Are little yellow stalls the key

May 13, 2011
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From a purely financial perspective, the most important space in DeVos Place may not be the large and impressive exhibit hall that serves as home to conventions and consumer shows.

Quite possibly the most vital piece of the convention center’s fiscal outcome each year can’t even be seen from street level because it’s buried below the massive building. The DeVos Place parking ramp, with its 685 yellow-outlined spaces, has become an essential source of revenue for a building that hasn’t had a profitable booking year since it opened in December 2003.

The convention center has been projected to lose about $500,000 this fiscal year, which ends June 30. But the net parking revenue from the ramp and a small lot near Van Andel Arena, both owned by the Convention and Arena Authority, has been projected to be $611,000 by then. Most of that revenue comes from the ramp.

If the parking revenue is seen as an income source solely for DeVos Place, it could be argued that the building will have a surplus this year.

A similar scenario has been set for the upcoming fiscal year. A preliminary budget by SMG, the building’s management firm, shows DeVos Place losing $775,700 next year. That staggering fiscal blow can be considerably softened if the board’s parking revenue is included in the calculation; the net income from parking has been projected to be $716,000 next year.

When the Business Journal asked SMG Regional General Manager Rich MacKeigan if he thought DeVos Place would ever turn an operating profit, he replied that if the parking revenue is factored in, it does. He said that, without that revenue source, it would be highly unlikely for the convention center to come up with a surplus from event and ancillary incomes alone. And he didn’t think the operational losses were the result of having too big of a building for the market.

“It’s the nature of the business,” he said.

MacKeigan, who has been SMG’s manager here for 13 years, said convention centers in general don’t operate in the black without parking. He also said if buildings like DeVos Place consistently turned a profit, then privately owned companies, not the public sector, would own and operate convention centers.

“When you factor in parking, I think we can get to break-even,” he said.

Some might argue that the revenue from parking doesn’t belong exclusively to DeVos Place because not everyone who parks there is going to a convention, meeting, or consumer show. The ramp has a few dozen monthly parkers who work downtown. There also are people who park there to attend shows in DeVos Performance Hall, which is separate from the exhibit space — although, the hall’s event revenue and expenses are part of the DeVos Place budget.

Then there are those who park in the ramp for other downtown events such as ArtPrize and Festival of the Arts.

Those reasons, and possibly others, may be why parking revenue isn’t included in the budget for DeVos Place. Instead, those dollars are listed as an income source on the CAA’s financial statements, which also contain revenue and expenses that belong to the arena.

“We have a desire to break even at DeVos Place. That should be our target. If we’re not hitting it, we need to know how to get there,” said CAA Chairman Steven Heacock.

The board took a small step recently to fulfill that desire by extending its agreement with the city’s Parking Services Department to operate its ramp and lot for three more years.

DeVos Place parking rates are expected to go up July 1; the increases are estimated to generate another $60,000 in revenue next year. If that new revenue is solely counted for DeVos Place, then break-even is a bit closer. Another hike could be coming next year, as well.

“Every year the rates are adjusted,” said Robert White, a financial consultant to the CAA.

As for the higher projected loss for DeVos Place next year, SMG Finance Director Chris Machuta said revenue to the building will be roughly the same as this year, when the deficit is likely to be about $275,000 smaller than next year’s. But he also noted that expenditures for the 2012 budget are $200,000 higher than this year, with estimated costs for maintenance and supplies, such as filters for the building’s vast air-conditioning system, being the key culprits.

Machuta pointed out, however, that turnarounds are possible. Before DeVos Place, there was the Grand Center — a much smaller convention center with two levels, lots of pillars and the Welsh Auditorium.

The city of Grand Rapids managed the Grand for a long time until the city hired SMG, then known as the Spectacor Management Group, in the late-1990s to handle daily operations.

The largest deficit the building ran up under the city’s direction reached $800,000 one year. Shortly after SMG took over management, the Grand had operational surpluses, the largest of which was $280,000. As Machuta said, “That was a $1 million turnaround.”

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