Conference center doing well, but I Hotel still in the red

Conference center doing well, but I Hotel still in the red

CHAMPAIGN – The Web site promises "a commitment to 'wow.'"

The I Hotel opened in August 2008 touting itself as "a blend of luxury, privacy and comfort" – granite countertops, upscale fixtures, walnut columns, spa, the works.

More than a year later, after weathering a recession, the hotel is hanging in there but has yet to turn a profit, said owner and operator Peter Fox. It generates enough cash to meet the mortgage payment "and that's it," he said recently.

"I'm pleased we're still standing after 13 months," he told the University of Illinois Research Park board in September.

The adjoining conference center, meanwhile, has exceeded cautious projections. The university earned about $102,000 from its first year of operation and stands to receive $180,000 in fiscal 2010, which ends June 30, officials said.

The $30 million I Hotel and Conference Center is a joint project of the university and Fox/Atkins Development. The five-story, 126-room hotel just south of the UI Assembly Hall is connected to the 38,000-square-foot conference center owned by the UI.

Developers poured $18 million into the hotel and adjoining Houlihan's restaurant, built on land leased from the university. The conference center cost the UI $11.6 million.

Under the 50-year land lease, the hotel will revert to UI ownership in 2056. In the meantime, the UI will share in any hotel profits above 12 percent and gets all profits from the conference center. Fox/Atkins runs the center for the university for a maximum fee of $60,000 a year, under the name "I Operations."

The hotel was originally slated to open in November 2006. The initial plan was to have an outside firm operate the hotel and conference center for a fee, estimated at $100,000 to $200,000 a year. But negotiations with potential operators, first West Paces Group and later Compass Group, fell through.

"Ultimately I became convinced we were more than capable of managing it ourselves," Fox said.

Developers made a conscious effort not to be affiliated with a brand name like Hilton or Marriott, as the university was the brand, Fox said. Neither the UI nor the developer was interested in a low-budget, limited-service hotel that might have generated profits more quickly, but the more upscale project required a larger investment, he said.

"Clint and I took the view that this was not likely to be a big money-maker because of the kind of hotel we were building," Fox said. "It's a very tough business."

He conceded a lackluster marketing campaign, and the faltering economy, hurt business during the hotel's debut year, when it achieved about 50 percent occupancy. Tourists passing through town tend to stay at hotels near the interstate, so the I Hotel has made intense efforts to court business from sports fans and other UI customers.

"We thought we'd be at 60 percent the first year," he said, adding that is the now the projection for this year.

Ideal occupancy would be 70 percent to 80 percent, Fox said, and it "can't make money" below 60 percent.

"The economy that we all live in has been a challenge," said general manager Larry Wingate, not just locally but throughout the hotel industry.

Nationwide, the occupancy rate for hotels through July 2009 was 56 percent, down from 62.5 percent through the same period last year, according to the American Hotel and Lodging Association. Chief Executive Officer Joe McInerney said occupancy has improved since July, but the economic crisis "took a toll on the whole industry." New hotels start off "very slowly," he added.

On the plus side, the I Hotel achieved an average daily rate of $127 in fiscal 2009, higher than the $114 predicted, Fox said. And occupancy for the busy season of September through November was about 67 percent, he said.

The conference center

The color-coded revenue figures, occupancy rates and conference bookings cover the dry-erase board walls of a windowless room that serves as the command center for the hotel-conference center. Fox said he spends at least 30 hours a week at the facility, reviewing customer surveys with staff and attending to the slightest complaint.

The conference center had "some very good months" in its first year, but startup costs and other factors limited profits, he said.

Under an amendment to the original management agreement, the conference center's marketing director now works for Fox rather than the university. Fox said he wasn't unhappy with the first-year numbers, but the key is securing repeat business. The UI's 37.5-hour work week wasn't compatible with the demands of marketing the facility, he said.

Meeting-room occupancy this past year was about 35 percent, said comptroller Adrienne McPhee. Fox hopes to get close to 50 percent this year, a benchmark cited by the International Association of Conference Centers.

The UI's conference center has two ballrooms and 10 other meeting rooms, with a contemporary decor, artwork on loan from the Krannert Art Museum and big-screen televisions everywhere.

Among the clients booking space were agriculture-related businesses, companies recruiting UI business students, the state of Illinois, and the university's I Fund during football games. The Energy Biosciences Institute – a partnership of the UI, University of California-Berkeley and BP – held a major conference in June. From May to October, weddings were booked every weekend except two. One wedding included a live hookup to Pakistan.

Fox also organized a high-performance computing conference and other sponsored events to "control our destiny as opposed to waiting for people to come to us," he said."

Associate Chancellor Bill Adams said first-year operations exceeded the UI's income projections. Consultants had told the UI not to be overly optimistic about the first few years, particularly for the conference center, he said.

"This is better than we expected. We are all pleasantly surprised," Adams said. "This is a challenging time to launch something like that."

Craig Rost, assistant city manager for economic development in Champaign, said conference centers generally aren't moneymakers by themselves, and Fox was confident the hotel could make a profit because of its proximity to campus and UI sporting events.

For its part, the city didn't want a new hotel without more conference space. Previously, Champaign-Urbana was limited to conferences of fewer than 500 people. Now, with the I Hotel and Conference Center, Hilton Garden Inn and Hawthorn Suites, it can host meetings of up to 1,000, Rost said.

The agreement calls for the hotel to meet or exceed AAA "four-diamond" standards, though an official rating isn't required. Fox said he hopes to apply for the rating in the next few months.

As for Houlihan's, Fox said it's operating "satisfactorily, given the economy."

Fox and Atkins didn't want to run the restaurant themselves, and Houlihan's fit the upgraded casual dining concept they were after. As franchisees, they pay Houlihan's a royalty each month.

The restaurant gets much of its business from UI athletics and other south-campus programs, such as agriculture, business and law. But Fox said the recession has hurt.

"People are thinking twice about spending $25 to $40 for lunch for two," he said. "Relative to the casual dining industry, we're doing pretty well. It's going to take us another year or two to get where we want to be."

News-Gazette staff writer Christine des Garennes contributed to this report.

Management of I Hotel and Conference Center

Fox/Atkins Development owns and operates I Hotel. The conference center is owned by the University of Illinois but is run by I Operations, a limited liability company owned by Fox/Atkins. Here's a closer look at who runs the facilities:

Under 2006 I Hotel ground lease between Fox/Atkins and the UI:

— Fox/Atkins leased 4.9 acres for 50 years to build hotel and restaurant.

— Property will revert back to UI in 2056.

— Land-lease payments of $68,049 a year were waived for hotel's first year of operation, to compensate for development costs. Operators will pay UI 25 percent of that amount this year, 50 percent starting July 2010, and full rent the following year.

— Operators agreed to share revenue with university, after expenses. UI will get a quarter to two-fifths of any profits above 12 percent and half of anything above 15 percent.

Under 2008 conference center management agreement:

— I Operations agreed to run conference center for maximum fee of $60,000 a year, less if sales revenues fall short.

— University Dining Services provides food and beverage service.

— UI gets all food and beverage income minus a percentage that pays for employees there. Any profits from room rental go back to university.

— UI contributes a third of the salary for eight employees who work for both hotel and conference center, including facility manager, comptroller and marketing staff.

— Five-year agreement can be terminated after three years or extended for up to 10.

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