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PHILADELPHIA-Profits and revenues in the conference center sector of the hospitality industry jumped 39.2% and 13.7%, respectively, in 2005, according to a just-released study by PKF Consulting and the St. Louis, MO-based International Association of Conference Centers. A healthy economy combined with an increase in institutional ownership to account for the success, according to the 2006 edition of “Trends in the Conference Center Industry.”

The shift to increased control by more profit-oriented owners, however, represents new challenges, according to Dave Arnold, locally based CEO East of the San Francisco-based PKF, and author of the study. “Owners used to be entrepreneurs, universities and corporations. Now, more of these facilities are owned by syndicates and Wall Street-type owners who see them as another asset,” he tells GlobeSt.com. “They view conference centers as profit centers that must produce a return.

“While they have brought more disciplined management to the sector,” he says, “they have less appreciation of the corollary benefits associated with the conference center concept.” He says that a concern is that if the new owners view the property as a hotel, the center could lose its edge. “People attending a management meeting might not appreciate being among vacationing families, for instance.”

True conference centers, Arnold says, are designed to provide an environment that’s conducive to recreation, relaxation and learning. Yet, in 2005, non-conference sources provided increasing revenue at centers. The share of all guest rooms booked as part of a conference package dropped to 67% in 2005, down from 68.9% the year before. “Clearly, much of the 6.1% increase in rooms occupied in 2005 can be attributed to accommodating transient sources, such as leisure travelers and individual business people.”

While total revenue grew 13.7% on a per-available-room basis, it grew just 7% on a per-occupied basis, Arnold points out and says the disparity “is partially indicative of management’s willingness to unbundle the complete meeting package rate in order to accommodate some non-traditional group demand. Care should be taken not to jeopardize the golden goose of conference business specialization for the sake of short-term gains,” he cautions. The greatest gains in profitability in 2005 came from resort and corporate conference centers, which experienced increases of 108% and 45%, respectively.

Arnold says there is no data on what proportion of the conference center real estate sector is represented by institutional ownership, but estimates it is “up to as much as 20% to 30%.” Among the centers that have been acquired by institutional buyers, he cites Cheyenne Mountain Inn in Colorado Springs, CO, and Hamilton Park in Florham Park, NJ.

Arnold expects the proportion of institutional ownership to grow in the short, but not the long term. “A rising tide has lifted all boats” in the hospitality industry, he points out. “But hospitality has a cyclical pattern.” As corporations and others lower conference budgets, “institutional buyers will be less inclined to invest in these assets.

“The pressure is on to produce short-term profits in order to meet the needs of institutional owners with five-year exit strategies. This differs from the industry traditionalists who prefer to stick to their strict principles over the long run in order to preserve the unique competitive advantages of a conference center.”

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