendations or
conclusions. I will reiterate briefly the recommendations basically that we came up with at that
time and that we went through in some detail and then I would basically open it up for any
questions or comments from the commission.
There were, I think, 11 or 12 recommendations and I will go through them briefly from the
executive summary. They are discussed in greater detail in the body of the report. The first
pertains to the Inn and the recommendation, in fact, the first two pertain to the Inn. The
recommendation was to continue to pursue ways to improve the operating performance under
the current structure, and I will remind you that the conclusion was that it is not likely that the
Inn under its present structure, which is owned by the City and managed by staff of the complex
as a whole, will ever in and of itself be a profitable operation. However, it was also our
conclusion this was strengthened, in fact, by some of the quantitative data that we obtained after
our first working session that the Inn is a benefit to the complex as a whole. That drives then
an operating approach for the complex which is perhaps slightly different from that which is
currently being used which is to obtain the maximum amount of benefit for the complex as a
whole for the minimum cost, which means that you don't necessarily operate the Inn
specifically to try to make it as nice of an Inn or as functional of an Inn as you might otherwise
do it, but you try to obtain the benefits of the Inn while minimizing your costs.
8/25/97 -3-
• Transcript of Mr. Klas, Marquette Advisors Exhibit A
Recommendations that were made were, in general, related to reduction of labor costs. One
idea that was identified and I know has been explored subsequent to our working session was
to alter the staff presence during the evenings. It is my understanding that in checking with Mr.
LeFevere, or whatever other exploration was done, that there was some concern about liability
issues there and not being an attorney, my only comment is that there are certainly other venues
of a similar nature that do not have full staffing; however, they also do not have the same not
to lose by liability problem should they ever arise as the City of Brooklyn Center would. The
other option, and this was actually done for Earle's this year, is to close portions of the facility
during slower periods, and in general it may make some sense to focus the operations of the Inn
towards weekends, towards periods when functions are available. I will point out that it is not
going to be feasible to only run the Inn when there is a function that requires its use; that's not
likely to be a viable alternative. There's probably going to be some level of ongoing operation
that's required that goes beyond that in order for it to just maintain appropriate staffing and
quality and cleanliness and maintenance of the facilities.
The second which is the one other alternative for dealing with the Inn which again I think is
already in the process of being explored would be to conduct negotiations with management
of the Hilton or with perhaps some other area hotel for some sort of joint management
agreement for the Inn. You are, I think if you recall from our previous discussions and from
information provided by the city attorney, somewhat limited by bond covenants as to your
ability to sell or lease the Inn, but there appears to be some flexibility legally to create
management agreements which may be lucrative enough to the manager to entice them to do
it and which could reduce, perhaps even eliminate, the degree of subsidy that would be
necessary to maintain that particular part of the complex. If you are able to do that, then
presumably you would be able to maintain the function of the Inn on an ongoing basis and gain
its benefits for less cost. The only cautionary note that we have included in the report is that
if you do create such a structure, if it works out to be feasible and there is a parry that is
interested in doing that, that you need to make sure that you maintain the capability of facility
management in the City to ensure that the facility is operated in a type of quality level and
provides the level of flexibility and accommodation to the needs of the convention center for
putting its guests in there that you require and that you desire because, of course, any time you
hand over management to somebody else you do run somewhat of a risk that they will, in order
to maximize their returns, do something different from what you would like to see happen
there.
Beyond the Inn then turning to the convention center facility, there is a recommendation that
we have made to increase meeting space as office space becomes available. There are some
leases that are coming up that are expiring or tenants that are moving on and space will be
available. From our analysis of the performance of the convention facilities and including the
8/25/97 -4-
. Transcript of Mr. Klas, Marquette Advisors Exhibit A
benefits of the catering, the revenue from catering, at various meetings and those facilities, they
generate a higher rate of return than the leasing of office space generates for that complex, and
so we have recommended that as that space becomes available that cost - effective means of
converting it into meeting space be explored in order to increase the supply of meeting space
at the facility. We have confidence that there is sufficient demand for meeting space at the
facility, and that space will be used beneficially. Concurrent with that is completing
improvements to the lower level meeting rooms. Those meeting rooms are of good size and
are in the main complex already; however, by their nature being in the basement they are less
desirable to begin with and the quality level of the finish, carpeting, and fixtures further makes
them less desirable. There were improvements which I believe are already in process in some
form and others which are under consideration which we would encourage. In particular, one
of the larger rooms in the basement level would be a very functional area for a reception for
dining functions for larger groups that are in the upper level in the main convention facilities,
and it's the catering revenue that generates probably the most significant returns for the
complex as a whole.
There is a recommendation then in terms of communications between the City and the staff and
responsibilities of the staff that the accountability of management at the facility for meeting
budget goals be increased. The budgeting process has been improved significantly since our
1993 study, and in particular within the past year or so, some initiatives have been undertaken
which have dramatically improved that process. Certain additional recommendations that have
been made include encouraging and enabling the facility management to track their
performance for key areas (revenue, payroll, other key expenditure items) on a more frequent
basis than is possible by the financial statements generated by the City accounting department,
weekly, bi- weekly, etc. and for them to take the information that they are tracking and to use
that to generate forecasts along with the City financial data to generate forecasts looking
forward for the remainder of any current year so that they are in a position to anticipate and take
proactive steps to changes, positive or negative, from the budget which is enacted because by
the nature of the budgetary process here, the budget is enacted well before the current operating
year and the nature of the business that the center is in is far more fluid than most other City
departments and subject to much greater change.
Beyond that, the other item would be to anticipate that the facility management would
themselves be essentially directly responsible for ongoing expenditures within budgetary
categories. I know that Mr. McCauley and Mr. Hoffman do have some ongoing involvement
in various budgetary areas which extend down to specific purchase items, specific ways of
spending money, which otherwise fit within the budgetary categories, and that obviously
requires additional time on their part and it's appropriate to expect facility management to be
able to handle expenditures at that level without additional input from effectively the owners
•
8/25/97 -5-
• Transcript of Mr. Klas, Marquette Advisors Exhibit A
which would be the City and, of course, the alternative is if you find that they are incapable
of doing that, then you have to call them to question their ability to manage the facility, and so
I would encourage further exploration along those lines or further movement along those lines.
There has been already a budget process put in place to look forward towards future capital
needs for the complex. In general, it is something that needs to be recognized I think by the
commission that the facility itself will be incapable of covering all of its capital needs on an
ongoing basis and that is not an unusual position for a complex of that type to be in, and it is
not at all unreasonable, and, in fact, I would strongly recommend that a specific fund be created
either within the books of the complex itself or within the books of the City to provide funding
for fixture capital requirements for the complex. The primary purpose of that, regardless of the
funding source and we have made recommendations for potential funding sources, but the
purpose of that is to provide a more balanced ongoing even process for setting aside those funds
which are likely to be necessary rather than being faced with a situation say two, three, four,
five years down the line where a very major capital expenditure is required in order for the
facility to function properly and no money has been set aside and so in that year that money
suddenly has to be set aside making smaller ongoing provisions if it doesn't completely cover
such costs it certainly mitigates that cost and takes some of the pressure off of people who are
• having to make those decisions at the time that those expenditures finally are necessary. We
have suggested the potential for using tax increment financing funds that were made available
from that district from diverting some portion of hotel tax monies that are collected either from
the new hotels that have opened or from, you know, any grouping of that in any way that you
would choose to. The reason that we have suggested those is because those are two common
means of funding those types of reserve funds for other facilities. Other sources that you know
obviously the facility itself to the extent that it does generate any operating surplus which it did
last year for the first time, that would be an appropriate use to set aside some of those funds as
well. The point I would simply like to make again is that since you retain control over the
expenditure of those funds and the expenditures of the facility, that you're not necessarily
taking money from anywhere else that you're not ultimately going to have to take as long as
you're making an accurate provision as long as you aren't overwithholding or over - reserving
for your capital needs; ultimately it's money that you're going to have to spend. We are simply
recommending that it be set aside on a more orderly basis.
One issue that really gets back to the reason I think in part that we have been hired twice in fact,
this time and the previous time, is a recommendation at a work shop between the EDA, City
management, facility management, whatever parties you consider to be appropriate, we would
consider all three parties to be appropriate to create a mission statement for the center and I
would like to be specific in saying that I'm not talking about just a typical mission statement
of a couple of sentences or a paragraph that speaks in glowing and very vague terms about the
•
8/25/97 -6-
t.
• Transcript of Mr. Klas, Marquette Advisors Exhibit A
goals and objectives but something more specific regarding the purpose of this facility, why it's
there, and what ir's expected to accomplish and under what circumstances. And again the
reason for that is obviously there are changes over time and management of the facility and
management of the City and in the structure of the commission itself. There have been changes
in the structure of the commission since I began this engagement. What this does is provide
a foundation so that all parties involved know the historic purpose of the facility, that doesn't
mean that they are bound to that purpose; that purpose can obviously be changed in the future,
but at least there is a foundation for knowing why it was that you got to where you are. It's also
a basis for measuring whether or not you are in fact achieving what it is that that was originally
intended. There is some sense for what the original purpose of the facility was, but it was never
committed to paper to my knowledge and it's our experience that the original purposes have
somewhat been lost with the departure of the people who were originally involved in the
project.
An additional facility- related recommendation is to increase parking as funds become available.
This is a difficult recommendation to make. We make it simply because it's a necessary action
for the complex. The parking at the facility right now is at or somewhat below capacity levels,
often. If you increase meeting spaces, we recommended that will become more of a problem.
It's particularly difficult obviously in the winter time. During one of our visits there to do our
• work there was a large function and a space myself but there were
on there and I was fortunate to f
g � P Y
a number of vehicles for a function and attendees parked along the access road and this was in
January and it was a very long and cold walk for those people. Obviously, with future capital
needs simply to maintain operations and with the historic operating performance of the facility,
that is a difficult choice to make but it is one that as you move forward you're going to find
increasing pressure to take a look at so it is something that effectively I guess this
recommendation is more of an early warning signal that that is something that is out there that's
going to be an issue if in fact this facility continues to improve and generate further business
which it certainly is capable of doing, over time that's going to become more of an issue.
There is a recommendation regarding communication with Brookdale Center to improve
communications with the center. One of the charges that we were given was to look at the
interaction between the complex and the surrounding community particularly lodging in the
surrounding community but also restaurants, retail, etc. We found that the interaction was very
much positive with lodging and food and beverage facilities in the community that the facility
creates a net benefit for the private businesses. With regard to retail, and particular with the
regard to Brookdale Center, there is no discernable impact positive or negative there is no
competitive impact between functions at the center and functions at Brookdale. They Y are
booked from different sources and they do not tend to overlap. There doesn't seem to be any
noticeable ositive benefit either. There did seem to be some interest on the art of marketing
p p g
•
8/25/97 -7-
Transcript of Mr. Klas, Marquette Advisors Exhibit A
staff at Brookdale Center and increasing their relationship with the Earle Brown complex. It
is certainly conceivable and would be easy to create coupons or other marketing shopping
incentives to entice people attending functions at the complex or staying at the Inn to go over
to Brookdale. This is obviously not a major impact on either facility, but it is one area which
could be improved. ... the complex and the surrounding community and clarifying its purpose
to the surrounding community that would be considering a change for the name of the complex
and taking whatever steps are viable within zoning and other ordinances to improve its highway
signage. It is in a fairly visible location, never - the -less its signage is not entirely clear, it is not
immediately obvious what you are driving past, you can easily see it but you don't know what
you are looking at. Of even greater importance though is the name of the facility, and I'll freely
relate to you that even today I was at a function before coming here and I mentioned that I was
coming here and what I was coming to do and I was speaking with a woman who owns a travel
agency here within the City and is obviously very aware of travel- related businesses, hotels,
convention facilities, restaurants, etc. and she had no idea. She assumed that this was some sort
of a historical society type of function and had no idea that this was a convention facility just
by virtue of the name and by lack of awareness. I understand that obviously the name was
chosen when it was created and there may be some capital in that and it may not be something
you are willing to do and that there may be some limitations on signage and I'm simply telling
you that there is to this day yet some lack of awareness as to exactly what that complex does
and what it has to offer, and there is a limit to the funds available to explain that to the general
public, and there is one very easy step to take which could help improve that. What exactly the
name would be, I don't know, but presumably it would be some sort of a name that would more
clearly define what the function is and the example that we used in the report was that you
already have the Inn on the Farm which is obviously far more clear in terms of what people are
coming to see and some sort of similar name particularly for the convention facilities for the
consideration. It's not a recommendation that is listed in our report specifically as a
recommendation but we have separated and discussed. I alluded earlier that we looked at the
interaction between the convention center and the hotel industry in the community. It was our
finding and recommendation that the hotel industry is fairly vibrant at this point, it's very active
in terms of new development and that given its operating performance as it stands now and the
degree of interest in private development within the community, that taking steps as a
commission or as the City to offer extraordinary assistance to specifically entice additional
lodging development immediately adjacent to that complex or as a part of that complex was not
something that we would recommend. We felt that it would be placing undo pressure on
private development within the City and that it was not the benefit that you would obtain in
terms of improved performance at the convention center was not worth that level of impact at
this point. What I want to be very specific about though is that I am not discouraging lodging
development near the complex or at the complex if in the course of normal market events a
private business or private developer shows interest in creating such development, I would not
8/25/97 -8-
• Transcript of Mr. Klas, Marquette Advisors Exhibit A
discourage such development and it would not at all be inappropriate. I'm vying for the City
to take the types of steps that it would normally take for similar type of private lodging
development elsewhere. The extent of our recommendation and conclusion pertains
specifically to an aggressive effectively marketing program for the City to try to entice a
developer and to provide them with more than what the City would normally provide in order
to get them specifically to go to that location.
That's really the summary of our conclusions and recommendations and again I think they are
very much similar to what we originally provided you back in April or May. I hope you have
had an opportunity to go through the report, and I'm very much willing to take any questions
or deal with any issues that have arisen from reading that.
•
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