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EXPANDING VANCOUVER THE CONVENTION AND EXHIBITION CENTRE BUSINESS PLAN Prepared by: VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE October 2000 EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN TABLE OF CONTENTS 1.0 INTRODUCTION ..................................................................................................... 1 1.1 The Vancouver Convention Centre Expansion Task Force.............................. 1 1.2 Convention Centre Expansion .......................................................................... 2 1.3 Project Objectives ............................................................................................. 5 1.4 The Due Diligence Process............................................................................... 6 1.5 Summary......................................................................................................... 10 2.0 RATIONALE FOR EXPANDED FACILITIES ..................................................... 13 2.1 Introduction..................................................................................................... 13 2.2 Purpose of the Vancouver Convention & Exhibition Centre.......................... 14 2.3 Market Justification ........................................................................................ 14 2.4 Expansion Parameters..................................................................................... 27 2.5 VCEC Expansion: Economic Benefits ........................................................... 29 2.6 Summary......................................................................................................... 34 3.0 TOP LINE MARKETING PLAN ........................................................................... 37 3.1 Introduction..................................................................................................... 37 3.2 Planning Philosophy ....................................................................................... 38 3.3 Marketing Considerations............................................................................... 44 3.4 Sales and Marketing Cycle ............................................................................. 45 3.5 Business Targets ............................................................................................. 45 3.6 Growing Marketing Investment...................................................................... 47 3.7 Summary......................................................................................................... 49 4.0 DESCRIPTION OF FACILITIES ........................................................................... 51 4.1 Overview......................................................................................................... 51 4.2 Property Description ....................................................................................... 53 4.3 Analysis Process ............................................................................................. 54 4.4 Site Attributes ................................................................................................. 54 4.5 The Concept .................................................................................................... 56 4.6 Meeting the Functional Requirements ............................................................ 58 4.7 Responding to the Market Opportunity .......................................................... 63 4.8 Community Benefits ....................................................................................... 65 4.9 City Context .................................................................................................... 66 4.10 Renovations to the Existing VCEC................................................................. 67 4.11 Completion of Expansion ............................................................................... 68 4.12 Summary......................................................................................................... 68 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE TABLE OF CONTENTS EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE 5.0 BENEFITS ANALYSIS .......................................................................................... 71 5.1 Introduction..................................................................................................... 71 5.2 Methodology................................................................................................... 71 5.3 Economic Impact - Operations ....................................................................... 73 5.4 Economic Impact - Construction .................................................................... 74 5.5 Total Benefits to Industry - Operations and Construction .............................. 75 5.6 Total Benefits to Governments - Operations and Construction...................... 76 5.7 Job Creation .................................................................................................... 76 5.8 Summary......................................................................................................... 77 6.0 FINANCIAL ANALYSIS ....................................................................................... 79 6.1 Capital Cost Estimates of Convention Centre Expansion............................... 79 6.2 Financial Analysis of Operations of the Expanded Convention Centre ......... 83 6.3 Operating Cashflow Requirements from Opening to Normalized Operations84 6.4 Incremental Marketing Funding Requirements for Expanded VCEC............ 85 6.5 Revenue from Ancillary Assets ...................................................................... 89 6.6 Summary......................................................................................................... 90 7.0 FUNDING ANALYSIS........................................................................................... 93 7.1 Funding Overview .......................................................................................... 93 7.2 Funding Proposal ............................................................................................ 94 7.3 Federal and Provincial Government Participation.......................................... 97 7.4 Municipal Government ................................................................................... 98 7.5 Summary....................................................................................................... 100 8.0 GOVERNANCE .................................................................................................... 103 8.1 Introduction................................................................................................... 103 8.2 Recommendations of the Task force............................................................. 103 8.3 Background ................................................................................................... 105 8.4 Ownership ..................................................................................................... 106 8.5 Summary....................................................................................................... 107 9.0 PRE-CONDITIONS FOR CONSTRUCTION START ........................................ 109 9.1 Land Acquisition Commitment..................................................................... 109 9.2 Funding Approval ......................................................................................... 109 9.3 Complete Balance of Project Definition Report ........................................... 110 9.4 Evaluation of Ancillary Assets ..................................................................... 111 9.5 Project Schedule............................................................................................ 111 10.0 SUMMARY AND CONCLUSIONS ................................................................. 114 10.1 The Investment.............................................................................................. 114 10.2 What are the returns? .................................................................................... 115 10.3 What are the Risks? ...................................................................................... 115 10.4 What are the risks of not proceeding?........................................................... 116 10.5 Governance and Management....................................................................... 116 10.6 Market Driven Opportunity .......................................................................... 117 10.7 Conclusion .................................................................................................... 117 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE TABLE OF CONTENTS EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN APPENDICES A. Members of Vancouver Convention Centre Task Force Vision Statement, Mandate, Principles and Terms of Reference Business Plan Outline B. Expanding the Vancouver Convention & Exhibition Centre, Market Justification and Economic Benefits, KPMG, February 2000 C. BC Input-Output Analysis for Vancouver Convention Centre Expansion, BC STATS, Ministry of Finance and Corporate Relations, Province of British Columbia, September 2000 D. Project Cost and Evaluation Report, Executive Summary, Pacific Liaicon and Associates Inc. E. Governance of the Expanded Vancouver Convention and Exhibition Centre, Report to the Vancouver Convention Centre Task Force, The Vancouver Board of Trade, July 20, 2000 F. Corporate Profiles • Pacific Liaicon and Associates Inc. • LMN Architects G. Technical Information H. Restrictions VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE TABLE OF CONTENTS EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN “The status quo is not an option. Without expansion, the current benefits realized by Greater Vancouver’s tourism industry will decline as the VCEC is unable to effectively compete in an environment of increasing attendance and demands for additional exhibit space.” KPMG, Expanding the Vancouver Convention and Exhibition Centre, Market Justification and Economic Benefits 1.0 INTRODUCTION This Business Plan is the culmination of a year’s work by the Vancouver Convention Centre Expansion Task Force (“Task Force”) and encompasses: • a summary of the results of the due diligence undertaken by the Task Force - due diligence that involved extensive meetings and consultation with industry representatives, with municipal, provincial and federal politicians and staff and with professional advisors; and • the recommendations of the Task Force for a controlled and business-like construction and implementation of an expansion of the Vancouver Convention and Exhibition Centre (“VCEC”). 1.1 THE VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE The Task Force was created in response to the cancellation of the Portside expansion project by the British Columbia government. CANCELLATION OF THE PORTSIDE PROJECT On October 5, 1999 (then) Premier Dan Miller announced that the provincial government had cancelled the $1 billion Portside development that had been proposed by Concert Properties Ltd. (formerly Greystone). The Portside development was to have been one of the larger infrastructure projects in Western Canada, comprising an expansion of the existing convention centre, an upgrading of the Vancouver Port Authority’s cruise ship facilities, a 1,000 room hotel, a public plaza, a retail complex and the relocation of the SeaBus, WestCoast Express and Vancouver heliport terminals. Premier Miller said that the need for an expanded convention centre had never been in question and that expansion was an important part of keeping Vancouver competitive with other destinations which were already expanding across North America and around the world. However, he said that the province was cancelling the project because: 1. the provincial government was not able to secure a financial contribution from the federal government; 2. Concert was not able to secure a financial commitment for the hotel portion of the development; and 3. the provincial government was not able to secure a project agreement with labour. 1 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE Premier Miller said that the province would not consider the expansion further unless the private sector came forward with a viable alternative. FORMATION OF THE VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE Following the cancellation, there was widespread agreement throughout the business community and the tourism industry in particular that expansion of the convention centre was too crucial to the economic future of British Columbia not to pursue. Within days of Premier Miller’s announcement, an industry group comprising Tourism Vancouver, Vancouver Hotel Association, The Vancouver Board of Trade and PAVCO formed the Task Force with the express purpose of bringing convention centre expansion to Vancouver. A complete list of members is included in Appendix A. The Task Force undertook to provide leadership, direction and focus leading to a workable, industry-driven Business Plan for expansion of the Vancouver Convention and Exhibition Centre (“VCEC”). The Plan would be prepared on the premise that funding would be provided by the federal government, provincial government and industry. Members of the Task Force agreed that the Business Plan would be based on the following, underlying premises. • The expansion would take place on the waterfront adjacent to the Vancouver Convention and Exhibition Centre. • The Business Plan would be limited to expansion of the convention centre and not any other components, however worthwhile. • Industry, the federal government and the provincial government all would be required to contribute financially to the expansion. • Gambling or gaming would not be considered as a component of expansion. The development of this framework included agreement on a Vision, Mandate, Principles and Terms of Reference. These provided the framework for the Business Plan and for the operation of the Task Force. The Vision, Mandate, Principles and Terms of Reference are included in Appendix A. 1.2 CONVENTION CENTRE EXPANSION IMPORTANCE OF CONVENTION CENTRE EXPANSION The cancellation of the Portside development, with its key component being the expansion of the VCEC, was a huge economic loss, not only to the tourism and hospitality industries locally and provincially, but also to the provincial and federal treasuries. VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE 2 INTRODUCTION EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN Convention centres are catalysts for generating net economic benefit from the spending of overnight visitors. Through the collective efforts of the VCEC, Tourism Vancouver, Vancouver hotels and the broader tourism industry, the VCEC has a proven track record of meeting this objective since opening in 1987. The services of KPMG and BC STATS were engaged to assist the Task Force. KPMG reported that the current VCEC generates $245 million annually in delegate and visitor spending and $73 million in revenue for local, provincial and federal governments. With expansion, annual delegate and visitor spending would increase to $474 million (an increase of $229 million) in 2009, the first year of normalized operations for the expanded convention centre. BC STATS, the statistical agency of the BC Ministry of Finance and Corporate Relations, using its British Columbia Input Output Model, estimated that expansion would increase annual local, provincial and federal government revenues by $76 million and create 7,530 new, full-time jobs in Greater Vancouver and the rest of British Columbia. KPMG estimated that a typical city-wide convention of 1,750 delegates and 350 exhibitors generates $5 million in spending and $1.5 million in taxes for municipal, provincial and federal treasuries. Conventions attract foreign delegates. It is these people, mostly from outside British Columbia and increasingly from outside Canada, who bring their money to spend here. It is therefore foreign capital that fuels delegate spending, creates jobs and generates resultant tax revenue for governments. These tax revenues can then be used by governments for such things as health care, infrastructure, education and other government programs at no cost to the taxpayer. COMPETITION IN THE MARKET PLACE Tradeshow Week, a respected industry publication, recently reported that there are 377 exhibition and convention facilities in North America offering 65.2 million square feet of space. Canada has 40 facilities (10.6% of the market) providing 7.7 million square feet of space (11.8%). Cities throughout the world appreciate the importance of convention centres to their economic well being and have invested heavily in the construction, upgrading and expansion of convention centres. Currently in North America there are 87 new and expanded facilities planned or under construction that will offer a total of 14.2 million square feet of new exhibit space and 3.3. million square feet of meeting space. In spite of the expansion activity, demand for space continues to outstrip supply in North America. In 1999 the square footage of exhibit space that came on the market was .6% 3 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE over 1998. For that same period the growth in demand for exhibit space at trade shows was 5.8% – approximately 10 times the rate of supply. While Vancouver competes with other Canadian facilities for some events, Vancouver primarily competes with U.S. and international cities and this will become increasingly so. KPMG estimated that 90% of the convention delegates to the expanded convention centre will be attending North American and international conventions and, for this reason, expansion is geared to the US and international markets. The importance of the convention centre as an economic engine is not lost on Vancouver’s competitors. Many of the VCEC’s direct competitors have either expanded or propose to in the near future. Exhibit 1.1 illustrates the activities of the VCEC’s competitors. (Toronto and Calgary were added to this chart to illustrate the relative size of their recently renovated facilities.) EXHIBIT 1.1 CURRENT & PROPOSED EXPANSIONS VCEC COMPETITIVE MARKETS San Diego San Francisco Minneapolis Salt Lake City Seattle Denver Current Portland Preliminary Stages Montreal Under Construction Toronto VCEC Expansion Calgary Vancouver - 100,000 200,000 300,000 400,000 500,000 600,000 700,000 EXHIBIT SPACE (Sq. Ft.) Source: KPMG, modified to show Toronto, Calgary and VCEC expansion. WHY ONLY A CONVENTION CENTRE? The Task Force agreed in its initial stages that it would focus on convention centre expansion and not consider other components. The previous Portside project comprised many components which frustrated the ability of the stakeholders to reach an agreement on the cost sharing of the project. For example, the previous project included a hotel, but the inability to secure a financial commitment for the hotel portion of the development was one of the three reasons given by Premier Miller for cancelling the project. VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE 4 INTRODUCTION EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN The Task Force is well aware that a hotel is important for the success of the project. However, the Task Force believes that market forces will determine the size, location and timing of a hotel. The Task Force is aware that a hotel site adjacent to the convention centre expansion property is proposed and expects that a convention-style hotel meeting the needs of meeting planners, delegates and exhibitors will be announced to open in time for the expanded convention centre. The Task Force also agreed that gaming or gambling would not be considered as a component of expansion. The issue of gaming is one that continues to polarize the community. The Task Force agreed that the priority was to build the convention centre expansion and that the benefits to the citizens of British Columbia were so significant that gambling revenues were not needed to justify industry and government investment in the convention centre expansion. WHO SHOULD CONTRIBUTE TO EXPANSION? The Task Force believes that those who receive the financial benefits of expansion should contribute to its development. The prime beneficiaries of expansion are the federal government, the provincial government and the tourism industry and it is an underlying premise of the expansion plan that all three will contribute to the cost of convention centre expansion. Because the tourism industry believes strongly that expansion will bring benefits to it and to the community at large, the tourism industry has committed an investment of $90 million toward the total development cost of the project. Industry already contributes to all levels of government in taxes ranging from property taxes, provincial sales taxes, Good and Services taxes to payroll taxes. However, industry’s commitment is to provide $90 million in funding for this project in addition to these taxes. (Industry made a similar commitment to the Portside development.) BC STATS estimates that expansion will generate $75.8 million annually in incremental revenue for the federal, provincial and municipal governments (for the year 2009) and will create 7,530 new, full-time jobs. BC STATS estimates that construction will generate $88 million in incremental taxes to governments and provide 6,702 person-years of employment. 1.3 PROJECT OBJECTIVES The Task Force’s overall project objectives were to create an expanded facility that would: • allow Vancouver to remain competitive in convention markets by retaining existing events which are expanding and securing new meeting, convention and 5 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE event business; • generate economic benefits through jobs and tax revenues from out-of-province visitors that will provide governments with the opportunity to reduce taxes for British Columbians and Canadians; • complement the role of Canada Place as an internationally recognized symbol welcoming visitors to Canada and as a signature feature of the Vancouver waterfront • provide significant public amenities and meet the requirements for a desirable city context; • maintain and enhance features that have given Vancouver its competitive edge in the market; and • meet the highest environmental standards for convention centres thereby enhancing Vancouver’s position in the marketplace. Additional objectives that arose from the experiences of the previous expansion design process were to: • demonstrate industry initiative and support for an expansion proposal; • contain costs and minimize public sector financial risk; • provide an attractive return for the tourism industry, the federal government and provincial governments to encourage their investment in expansion; • minimize design compromises which could impact the functionality and marketability of the expanded facility; • minimize construction and operational impacts on existing facilities, including the Vancouver cruise ship terminal, the SeaBus terminal and the existing Vancouver Convention & Exhibition Centre; and • eliminate the linkage with the design, construction and timing of the hotel component. The Task Force also agreed that it would communicate regularly with industry and the three levels of government and share its results during the due diligence process so that the resulting Business Plan would reflect the consensus of those who were the beneficiaries of expansion. 1.4 THE DUE DILIGENCE PROCESS Members of the Task Force agreed unanimously there was no benefit in re-creating the previous selection process that began formally in November 1995 with a Call for Expressions of Interest issued by the provincial government and concluded four years later with the cancellation of Portside, which would have been constructed to the east of the VCEC. VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE 6 INTRODUCTION EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN There was not the time, resources or appetite by industry, public or governments to re- create that process. However, the Task Force concluded that there were significant benefits in utilizing what had been learned from the previous process that ended in October 1999. The convention centre expansion represents a significant public/private partnership involving millions of dollars and high profile in the community. The Task Force was not prepared to recommend such a large infrastructure project without appropriate due diligence. The due diligence steps the Task Force undertook were to: • confirm that expansion was warranted; • evaluate the best site and design for expansion, one worthy of Vancouver’s waterfront, that enhances the Canada Place icon and is highly functional; • evaluate the project and confirm the cost to build the project; and • compile the results and present them in a business plan. BUSINESS CASE The Task Force was not prepared to consider such a large infrastructure project without re-affirmation that expansion was warranted. The Task Force therefore commissioned a study to: • confirm the market potential for expanding the VCEC; • confirm the appropriate facility parameters in respect of exhibit, meeting and other spaces; and • quantify the incremental revenues to business and government resulting from expansion. The business case was to be non site-specific. That is, the results of the study would be relevant for waterfront sites on either side of the existing VCEC. This would allow the Task Force to re-examine the case for expansion while reviewing site options. The international consulting firm, KPMG, had previously conducted extensive analyses on various aspects of expanding the VCEC in 1995 and 1996. The Task Force engaged KPMG to update its previous work and analyse the benefits of convention centre expansion. KPMG released its the study: Expanding the Vancouver Convention and Exhibition Centre, Market Justification and Economic Benefits in February 2000. The KPMG study concludes that there are compelling reasons to proceed with expansion. (Results of the KPMG study are described extensively in Section 2 and throughout the Business Plan.) 7 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE SITE AND DESIGN SELECTION The Task Force agreed to focus its investigation on those sites that had gone through the extensive industry and public scrutiny of the previous Stage 1 – Expressions of Interest and that were on the waterfront adjacent to the existing VCEC. There were a number of solid business reasons for this decision. • Canada Place has become one the world’s most recognized landmarks and has great appeal to delegates and meeting planners. • The existing VCEC continues to be an excellent venue for events and will continue to be an integral part of the expansion plan. • Meeting planners told Vancouver marketing personnel that a waterfront location was a critical part of the decision to select Vancouver over its competitors and accounted for increased business. • A site adjacent to the existing VCEC provided efficiencies both for delegates and exhibitors and for management of the VCEC. Two sites qualified for consideration – the Portside project site to the east of the VCEC and the Discovery Place proposal on the Burrard Landing site owned by Marathon Developments Inc. (“Marathon”) to the west. Shortly after the Province cancelled the Portside project, Marathon notified the Province that its Burrard Landing site was available for convention centre expansion. Marathon was offering the site as a vendor, not in its role as a developer as it did in 1997. The Province referred Marathon’s interest to the Task Force. The Task Force was fortunate that the Marathon site was still available and the plans for the Discovery Place proposal on the Burrard Landing site were essentially complete. The Marathon proposal had been withdrawn from the previous process only a short time before the deadline for submissions in 1997. Given that: • the Province had just cancelled the Portside project; • the Portside project had been thoroughly investigated and was very well known to members of the Task Force; • the Burrard Landing concept had been through the extensive public process as part of the Stage I Evaluation of the Vancouver Convention & Exhibition Centre Selection Process; • the Burrard Landing site was on the waterfront adjacent to the VCEC; and • the Burrard Landing concept was essentially complete VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE 8 INTRODUCTION EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN the Task Force agreed that it should first focus its attention on the Burrard Landing concept. Pacific Liaicon and Associates Inc. (“PLA”), recognized for their extensive work on major projects including the Vancouver International Airport expansion, conducted an assessment of the Burrard Landing site. The assessment was conducted in close liaison with PAVCO, who are responsible for managing the VCEC. LMN Architects (“LMN”) were engaged to update the original design they had prepared for Marathon. LMN are experts in convention centre design having participated in over 40 convention centre designs throughout the world and having won numerous design competitions. George Loschky of LMN described the site as “the most dramatic and attractive location we have ever worked with”. LMN worked with VCEC management and staff, and City of Vancouver planning staff to arrive at a final design concept that is functional, spectacular, worthy of Vancouver’s waterfront and enhances the Canada Place icon. The result of the analysis was that the Task Force unanimously recommended the Burrard Landing site and design concept as its preferred choice for the convention centre expansion. BUSINESS PLAN After concluding that the expansion would be of significant benefit to the citizens of Greater Vancouver, British Columbia and Canada, the next step was to prepare a business plan that would: • provide accurate and detailed information for the financial participants in the project; and • provide a blueprint for the controlled and business-like construction and implementation of the expansion. The Task Force first approved a Business Plan Outline, which was forwarded to senior officials in the provincial and federal governments for comment. The Task Force provided this to governments to ensure that any and all information required by the senior levels of government would be included in the Business Plan. The Business Plan Outline is included in Appendix A. The Business Plan uses a number of terms to describe the financial results – normalized, nominal and net present value. A “normalized year” or a “year of normalized operations” refers to a year in which the expanded convention centre is again operating normally and all adjustments due to the expansion have been made. Annual incremental spending and tax revenues are expressed 9 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE in normalized dollars for the year 2009. It is assumed that the first normalized year of operations will be 2009. “Net present value” is a method of discounting future cashflows to state them in current year dollars. All present values are stated in Year 2000 dollars. “Nominal” refers to spending and taxes that are recorded at their value in the year that they occur. The report makes extensive use of the term “convention centre expansion”. For clarity, convention centre expansion comprises: • constructing new facilities on the Burrard Landing site to the west of Canada Place; • renovating the existing facilities at Canada Place; and • linking the two sites to form an integrated convention and exhibition centre. 1.5 SUMMARY ♦ After cancellation of the Portside project, the Task Force was created and undertook to provide leadership, direction and focus leading to a workable, industry-driven Business Plan for expansion of the VCEC. ♦ The convention centre expansion represents a significant public/private partnership involving millions of dollars and high profile in the community. The Task Force was not prepared to recommend such a large infrastructure project without appropriate due diligence. ♦ The Business Plan compiles and presents the information and results obtained as a result of the due diligence. The Plan addresses the fundamental issues including the cost of the expansion, the amount of benefits to be generated (and the recipients thereof), the recommended program of spaces and concept design, funding alternatives and recommended governance during the construction and operating phases. VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE 10 INTRODUCTION EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN 11 EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN “The impact of losing tentative convention events and/or past users due to relocation of events elsewhere is significant. The relocation of a single 4-day, city-wide convention of 1,750 delegates could potentially result in the loss of more than $5 million in spending and over $1.5 million in government revenue.” KPMG, Expanding the Vancouver Convention and Exhibition Centre, Market Justification and Economic Benefits 2.0 RATIONALE FOR EXPANDED FACILITIES 2.1 INTRODUCTION The first major step in the due diligence process for the Task Force was the re-affirmation of the need for expansion. There had been no independent assessment of the need for expansion or a review of the expansion parameters since April 1995 when KPMG prepared its 1995 study, Assessment of the Market Potential for Expanded Convention Facilities in Vancouver, for BC Pavilion Corporation (now PAVCO). While members of the Task Force were confident that expansion was still warranted, they were unwilling to recommend proceeding with such a large private/public infrastructure investment without a current, independent assessment. The Task Force engaged KPMG to update its previous study and provide a current, independent report on whether expansion was warranted and what expansion parameters would be appropriate. Specifically, the purposes of the new KPMG study were to: • confirm the market potential for expanding the VCEC; • recommend optimum expansion parameters; and • quantify the economic benefits to business and government resulting from an expansion of convention facilities and the corresponding increase in visitors. In completing its study, KPMG conducted extensive analyses on various aspects of expanding the VCEC, including market research, development of expansion size parameters and preparation of economic impact analyses. The Task Force also engaged the services of BC STATS, the statistical agency of the BC Ministry of Finance & Corporate Relations, to provide economic impact information that was based on the spending estimates provided by KPMG in its report. BC STATS employed its British Columbia Input Output Model (“BCIOM”) to produce the results. This section describes the results of the KPMG and BC STATS reports. These entire reports as presented to the Task Force are contained in Appendices B and C respectively. 13 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE 2.2 PURPOSE OF THE VANCOUVER CONVENTION & EXHIBITION CENTRE Virtually no North American convention centres produce (or are intended to produce) an operating profit. Rather, convention centres are investments in infrastructure whose purpose is to generate economic activity and create jobs. As a result, operating losses are balanced against the broader economic benefits to the community and to various levels of government. The objective of the VCEC is to generate net economic benefits at the local, provincial and national level by attracting overnight visitors and to showcase British Columbia and its role as a gateway to Canada. Through the collective efforts of the VCEC, Tourism Vancouver, Vancouver hotels and the broader tourism industry, the VCEC has a proven track record of meeting this objective since opening in 1987. However, more and more North American cities are recognizing the value of conventions and trade shows as a means of generating out-of-town visitation and corresponding local and regional economic benefits. The marketplace is becoming increasingly competitive. Some 80 North American cities have convention facilities larger than the VCEC’s 90,000 square foot exhibit hall and, following completion of proposed expansions in Montreal (to 200,000 square feet) and Ottawa (to 200,000 square feet), Vancouver will offer the fourth largest convention centre in Canada. KPMG reported that Vancouver is being overtaken, in terms of available convention space, by North American cities with far less destination appeal such as San Antonio (291,000 square feet), Columbus, Ohio (331,000 square feet) and Salt Lake City (256,000 square feet). 2.3 MARKET JUSTIFICATION INTRODUCTION The market analysis conducted by KPMG focused on reconfirming the demand for expanded convention facilities in Vancouver. Specifically, the market analysis included a review of: • North American convention demand trends; • North American exposition/trade show demand trends; • Greater Vancouver’s convention and leisure travel appeal; • Historical convention activity in Greater Vancouver; • VCEC performance to 1999 including industry focus and current event characteristics; • the impact of VCEC size on future performance; and 14 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE RATIONALE FOR EXPANDED FACILITIES EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN • VCEC market opportunities. NORTH AMERICAN CONVENTION DEMAND TRENDS The 1998 Meetings Market Study (a bi-annual publication produced by Meetings & Conventions Magazine) reported that medium and large-sized conventions are continuing to assume a larger part of the market and that trend is accelerating. Space requirements and average attendance at conventions is increasing and larger conventions with more space and attendees are becoming more prevalent. The Study found that between 1994 and 1998: • the average amount of exhibit space used by North American conventions increased from approximately 41,100 to 69,200 square feet (an annual increase of 11%); • the average number of attendees at North American conventions increased by 14%; • the proportion of conventions with an average number of attendees greater than 1,000 was found to have increased from 21% to 26%; and • the largest increase was in the proportion of conventions requiring more than 80,000 square feet, an increase of 20% to 29%. EXHIBIT 2.1 AVERAGE SQUARE FEET USED NORTH AMERICAN CONVENTIONS 50% 1994 40% 1998 30% 20% 10% 0% < 9,999 10,000-39,999 40,000-79,999 > 80,000 SQUARE FEET USED Source: KPMG The number of North American events requiring more than 80,000 square feet was estimated to be in excess of 3,200 in 1998. 15 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE EXHIBIT 2.2 AVERAGE NUMBER OF DELEGATES PER CONVENTION ALL NORTH AMERICAN CONVENTIONS 1994 40% 1998 30% 20% 10% 0% < 100 100-300 300 - 499 500-999 1,000-1,999 > 2,000 NUMBER OF ATTENDEES Source: KPMG NORTH AMERICAN EXPOSITION/TRADE SHOW DEMAND TRENDS Unlike convention events, which are focused primarily on information exchange, trade show events are focused on the sale of goods and services. Exhibit space rather than meeting space is the primary facility requirement. An analysis of selected North American expositions by Tradeshow Week, illustrates that demand for larger exposition space increased between 1994 and 1998 as set out in Exhibit 2.3. EXHIBIT 2.3 ANALYSIS OF SELECTED NORTH AMERICAN EXPOSITIONS BY SIZE 50% 50% 43% 40% 27%29% 1994 30% 1998 20% 11%15% 7% 8% 5% 6% 10% 0% 22,000-99,999 100,000- 200,000- 300,000- 400,000- 199,999 299,999 399,999 500,000 SQUARE FEET Source: KPMG In its 2000 study (released in February), KPMG reviewed exposition and trade show demand and, based on estimated demand for the year 2000, reported that, between 1995 and 2000: • the demand for total square feet would increase by 22%; • the average show would increase from 208,000 square feet to 248,000 square feet; 16 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE RATIONALE FOR EXPANDED FACILITIES EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN • the number of trade shows would increase from 4,380 to 4,637; • total attendance would increase significantly reaching 125 million by 2000, compared to 116 million in 1995; and • average attendance per show would increase from 26,869 to 27,123. EXHIBIT 2.4 CHARACTERISTICS OF NORTH AMERICAN TRADE AND CONSUMER SHOWS 1995 1997 1999 2000 Actual Actual Actual Estimated Average Square Feet 208,000 205,000 228,000 248,000 Average # of Exhibiting Companies 306 291 335 300 Average Attendance 26,869 25,369 22,657 27,123 Ratio of Attendees to Exhibitors 88 to 1 87 to 1 68 to 1 90 to 1 Source: KPMG. NORTH AMERICAN CONVENTION/EXHIBITION FACILITIES SUPPLY The 1990’s were active for the development of convention and exhibition supply facilities. For the period between 1990 and 1999, the total supply of exhibit space in North America grew by approximately 11.5 million square feet from 53.7 to 65.2. Canada accounts for 10.6% of the facilities and 11.8% of the exhibit space as measured by square footage. EXHIBIT 2.5 NORTH AMERICAN EXHIBIT SPACE NO. OF FACILITES % EXHIBIT SPACE % (Sq. Ft. millions) Canada 40 10.6% 7.7 11.8% United States 326 86.5% 55.7 85.4% Mexico 11 2.9% 1.8 2.8% TOTAL 377 100.0% 65.2 100.0% Source: Tradeshow Week The development of new facilities is projected to continue at an accelerated pace. Between 1999 and 2004, 87 new and expanded facilities are projected to add an estimated 14.2 million square feet of exhibit space and 3.3 million square feet of meeting space to the North American market. Successful convention and trade show facilities are continuing to expand in order to capitalize on established markets and many of VCEC’s direct competitors have either recently expanded or propose to do so in the near future. 17 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE Toronto’s recent addition of 250,000 square feet (1997) and Montreal’s proposed 100,000 square feet expansion (2001) were justified based on anticipated demand from U.S. groups for Canadian convention/exposition destinations. KPMG reports that four of the VCEC’s direct competitors (San Diego, Seattle, Portland, Denver) compared in the 1995 KPMG study have planned, are completing or have completed expansion since the 1995 KPMG study. EXHIBIT 2.6 CURRENT & PROPOSED EXPANSIONS VCEC COMPETITIVE MARKETS ego S an D i sco S an Franci nneapols Mi i S al Lake C i t ty Current e S eattl Preliminary Stages D enver Under Construction and P ortl VCEC Expansion M ontreal Toronto gary C al Vancouver - 100,000 200,000 300,000 400,000 500,000 600,000 700,000 EXHIBIT SPACE (Sq. Ft.) Source: KPMG, modified to show Toronto, Calgary and VCEC expansion. As a result of this constant expansion activity, few major exhibit halls remain at the same size for more than five years. The key reasons for this expansion trend are: • Convention & Visitors’ Bureaux (CVB’s) and municipalities have placed an emphasis on attracting “business tourists” to their cities; • competition for conventions and expositions, especially the largest events, is intense; • trade shows are growing at a steady rate, but very few new events are launched on an annual basis; and • all sizes and types of events, from mega-trade shows to small meetings have a wide array of venue options. VANCOUVER’S CONVENTION AND LEISURE TRAVEL APPEAL Vancouver offers most of the key success factors typical of major convention destinations: ease of access, first-class facilities, tourism appeal and a reputation for quality service. 18 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE RATIONALE FOR EXPANDED FACILITIES EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN Vancouver continues to provide great appeal as a convention (and leisure) destination as evidenced by strong growth in transient accommodation. EXHIBIT 2.7 GREATER VANCOUVER HOTEL DEMAND ROOM NIGHTS SOLD ROOM NIGHTS SOLD (000's) 5,400 5,000 4,600 Actual 4,200 Projected 3,800 3,400 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Source: KPMG, modified to show 1999 actual Room nights sold in Greater Vancouver increased from 4.0 million in 1992 to 4.9 million in 1999 and, by 2000, total room nights sold are projected to reach 5.0 million. Hotel room demand is expected to continue to increase for the foreseeable future. EXHIBIT 2.8 ROOM NIGHTS SOLD BY SEGMENT - 1999 GREATER VANCOUVER Individual Individual Leisure Corporate 21% 25% Group Corporate Group Tour and Meetings Travel 16% 11% Group Convention Other 13% 14% Source: KPMG As shown in Exhibit 2.8, the convention market (represented in the chart by Group Corporate Meetings and Group Convention) is crucial to the success of the Vancouver hotel community. In 1999, approximately 29% of total room nights were the result of conventions and corporate meetings. Conventions at the VCEC accounted for approximately 60% and corporate meetings at hotels accounted for approximately 40% of these room nights. 19 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE HISTORICAL CONVENTION ACTIVITY IN GREATER VANCOUVER In Greater Vancouver total convention activity, including at the VCEC, local hotels and other facilities, continues to experience tremendous growth. From 1995 to 1999 the number of delegates has increased from 164,000 to 224,000 per year, while the number of conventions remained relatively flat at approximately 355 conventions (Exhibit 2.9). From 1997 to 1999, the annual number of city-wide conventions has averaged 16 per year. EXHIBIT 2.9 GREATER VANCOUVER CONVENTION & MEETING ACTIVITY 1983 TO 1999 NO. OF CONVENTIONS NO. OF DELEGATES 450 295,000 360 245,000 270 195,000 180 90 145,000 - 95,000 83 85 87 89 91 93 95 97 99 19 19 19 19 19 19 19 19 19 No. of Conventions No. of Delegates Source: KPMG, modified to show 1999 actual Since 1993 the trend has been that the number of delegates to Vancouver has continued to increase. Because four of the 16 city-wide events in 1997 were exceptionally large (e.g, APEC) the number of delegates in that year jumped from 176,000 in 1996 to 252,000 in 1997. Greater Vancouver’s successful convention activity is the result of a significant investment targetted to attract convention business. The VCEC, Tourism Vancouver and Vancouver area hotels aggressively market the city as a convention and meeting destination. More than $20 million has been invested in destination marketing efforts since 1996. The current definition of a city-wide event is 1,000 or more hotel rooms consumed on the peak night of the convention which are booked at a minimum of three hotels. City-wide events are important because they make the tourism infrastructure operate more efficiently and generate more hours of work for employees in the tourism industry than do normal events. A recent study commissioned by Tourism Vancouver concluded that occupancies increased by 11.1% at convention hotels and 7.9% at non-convention hotels during city-wide events. 20 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE RATIONALE FOR EXPANDED FACILITIES EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN More than hotels benefit from city-wide events, where thousands of delegates spend an average of $520 per day visiting local attractions, in restaurants, taxis and retail stores. Taxis are busier with less waiting time between fares and hotels, restaurants and retail stores call in more part-time staff to serve these consumption-hungry visitors. The VCEC is the host facility for the majority of city-wide conventions held in Vancouver. The VCEC’s (and Greater Vancouver’s) ability to successfully host very large events (e.g., International Conference on AIDS) despite facility size constraints and a limit on the number of hotel rooms, not only demonstrates the attractiveness of Vancouver, but also suggests great potential to attract more of these events with expanded facilities. The current capacity for the number of city-wide events is limited to approximately 15 to 20 per year due to the space limitations of the existing VCEC. The ability to host city- wide events will increase significantly with expansion with the resultant, associated benefits. VCEC PERFORMANCE TO 1999 Through the combined efforts of the VCEC staff, Tourism Vancouver and the hotel community, the VCEC is achieving utilization levels well in excess of North American convention centres. Between 1994 and 1999 exhibit space utilization increased from 63% to 83% and ballroom space utilization increased from 59% to 77%. 70% is considered the effective maximum utilization in the industry. EXHIBIT 2.10 VCEC EXHIBIT HALL & BANQUET ROOM UTILIZATION 1994 TO 1999 85% Exhibit Space 75% Ballroom Space 65% 55% 1994 1996 1997 1998 1999 Source: KPMG 21 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE VCEC INDUSTRY FOCUS The top industry segments for North American exhibitions (i.e., part of a convention and stand-alone trade shows) are Medical/Sciences (17%) and Technology (15%). Medical/Sciences expositions accounted for 458 shows in 1999. Technology-based (computer/electronic) shows, were the fastest growing category increasing by 104 shows between 1998 (293 events) and 1999 (397 events), a staggering 35% increase. In general, technology shows (i.e., Comdex mega show) are typically larger than medical shows. Emerging industries (i.e., environmental technology, biotechnology) are estimated to contribute 20% of all new medical/sciences trade shows during the next ten years. EXHIBIT 2.11 LEADING INDUSTRY FOCUS OF NORTH AMERICAN EXPOSITIONS 20% 15% 10% 5% 0% Sciences Technology Home Sports and Education Building Furnishings Leisure Source: KPMG In 1999 (consistent with prior years), the industry focus of VCEC conventions was primarily medical sciences, technology and business/finance events. The VCEC and Tourism Vancouver marketing plans suggest a continued focus on these segments. 40% EXHIBIT 2.12 LEADING INDUSTRY FOCUS OF VCEC CONVENTION 30% (>1,000 ATTENDEES) 20% 10% 0% Medical Technology Business and Management Agriculture Other Sciences Finance Source: KPMG 22 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE RATIONALE FOR EXPANDED FACILITIES EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN CURRENT VCEC EVENT CHARACTERISTICS In 1999, the VCEC hosted 61 events (35 conventions and 26 trade shows) compared with 46 in 1995. (Consumer shows were not included in the analysis as they draw primarily from a local audience.) EXHIBIT 2.13 VCEC CONVENTIONS BY PEAK ROOM REQUIREMENTS 1995 TO 1999 NO. OF CONVENTIONS 60 2,500+ 45 1,000-2,499 30 600-999 < 600 15 0 1995 1996 1997 1998 1999 Source: KPMG EXHIBIT 2.14 VCEC TRADE SHOWS BY PEAK ROOM REQUIREMENTS 1995 TO 1999 NO. OF TRADE SHOWS 30 1,000-2,499 600-999 20 < 600 10 0 1995 1996 1997 1998 1999 Source: KPMG The number of city-wide conventions hosted by the VCEC over the past 5 years (requiring 1,000+ peak hotel rooms) ranged from a low of 9 in 1996 to a high of 16 in 1997. U.S. and internationally-based convention groups consistently account for more than 75% of all city-wide conventions and trade shows. 23 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE The convention and trade show events held at the VCEC generally do not overlap. Most conventions (e.g., 26 of 35 in 1999) are held between April and October, with most city- wide conventions (e.g., 10 of 14 in 1999) concentrated between May and September. The majority of trade shows (e.g., 16 of 26 in 1999) are held between November and April, except for December. IMPACT OF VCEC SIZE ON FUTURE PERFORMANCE The VCEC has between 10 and 16 confirmed and tentative city-wide conventions for each year between 2000 and 2005. EXHIBIT 2.15 VCEC CITY-WIDE CONVENTIONS 1997 TO 2005 20 Tentative 15 Confirmed 10 Historical 5 0 1997 1999 2001 2003 2005 Source: KPMG In order to estimate the impact of VCEC size on future performance, KPMG interviewed representatives of events held at the VCEC from 1995 to 1999 and representatives of selected tentative events in the future. A significant proportion of city-wide conventions from 2003 onward are tentative bookings only which reflects, not only the normal lead time in confirmation, but also some concern regarding the adequacy of VCEC facilities. The concern about the adequacy of facilities was raised during telephone interviews conducted in late 1999 by KPMG with representatives of selected tentative events. KPMG’s analysis of selected events occurring from 1995 to 1999 included a review of space needs and interviews with event representatives. KPMG concluded that the annual growth in attendance for these events ranged between 5% to 8% and the average number of attendees at city-wide events (held at the VCEC) increased from 2,100 to 3,050. 24 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE RATIONALE FOR EXPANDED FACILITIES EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN EXHIBIT 2.16 AVERAGE ATTENDANCE OF VCEC USERS REQUIRING 1,000 PEAK HOTEL ROOMS Actual AVERAGE NO. OF ATTENDEES 5,000 Projected 4,000 3,000 2,000 1,000 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Source: KPMG Interviewees suggested that the size of the VCEC is limiting their ability to maximize the potential attendance. As the space needs of VCEC users (and potential users) continue to grow, the VCEC’s space constraints become more of an issue. VCEC NEW MARKET OPPORTUNITIES An expanded convention centre presents two new areas of opportunity: • the ability to host larger events; and • the ability to host simultaneous or overlapping events. In late 1999, KPMG conducted interviews with a sample of potential VCEC users each requiring between 100,000 to 300,000 square feet of exhibit space. The majority of interviewees expressed an interest in incorporating Vancouver into their rotation pattern, assuming an adequate mix of exhibit and meeting facilities and a sufficient number of hotel rooms proximate to the convention centre. 25 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE EXHIBIT 2.17 VCEC MARKET POTENTIAL FACILITY REQUIREMENTS AND CHARACTERISTICS FOR FUTURE VCEC EVENTS EXHIBIT ATTENDANCE HOTEL YEAR SPACE BLOCK American Association of Cancer Research 275,000 9,000 5,800 TBD American Association of Orthodontists 250,000 19,000 5,200 2011 American Academy of Neurology 220,000 7,000 4,000 2009 National Association of Home Care 200,000 7,000 4,000 2006 Canadian Pulp & Paper Association 167,000 9,200 8,500 TBD Special Libraries Association 135,000 6,000 3,000 2005 American Society for Bone & Mineral Research 125,000 5,000 2,900 2007 American Institute of Ultrasound in Medicine 100,000 2,500 1,800 2006 Grain Elevator & Processing Society 90,000 2,000 1,100 2002 Source: KPMG EXHIBIT 2.18 NORTH AMERICAN CONVENTION ACTIVITY BY MONTH % OF CONVENTION ACTIVITY 20% 15% 10% 5% 0% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: KPMG The ability to host multiple events (and/or events with overlapping move-in/move-out schedules) is currently not possible at the VCEC with the exception of very small events. The majority of North American convention events are held in June, or between September and November and utilization of VCEC exhibit and banquet rooms during these months has been in excess of 70% for each year since 1995. MARKET POTENTIAL CONCLUSIONS AND EVENT LOAD PROJECTIONS Based on interviews with potential users in late 1999, analysis of VCEC performance to date, consideration of industry-wide trends and a review of the previous analysis, KPMG concluded that additional convention facilities in Vancouver are necessary to meet 26 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE RATIONALE FOR EXPANDED FACILITIES EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN demand, achieve Vancouver’s market potential and remain competitive in an increasingly competitive environment. The event load projections shown in Exhibit 2.19 were derived after considering historical performance, potential expansion of existing events and the ability to attract new (i.e., larger and contiguous) events. The projections assume that: 1. expansion is completed by 2005*; and 2. 2009 is represented as a “normalized” year, with the VCEC projected to host: • 67 convention events of all sizes, including conventions with and without associated exhibit components; and • 35 trade shows of all sizes. * The KPMG study assumed that the expanded convention centre would open in 2004 and that, by 2008, operations of the expanded VCEC would be stabilized or “normalized”. Because the expanded convention centre will not open until 2005, the Task Force has adjusted the incremental impact of expansion to be shown one year later than in the KPMG study and adjusted the financial spending estimates to account for inflation. EXHIBIT 2.19 EXPANDED VCEC POTENTIAL EVENT LOAD & SQUARE FOOT DAYS USED 1999 (ACTUAL), 2005, 2009, 2013 80 80,000 SQ. FT. DAYS USED NO. OF EVENTS 60 60,000 Trade Shows 40 40,000 Conventions Exhibit Space 20 20,000 - - 1999 2005 2009 2013 Source: KPMG The cyclical nature of the convention business suggests that event load estimates will vary from year to year based on external factors and the marketing direction of the VCEC and Tourism Vancouver. 2.4 EXPANSION PARAMETERS Based on the market analysis, anticipated user profiles and event load projections, KPMG considered what would be the optimum size parameters and physical characteristics of an expanded VCEC including: 27 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE • the size and divisibility of the main exhibit hall; • the quantity of meeting space and number of rooms; and • additional features and amenities. KPMG considered the projected VCEC space parameters within the context of current convention design trends in North America. It should be emphasized that these space parameters are not location specific. Recommendations for the size and type of facilities reflect market need and identified demand factors only. INDUSTRY TRENDS & VCEC USER REQUIREMENTS Current industry design trends of note include the following. • There is a focus on flexibility. For example, multi-purpose rooms finished to a “hotel” standard for use as either exhibit space or plenary sessions. • As conventions grow larger, the need for more and larger meeting rooms is becoming a necessity. • The proximity of and facilities contained in convention centre hotels (i.e., availability of major ballroom) will affect design and usage parameters. EXHIBIT 2.20 VCEC COMPETITIVE MARKET FACILITY SPACING MIX ALLOCATIONS Exhibit Space Seattle Meeting/Ballroom Space Portland Salt Lake City Minneapolis Denver San Diego San Francisco Vancouver 0% 33% 67% 100% Source: KPMG, modified to include Vancouver. VCEC users (and potential users, based on telephone interviews) are somewhat more meeting-focused. The ratio of current VCEC exhibit space to meeting/ballroom space is approximately 2:1. This preference for greater meeting capacity reflects the convention (as opposed to trade show) orientation of existing and projected VCEC clientele. 28 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE RATIONALE FOR EXPANDED FACILITIES EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN CONCLUSIONS Based on the event load projections outlined in Section 2.3 and on additional interviews to determine current user needs, KPMG reconfirmed the facility mix recommendations made in its 1995 report (as set out in Exhibit 2.21). EXHIBIT 2.21 1999 VCEC FACILITY EXPANSION RECOMMENDATIONS (Square Feet except where noted) CURRENT EXPANDED COMBINED EXHIBIT SPACE 91,200 250,000 - 300,000* 341,200-391,200 BALLROOM 16,600 50,000 66,600 MEETING ROOMS NUMBER 20 40 to 55 60 to 75 SQUARE FEET 43,000 83,000 to 88,000 126,000 to 131,000 THEATRE (SEATS) 0 1,500 1500 * Contiguous exhibit halls Source: KPMG KPMG also reported that consideration should be given to the following. • With convention events attracting greater numbers of attendees, a 1,500 seat lecture theatre may be too small. However, a larger theatre may not be economically viable unless additional (probably local and/or community) uses are identified. • It may be advisable to create an additional multi-purpose room (up to 70,000 square feet) to support exhibit needs, provide additional hospitality area and/or facilitate meeting requirements. • The 250,000 square foot (contiguous) exhibit hall should be divisible into at least three sections. If permitted by the floor plate, a larger exhibit hall (to 300,000 square feet) may be considered. • The number of meeting rooms required could be reduced (but not the total square footage) if additional space is provided in an adjacent hotel or hotels. 2.5 VCEC EXPANSION: ECONOMIC BENEFITS Expansion will generate significant benefits to communities, employers and taxpayers There benefits will be realized in two stages; benefits due to construction of the facility and benefits generated annually from ongoing operations. Benefits due to construction of the expansion are discussed in Section 5, Benefits Analysis. Annual benefits due to operation of an expanded facility are discussed below and also in Section 5. 29 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE Benefits from operations are generated from the spending of out-of-town attendees and delegates attending conventions and meetings at the VCEC. This spending converts into profits to employers and tax revenues that would otherwise be paid by residents of British Columbia. The KPMG study quantified the benefits resulting from operations of an expanded VCEC by addressing: • incremental delegate/exhibitor spending; • government revenues and employment impacts; and • the impact of lost events. The calculation of incremental revenue and associated economic impacts are based on the event load projections for 2009. DELEGATE AND EXHIBITOR SPENDING Using the 2009 projected event calendar as a “normalized” year, KPMG estimated total aggregate annual spending as a result of an expanded VCEC to be $474 million (Year 2009 dollars), consisting of: • delegate spending of $327 million; and • exhibitor spending of $147 million. Spending estimates were based on the International Association of Convention and Visitors Bureaus’ convention delegate spending data adjusted for the Vancouver market and stated in Year 2009 dollars. In addition, delegate spending projections were revised upward to account for pre- and post-convention tours as well as spending premiums for retail and related purchases. Exhibitor spending includes hospitality suites, accommodation for booth staff and booth set up expenses. Spending by delegates and exhibitors occurs at a variety of hospitality and tourism industry businesses, not just “traditional” suppliers such as hotels and restaurants. INCREMENTAL BENEFITS TO INDUSTRY Exhibit 2.22. summarizes the benefits that all industry sectors enjoy from incremental spending. For a 2009 normalized year incremental delegate and exhibitor spending totals $228.9 million (say $229 million) as a result of expansion. 30 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE RATIONALE FOR EXPANDED FACILITIES EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN EXHIBIT 2.22 ECONOMIC IMPACT DELEGATE AND EXHIBITOR SPENDING YEAR 2009 DOLLARS ($ millions) INDUSTRY SECTOR EXISTING INCREMENTAL EXPANDED Accommodation $ 57.6 $ 83.3 $ 140.9 Food & Beverage 83.9 69.3 153.3 Local Transportation 14.2 13.5 27.7 Retail 29.1 32.9 62.0 Recreation 17.8 7.5 25.4 Other 42.2 22.3 64.5 TOTAL Expenditures $ 244.9 $228.9 $ 473.8 Source: KPMG, modified to show 2009 as normalized year. INCREMENTAL GOVERNMENT REVENUE Governments receive significant financial benefits and employment impacts from the incremental spending of delegates and exhibitors attending events at the expanded VCEC. To quantify the annual benefits to governments and employment impacts for a normalized year of operations, the services of KPMG and BC STATS were utilized. The KPMG results were generated from the Tourism Economic Analysis Model (“TEAM”) supplied by the Canadian Tourism Research Institute, a division of the Conference Board of Canada. The KPMG results include “direct” and “indirect spending1. The BC STATS results were generated from the BC Input Output Model (“BCIOM”), which is derived from the 1996 Interprovincial Input-Output tables developed by Statistics Canada. The economic impact summary from BC STATS includes direct, indirect and a range of induced impacts of spending On the recommendation of the Chief Economist of The Vancouver Board of Trade, a total of the direct, indirect and induced (low end of the range) impacts were used for the analysis of government benefits and employment impacts. The Chief Economist of The Vancouver Board of Trade also recommended that the BCIOM be used to calculate the output results because it uses data specific to British Columbia. Based on the BCIOM, the incremental delegate and exhibitor spending as a result of VCEC-hosted events will generate $75.78 million (say $76 million) in incremental tax revenues to the three levels of government. 1 For definitions of terms, see Appendix C, BC Input-Output Impact Analysis for Vancouver Convention Centre 31 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE EXHIBIT 2.23 ECONOMIC IMPACT INCREMENTALTAX REVENUES TO GOVERNMENTS ($ millions) Existing Incremental Expanded Federal $ 35.80 $ 29.43 $ 65.23 Provincial 26.83 36.82 63.65 Municipal 10.81 9.53 20.34 TOTAL $ 73.44 $ 75.78 $ 149.22 Source: BCIOM, modified for 2009. EMPLOYMENT IMPACTS The incremental spending also has a powerful impact on employment creation. Exhibit 2.24 summarizes the job creation impact due to delegate and exhibitor spending and due to the need to expand the internal operations of the VCEC because of expansion. This is an excellent illustration of the role of the VCEC as an economic generator. While the facility will employ an additional 205 persons as a result of expansion, the incremental delegates and exhibitors the VCEC attracts will create 7,325 new jobs in Vancouver and around the province other than at the VCEC. EXHIBIT 2.24 ECONOMIC IMPACT NEW FULL-TIME JOBS JOBS % Delegate Impacts 5,665 75% Exhibitor Impacts 1,660 22% Facility Operation Impacts 205 3% TOTAL 7,530 100% Source: BC STATS. THE IMPACT OF LOST EVENTS Because the number of city-wide events in a given year is relatively finite (e.g., between 9 and 16 per year from 1995 to 1999), the potential loss of even one such event has a significant negative impact on the VCEC and the tourism industry. For illustrative purposes the economic impact of a city-wide event is profiled in Exhibit 2.25. 32 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE RATIONALE FOR EXPANDED FACILITIES EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN EXHIBIT 2.25 PROFILE OF A CITY-WIDE EVENT AND ASSOCIATED IMPACTS EVENT PROFILE DELEGATE AND EXHIBITOR SPENDING Attendees (day) 1,750 Accommodation $ 1,536,000 Length of event (nights) 3.5 Food & Beverage 1,672,000 Local Transportation 302,000 Exhibitors 350 Retail 676,000 Length of event (nights) 3 Recreation 276,000 Average spending per day 1,872 Other 703,000 Staff per exhibit 2 TOTAL Spending $ 5,165,000 Government Revenue Municipal 223,000 Provincial 555,000 Federal 738,000 TOTAL Government Revenue $ 1,516,000 Source: KPMG, modified for 2009. Given that more than 10 events held at the VCEC in 1999 were larger than the event shown above, every event that the VCEC loses due to the absence of expansion will result in a loss of substantial revenues to industry and governments. ECONOMIC IMPACT - CONCLUSIONS VCEC convention and trade show attendees currently generate significant economic benefits to the Greater Vancouver and British Columbia economies. Current revenues generated as a result of delegate and exhibitor spending associated with events held at the VCEC are $245 million per year with over 90% of revenues dispersed throughout the tourism and associated industries (e.g., accommodation, food and beverage, retail and transportation providers). The expansion of the VCEC will, as a result of increasing both the number and size of convention events in Vancouver, generate still greater economic benefits to tourism and service industry businesses and all three levels of government. Incremental spending by delegates and exhibitors in 2009 will be approximately $229 million. Governments will receive incremental annual revenues of $75.78 million ( $29.43 million for the federal government, $36.82 million for the provincial government and $9.53 million for the municipal government). The impact of losing tentative convention events and/or past users due to relocation of events elsewhere is significant. The relocation of one typical, city-wide convention of 1,750 delegates could potentially result in the loss of more than $5 million in spending and over $1.5 million in government revenue. 33 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE 2.6 SUMMARY ♦ Virtually no convention centres in North America produce an operating profit. Rather, convention centres are investments in infrastructure whose purpose is to generate economic activity and create jobs. ♦ The objective of the VCEC is to generate net economic benefits for the community and governments. ♦ The financial and economic benefits of an expanded VCEC are significant and are shared by a wide range of tourism industry businesses and the taxpayers through taxes collected at all levels of government. ♦ Incremental delegate and exhibitor spending for a normalized year of operations (2009) will reach $229 million and taxpayers will enjoy $75.8 million in taxes generated annually and 7,530 new, full-time jobs created by out-of-town, out-of- province and out-of-country delegates. ♦ Many of the VCEC’s conventions and trade shows are outgrowing the VCEC and are being forced to look to venues in other cities that are able to accommodate them. Vancouver’s direct competitors are planning, have planned or are expanding their facilities to meet the increased space demands of Vancouver’s target markets. ♦ An expanded VCEC will not only permit targeting of new and larger events but, more importantly, will permit the hosting of multiple events during peak convention season. ♦ Most, if not all, of the attributes associated with a successful convention destination (i.e., quality of service, easy access, tourist appeal, range of facilities and attractions) are in place in Vancouver as demonstrated by the City’s past successes in hosting conventions. ♦ “The status quo is not an option. Without expansion, the current benefits realized by Greater Vancouver’s tourism industry will decline as the VCEC is unable to effectively compete in an environment of increasing attendance and demands for additional exhibit space.” 34 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE RATIONALE FOR EXPANDED FACILITIES EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN 35 EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN Build It, MARKET IT, and They Will Come 3.0 TOP LINE MARKETING PLAN 3.1 INTRODUCTION As with any large project of this type, it is important to ensure that the facility is used to its potential. Therefore, a carefully thought-out and properly financed marketing plan is necessary to attract the attention of the convention community and secure customers, thereby delivering the significant benefits to industry and governments created by expansion. The foundation of the marketing plan is the business vision for expansion. The following statement summarizes what drives all decisions in the market development plan. VISION The convention centre expansion will be a major economic generator derived from the incremental spending of additional overnight visitors. EXPANSION AS A CATALYST FOR TOURISM IN BC Tourism in British Columbia generates some $9 billion in annual revenues for the public and private sectors. Vancouver and BC’s appeal as a destination is reflected by a significant growth in revenues. A key marketing advantage of Vancouver and BC is the strong position that it enjoys in key market segments, including outdoor adventure, touring, urban and rural experiences, cruise, getaways, business and meetings and events. In Greater Vancouver alone, tourism revenues have grown by 75% over the past decade. Tourism accounts for $3.6 billion in annual gross visitor spending. The meetings and conventions market comprises approximately $419 million (12%) of the total market. As can be seen on Exhibit 3.1, convention centre expansion is a catalyst that drives the economic benefits in the meetings and conventions segment of the industry. 37 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE EXHIBIT 3.1 CONVENTIONS’ SHARE OF OVERALL TOURISM DESCRIPTION REVENUES % Convention Centre (Current) $ 244.9 7% Expanded Convention Centre (Incremental) 228.9 6% Non-convention Centre Meetings 179.3 5% Other Tourism 2,987.1 82% TOTAL Tourism $ 3,640.2 100% Source: Economic Impact and Spending Data, Tourism Vancouver, June 2000 and KPMG, modified for 2009. BUILD IT, MARKET IT, AND THEY WILL COME Vancouver and BC are known around the world for their exceptional settings and there is no question that the real estate maxim “location, location, location” has been an important element in the success of marketing Vancouver and British Columbia. However, the assumption that the physical beauty of our region will generate customers to an expanded convention centre is far too simplistic in today’s complex environment of tourism marketing. It is naive to imagine that Vancouver’s customers (actual and potential) will get unduly excited about expansion in Vancouver when more than sixty other cities in North America are either in the preliminary stages of expansion or under construction. The marketing plan needs to execute the following principles. • Let strategies drive tactics. • Focus on the customer. • Think in the long term. • Be accountable and performance driven. Tourism Vancouver, the Vancouver Hotel Association (VHA) and the VCEC formed the Marketing Group of the Task Force and collaborated to evaluate, deliberate and recommend the best way to compete in the global marketplace. This marketing plan reflects their collaborative effort. 3.2 PLANNING PHILOSOPHY The planning approach follows a “pyramid” model whereby strategies to accomplish the vision drive tactics in all decision-making. 38 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE TOP LINE MARKETING PLAN EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN Vision Focus Priorities Programs FOCUS Expansion will be a catalyst to elevate Vancouver and BC’s position as a convention destination by focusing the actions of the community on delivering exceptional customer experiences. The expansion of the convention centre is not just about constructing a facility that will attract more and larger conventions. With expansion, Vancouver will attract different kinds of conventions that will bring heightened expectations of our offering as a destination, not just as a convention centre. Although Vancouver and British Columbia are known for excellent customer service, the challenge will be to create a destination mentality that embodies the broader impact of expansion. Premier customer service is a strategic difference that will keep Vancouver and BC at the top of the list of international destinations. “The margin will be in the attributes that surround the product, not the physical product itself. The real product value is in the surrounding components, the atmospherics…service, delivery and responsiveness.” Alf Nucifora, speaking to the International Association of Convention and Visitor Bureaus, October 1997. “Tangible assets are no longer the primary driver of competitive advantage and profitability. Instead, intangible assets such as high-quality customer service and intellectual capital are increasingly the source of value in today’s most successful businesses”. Andersen Consulting, quoted in a marketing supplement in The Globe and Mail, May 2000. The vision of expansion as a significant economic generator will be manifested by the actions of the community, including the tourism industry, focused on the meeting planner customer. Strong returns will be achieved through creating long-term loyalty and a greater share of the market. HIGH TECH, HIGH TOUCH Increasingly meeting planners seek out destinations that provide a reasonable return on investment (ROI) through superior customer service, highly efficient and workable 39 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE facilities and overall quality experiences for their clients (i.e., delegates and exhibitors). Technology plays a fundamental role in the expectations of these customers. The destination sellers that fully appreciate and deliver in this area will be well positioned for success. “There is a new power equation between buyers and sellers. In the traditional relationship, sellers had most of the cards – and held them close to the vest. Now, thanks to Internet connectivity, buyers have unprecedented access to information about products, competitive pricing, and sourcing options. They can make their voices heard to sellers”. Andersen Consulting, quoted in a marketing supplement in The Globe and Mail, May 2000. However, in the extremely personal world of destination marketing to meeting planners, high tech must be combined with high touch. Getting the attention of these customers in an overly saturated environment of today’s cluttered media, be it advertising, direct mail or the web, will be based on leveraging personal relationships with customers on an ongoing basis. STRATEGIC PRIORITIES The Marketing Group considered a wide array of factors in the development of strategic priorities, including customer trends, industry assets, stakeholder needs, sound business opportunities and environmental (external) challenges. The strategic priorities set out below will drive the investment allocation for market development programs. 1. Delivering Results Establish common short- and long-term business goals for the various customer groups that will be targetted, with the overall objective of surpassing the annual “delegate spend” by increasing the number of delegates that will be realized from expansion. 2. Maximizing the Yield Realize the return on investment for all stakeholders by targeting priority markets and managing the yield in the short- and long-term. 3. Innovative Customer Service Entrench Vancouver’s position as a premier international meeting destination through quality, innovative customer service experiences and standards that will aim to retain existing customers and acquire new business. 4. Successful Marketing Partnerships Create and maintain strategic marketing and/or investment partnerships and programs to maximize resources. 40 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE TOP LINE MARKETING PLAN EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN COMPETITION A coherent, integrated and aggressive marketing plan is predicated on assessing Vancouver’s convention position in relation to the competition. Expansion will enable Vancouver to strengthen its appeal amongst meeting planners in certain competitive sets. With some competitors, expansion may not have much of an impact. It is the opinion of the Marketing Group that the following competitors will be impacted to some degree by Vancouver’s expansion. In addition to the information provided below, the Marketing Group thinks it is extremely important that Vancouver’s positioning in the marketplace is re-evaluated through customer research in the near future. Tourism Vancouver and the VCEC both obtain valuable and candid customer feedback through customer advisory groups – a collection of meeting planners who are responsible for organizing conventions for large organizations and who have a first-hand knowledge of the needs of their clients. These customer advisory groups have cited that Vancouver needs to work to overcome competitive disadvantages such as air accessibility, customs clearance and the lack of a convention headquarter hotels (1,000 rooms). EXHIBIT 3.2 KEY COMPETITORS FOR VANCOUVER EXHIBIT SPACE # OF HOTEL ROOMS - METRO (1999) Vancouver (with Expansion) 341,000 20,304 Canada Toronto 403,648 32,250 Montreal 200,000 24,964 Calgary 50,000 9,530 West U.S. San Diego 525,701 48,285 San Francisco 742,000 60,000 Seattle 260,000 26,000 Salt Lake City 369,000 15,961 Portland 150,000 16,000 Other U.S. Boston 600,000 25,931 San Antonio 440,000 27,728 International Sydney 292,680 26,881 Hong Kong 456,000 36,203 SOURCE: 9th Annual Competitive Analysis Report, Chicago Convention and Tourism Bureau, Inc. (1999). 41 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE MARKET SEGMENTS The market segments that are prime users of the VCEC are Conventions, International Congresses, Meetings, Incentive Shows, Trade Shows, Industry Events, Consumer Shows and Civic Activities. These market segments are defined further below. CONVENTIONS • 1000-5000 guestrooms on peak night of convention. • 2-6 year booking period prior to actual convention year. • Planners and delegates: 90% from U.S., 10% from Canada. • Annual association meetings, usually in different cities each year. • Privately held meetings for the benefit of association’s membership. • Professional, trade, medical/research, scientific, government, fraternal, religious, union, educational, social. • Include several general sessions, concurrent seminars, simultaneous workshops. • May or may not include exhibits. • Key selling points: delegate draw, exhibitor draw, destination appeal, cost, access, pre/post opportunities, safety. INTERNATIONAL CONGRESS • 1000-5000 guestrooms on peak night of convention. • 3-10 year booking period prior to actual convention year. • International headquarters for organizations usually in Europe, U.S. or Canada. • Delegates from around the world. • Many meetings are bi-annual. • Host country/national body usually invites international organization to hold event. • Emphasis on medical and scientific research. • May or may not include exhibits. • Key selling points: local support/relevance, delegate draw, cost, pre/post opportunities, destination appeal, safety. MEETINGS • Primarily classified as corporate. • 1000-3000 guestrooms on peak night of meeting. • Meetings shorter in duration than conventions and congresses. • 0-3 year booking period prior to actual convention year. • Primarily North American, 90% from U.S. and 10% from Canada. • Product launches sales meetings, annual general meetings, shareholder meetings or training sessions. • Key selling points: availability, access, meeting and function space, cost, 42 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE TOP LINE MARKETING PLAN EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN destination appeal, safety, pre/post opportunities. INCENTIVE SHOWS • Generated from corporate market, but with emphasis on destination attributes. • Little or no meeting/business component and more emphasis on themed events requiring large indoor and outdoor spaces. • Incentive travel is a reward given by companies to employees for high achievement. • 1000-2000 guestrooms. • 1-2 year booking period. • Primarily from the U.S. • Key selling points: availability, variety of program activities, destination appeal, cost, accessibility, pre and post opportunities, safety. TRADE SHOWS • Similar to conventions, but with a main focus on exhibits. • 1000-2000 guestrooms on peak night of event. • 1.5-3 year booking period. • 60% from U.S., 30% from Canada, 10% international. • Exhibitors are both local and from out-of-town. • Events are sometimes open to public interested in the field. • Trade shows are owned and operated by professional trade show management firms. • Key selling points: delegate and exhibitor draw, local support, facility/space, cost, access, safety. OTHER SEGMENTS • Industry events are part of conventions. • Consumer shows are similar to trade shows, but focus on public attendance and retail sales. • Civic activities are public events, such as Canada Day. 43 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE CUSTOMER PRIORITY GRID After identifying the market segments, the Marketing Group prepared a customer priority grid in order to drive issues such as customer focus and booking priorities. Exhibit 3.3 ranks the customer segments in order of priority. Each segment is rated on three factors: • Size of market: Volume of business that is generated by the segment. • Economic return: Level of spending that occurs as a result of the event. • Ability to influence: Degree to which marketing efforts will sway the decision- making with respect to the event. EXHIBIT 3.3 RANKING OF MARKET SEGMENTS RANK SEGMENT SIZE OF MARKET ECONOMIC RETURN ABILITY TO INFLUENCE 1 Conventions H H H 2 International Congresses M H M 3 Meetings H M M 4 Incentive Shows L H M 5 Trade Shows L M M 6 Industry Events L M H 7 Consumer Shows L L L 8 Civic Activities L L L Level of Importance: H = High, L = Low, M = Medium Source: Marketing Group (Tourism Vancouver, VCEC, VHA). It is important to note that the “ability to influence” factor referred to in Exhibit 3.3 refers to the ability to influence meeting planners who are the decision-makers, not the delegates who attend the event. However, it is recognized that the role of the delegate is not to be overlooked as the delegates’ opinions of a destination significantly influence the meeting planner. 3.3 MARKETING CONSIDERATIONS As stated in the Focus section of this chapter, Vancouver’s edge rests in its ability to deliver exceptional experiences for its customers. At the same time, it is necessary to be able to provide meeting planner customers with the basic pragmatic requirements they require since meeting planners tend to be risk adverse. Vancouver’s appeal has and will continue to lie in the “atmospherics” of service, delivery and responsiveness, not in the square footages and dimensions that seem to be the foundation of convention marketing strategies in many other cities. 44 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE TOP LINE MARKETING PLAN EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN In addition to the customer-service focus, the Marketing Group identified three considerations that should be followed in positioning Vancouver in relation to expansion. These factors should be tested with key customer groups to determine the relative degree of importance. • Sell the uniqueness - Vancouver is obviously known for its beauty but is also known to be slightly foreign, young, different and somewhat unique. It is important that the marketing capitalizes on this edge. • Sell Vancouver as a destination first - The success of the expanded facility will come from the overall appeal of Vancouver. A member of the Marketing Group commented that “the convention centre might be the front door to the conventions market, but it is what is behind the door (the essence of the city) that will sell it”. • Diminish the business risk - An expanded, fully updated facility will remove the concerns raised by the market in the past. 3.4 SALES AND MARKETING CYCLE There are four stages to the sales and marketing cycle: 1. Pre-Selling/Qualification (i.e., web sites, advertising, trade shows, direct mail, BestCities.net partnership, sales missions, familiarization trips, special promotions/events, e-business) 2. Building/Closing the Deal (i.e., bid preparation, bridge financing, site inspections, negotiating rates, implementing booking policies) 3. Customer Servicing (i.e., attendance building, customer support, on-site and welcoming activities) 4. Post-Event Follow-up and Re-Booking (i.e., regular customer contact, evaluation) 3.5 BUSINESS TARGETS Business targets are necessary to monitor the progress toward realizing the overall objective of expansion as an economic generator derived from overnight visitation. The targets reviewed in this section reflect information reported in the 2000 KPMG study. The KPMG report estimates that an expanded convention facility will generate approximately $474 million in gross revenues from delegates and exhibitors in a normalized year (2009). Incremental spending represents $229 million of the total, 45 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE indicating that expansion will double spending over pre-expansion levels. The study states that the growth in business will be enhanced not only by the ability to host larger events, but the opportunity to host simultaneous or overlapping events. According to the KPMG study, hotel room nights will accelerate at a pace faster than delegate days because of a delegate profile weighted toward U.S. and international visitors. Exhibit 3.4 summarizes the impact of expansion on events, delegate days and hotel room nights before and after expansion. EXHIBIT 3.4 ANNUAL EXPANSION GOALS CURRENT INCREMENTAL EXPANSION % GROWTH Events 61 41 102 + 67% Delegate Days 395,0000 352,000 747,000 + 89% Hotel Room-nights 247,000 357,000 604,000 + 145% Gross Revenues $244.9 mil. $228.9 mil. $473.8 mil. + 93% NOTE: All data above includes both delegates and exhibitors. Source: KPMG, modified for 2009. KPMG forecasts an event profile that is focused more on conventions than trade shows. The expanded convention centre would potentially have a mix of 66% conventions and 34% trade shows. (The current mix is 57% conventions and 43% trade shows.) EXHIBIT 3.5 TYPE OF ANNUAL BUSINESS FORECASTED REGIONAL NORTH AMERICA INT’L TOTAL Conventions without Exhibitions 5 15 6 26 Conventions with Exhibitions 10 27 4 41 Trade Shows 17 16 3 35 TOTAL 32 58 13 102 Consumer Shows 26 0 0 26 Source: KPMG With respect to the number of city-wide events, the Marketing Group determined that 36 city-wide events after expansion would be a reasonable target. 46 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE TOP LINE MARKETING PLAN EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN EXHIBIT 3.6 ANNUAL CITY-WIDE EVENT GOALS TYPE OF EVENT PRE-EXPANSION POST-EXPANSION Conventions 10 18 International Congresses 3 8 Meetings (Corporate) 1 6 Trade Shows 1 4 TOTAL 15 36 Source: Tourism Vancouver and VCEC, May, 2000. The return to the tourism industry from expansion will be driven by events that cater to overnight visitation. In particular, conventions that include exhibits are significant generators of revenue ($6.73 million/event). The least beneficial events are consumer shows ($0.99 million/ event) which draw from the local market. EXHIBIT 3.7 GROSS REVENUES BY TYPE OF EVENT ROOM-NIGHTS SPENDING PER EVENT PER EVENT ($millions) Conventions with Exhibitions 9,309 6.73 Conventions without Exhibitions 4,599 2.76 Trade Shows 2,888 2.61 Consumer Shows 49 0.99 NOTE: All data above includes both delegates and exhibitors. Source: Derived from Market Justification and Economic Benefits, KPMG, February 2000. Vancouver currently has sufficient hotel room inventory to accommodate the incremental hotel room-night demand shown in Exhibit 3.4. At present there are 24,160 hotel rooms in Greater Vancouver and 14,734 hotel rooms in the City of Vancouver, of which 12,975 are located in the downtown area demonstrating that Vancouver has adequate hotel room inventory to host typical city-wide events. A number of new hotel properties were developed in the past few years when the Portside project expansion was originally announced. Year-to-date hotel occupancies (to June 30) at Greater Vancouver hotels are 62.3 percent, 5.2 percent below the June year-to-date level for 1999. Based on year-to-date actuals to June, the forecast for 2000 is 62.6 percent, 5.5 percent below 1999 actual occupancies of 68.1 percent. 3.6 GROWING MARKETING INVESTMENT An estimate of the investment required to finance this market development plan is described in the Financial Analysis section of the Business Plan. 47 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE RESOURCE ALLOCATION The business of building business with meeting planner customers is dominated by one- to-one relationships. The market is somewhat finite – understanding the needs of the customers and delivering exceptional experiences will differentiate one destination from another. Members of the Marketing Group reported measurable benefits to investing in developing one-to-one relationships. For example from 1998 to 1999 Tourism Vancouver increased its conventions sales teams by one-third and, in the same period, reported that the number of qualified prospects and converted business increased by 31% and 42% respectively. To grow the share of the meetings and events market, Vancouver will need to emphasize outstanding customer service and continue to focus on building long-term relationships. This approach should form the foundation of the way customers are serviced and become even more of a focus as the market matures. Technology will continue to play an increasing role in the ability to service customers. The web is enabling the industry to offer more valuable, timely information and more efficient, higher quality service. At the appropriate time, key programs will need to be planned and developed by members of the Marketing Group and the industry in general, by building on existing initiatives and creating new marketing activities. The programs should be strategized with the following in mind: • Program description, business objectives and relevance to strategic priorities; • Lead organization and other partners; • Customer emphasis, in terms of type, life-cycle, origin and seasonality; • Emphasis of various communications vehicles; • Key measures of success; • Key activities (tactics); • Timing; and • Anticipated staffing and investment resources, including leveraged amounts. 48 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE TOP LINE MARKETING PLAN EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN 3.7 SUMMARY ♦ In order to reach its potential, a highly functional and beautiful facility must be marketed, not as a stand alone, one-time event, but as a fully integrated and long-term feature within the broader context of destination marketing. ♦ Over the course of the past 13 years, the existing convention centre has proven itself to be an economic engine for Vancouver, British Columbia and Canada. An expanded facility is the next step in protecting and growing the future. But the promise will only be delivered with a long-term, strategic and highly accountable marketing plan that focuses on delivering exceptional customer experiences. 49 EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN “The most dramatic and attractive location we have ever worked with.” George Loschky of LMN Architects, designers of more than 30 major convention centres in North America. 4.0 DESCRIPTION OF FACILITIES 4.1 OVERVIEW The KPMG report concluded that the expansion should provide for: • contiguous exhibit hall space of 250,000 to 300,000 square feet; • ballroom space of 50,000 square feet; • 40 to 55 meeting rooms occupying 83,000 to 88,000 square feet; and • theatre with seating for 1,500. The Task Force agreed to focus its investigation on those sites that had gone through the extensive industry and public scrutiny of the previous Stage 1 – Expressions of Interest and that were on the waterfront adjacent to the existing VCEC. There were a number of solid business reasons for this decision. • Canada Place has become one the world’s most recognized landmarks and has great appeal to delegates and meeting planners. • The existing VCEC continues to be an excellent venue for events and will continue to be an integral part of the expansion plan. • Meeting planners told Vancouver marketing personnel that a waterfront location was a critical part of the decision to select Vancouver over its competitors and accounted for increased business. • A site adjacent to the existing VCEC provides efficiencies both for delegates and exhibitors and for management of the VCEC. Two sites qualified for consideration – the Portside project site to the east of the VCEC and the Discovery Place proposal on the Burrard Landing site owned by Marathon Developments Inc. (“Marathon”) to the west. Shortly after the Province cancelled the Portside project, Marathon notified the Province that its Burrard Landing site was available for convention centre expansion. Marathon was offering the site as a vendor, not in its role as a developer as it did in 1997. The Province referred Marathon’s interest to the Task Force. The Task Force was fortunate that the Marathon site was still available and the plans for its Discovery Place proposal on the Burrard Landing site were essentially complete. The 51 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE Marathon proposal had been withdrawn from the previous process only a short time before the deadline for submissions in 1997. Given that: • the Province had just cancelled the Portside project; • the Portside project had been thoroughly investigated and was very well known to members of the Task Force; • the Burrard Landing concept had been through the extensive public process as part of the Stage I Evaluation of the Vancouver Convention and Exhibition Centre Selection Process; • the Burrard Landing site was on the waterfront to the west of the VCEC; and • the Burrard Landing concept was essentially complete the Task Force agreed that it should first focus its attention on the Burrard Landing concept. Pacific Liaicon and Associates Inc. (“PLA”), recognized for their extensive work on major projects including the Vancouver International Airport expansion, conducted an assessment of the Burrard Landing site. The assessment was conducted in close liaison with PAVCO, who are responsible for managing the VCEC. LMN Architects (“LMN”) were engaged to update the original design they had prepared for Marathon. LMN are experts in convention centre design having participated in over 40 convention centre designs throughout the world and having won numerous design competitions. George Loschky of LMN described the site as “the most dramatic and attractive location we have ever worked with”. LMN worked with VCEC management and staff, and City of Vancouver planning staff to arrive at a final design concept that is functional, spectacular, worthy of Vancouver’s waterfront and enhances the Canada Place icon. The expanded convention centre on the Burrard Landing site will be able to accommodate the KPMG expansion parameters and will offer a program of spaces slightly larger than recommended by KPMG. There are a number of advantages to the Burrard Landing site. • The size of the Burrard Landing site allows the construction of a true purpose- built facility for conventions and exhibitions which is unfettered by site constraints. The proximity of the site to the existing VCEC allows a full integration with the existing building via multi-level linkages and service corridors. • The existing VCEC is able to operate at full capacity (and therefore generate full benefits to governments and industry) during the entire construction period. 52 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE DESCRIPTION OF FACILITIES EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN • The specific design of renovations to the existing VCEC can be deferred until the Burrard Landing expansion is well underway, allowing time to assess any shifts in market requirements. • Being able to build a convention centre that offers spaces slightly larger than recommended by KPMG addresses an originally stated requirement that opportunities for future expansion be included. • The form of expansion will provide space for larger groups and multiple smaller events. As stated previously, the term “convention centre expansion” comprises: • constructing new facilities on the Burrard Landing site to the west of Canada Place; • renovating the existing facilities at Canada Place; and • linking the two sites to form an integrated convention and exhibition centre. 4.2 PROPERTY DESCRIPTION The property is situated to the west of Canada Place on property designated in the City of Vancouver Official Development Plan by-laws as the Burrard Landing precinct. The property includes legal lots 23 through 28, Plan LMP29892. Lots 29 and 30 are owned by Marathon and have been rezoned for possible development as hotel or office towers to permit a minimum of 500,000 buildable square feet on each property. The lands proposed for the expanded convention centre are a reconfiguration of Lots 23, 24, 25, 26, 27 and 28 and comprise a total area of approximately 18.37 acres (800,215 square feet). Under a proposed neighbourhood development plan, the shoreline would be altered slightly so that the entirety of lot 23 would be a water lot (578,364 square feet) and the remaining four lots (221,851 square feet) would be completely filled. Under the proposed plan for the convention centre expansion, the size of the water lot would be reduced because of less cutting away of the shoreline. The property is currently zoned CD-1 which permits a variety of uses including cultural and recreational, marina, institutional, marine terminal, office, retail and service. The current zoning also requires that the developer include the following amenities: • arts centre; • day care facilities; and • public amenity spaces. The City has indicated that it would favourably consider re-zoning of the property permitting the development of a convention centre. As part of the rezoning, Marathon has 53 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE already made application to sub-divide the property – one parcel for the convention centre expansion and two parcels for office and hotel development. IMPACT ON THE PROPOSED ARTS CENTRE FOR BURRARD LANDING The Business Plan assumes that an arts centre originally proposed as part of the development of the Burrard Landing site is relocated. The Task Force supports the establishment of an arts centre and is working with the City to resolve this issue. 4.3 ANALYSIS PROCESS The Task Force engaged the services of Pacific Liaicon and Associates Inc. (“PLA”) to conduct a third party assessment of the convention centre expansion. PLA is recognized for its project management work on major projects including the Vancouver International Airport expansion. In coordination with the Task Force, PLA carried out the following steps: • requested that Marathon develop an updated version of the original “Discovery Place” proposal which would take into account new developments in convention centre design since the project was originally conceived; • directed technical and operating staff of the VCEC to work with project architects and engineers to ensure all functionality requirements were met or exceeded; • met extensively with regulatory authorities including City of Vancouver Planning, Engineering and Cultural Affairs departments, Vancouver Deputy City Manager, the Vancouver Parks Board and the Department of Fisheries and Oceans to identify any issues having the potential to impact the proposal; and • assisted in discussions with Marathon as to the cost and conditions associated with purchase of the necessary property. 4.4 SITE ATTRIBUTES Attributes of this site include the following: LOCATION The site is in a premier position on the Vancouver harbour, consistent with the industry position that an adjacent waterfront site is required to maintain the continuity of market expectations and the highly successful image built by Vancouver since the opening of the VCEC in 1987. 54 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE DESCRIPTION OF FACILITIES EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN PROXIMITY TO VCEC The site is immediately adjacent to the existing VCEC at Canada Place and can be readily linked and functionally integrated with this facility through both existing and new connectors via available rights-of-way. VIEW ASPECT The site is endowed with Vancouver’s signature harbour, mountain and park views, unobstructed by either the existing VCEC facility or other adjacent development. It is entirely removed from industrial port and rail activity, and opens to what will be an extensive park area associated with the Coal Harbour development to the west. CITY ACCESS AND LINKAGES The site offers multiple immediate, direct linkages to the downtown core via established corridors. It is adjacent to the downtown hotels, restaurants and retail areas that represent the needs and interests of convention delegates as well as to the major parking facilities associated with the business district. LOW PROFILE The site offers a natural drop in elevation from the level of the existing street grid to the harbour front. This allows for the construction of the exhibition hall below city grade where it will not impede city views. At the same time, it enables the development of a significant street level public plaza, which provides direct access to the harbour edge from the downtown core. MINIMAL CONSTRUCTION IMPACTS The location of the site is such that there would be minimal adverse impact on either the cruise ship terminal, the SeaBus terminal or existing VCEC facilities during construction. During the construction period, it will be serviced by the existing Waterfront Road which affords direct site access without the need to impact downtown streets. ADVANCED STAGE OF ZONING/APPROVALS The site is part of the Burrard Landing development, which has already received zoning approval from the City of Vancouver. The change of use contemplated by the expansion proposal will require only modest changes to existing agreements with a reduction in the number of structures to be built from what is already approved. With expansion the four high-rise towers originally approved for the Burrard Landing development would be reduced from four to two. Other approvals, such as those for environment and fisheries, are also well advanced. 55 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE 4.5 THE CONCEPT The design optimizes the balance between internal efficiency and external views by arranging exhibit and sessional spaces in the interior of the building, but taking full advantage of the surrounding views for social and breakout functions. The “icon” of the sails at Canada Place will remain the most dominant architectural feature, with new views to the sails opened up from the expansion wing. SIMPLIFYING RELATIONSHIPS The site for expansion would be created by subdividing the required portion of the overall Burrard Landing property to create an independent site, which would be owned by an appropriate, designated entity agreed to by the funding participants. Two sites, potentially for hotels, would be created immediately to the south on adjacent private property with separate ownership. This separation has the advantage of simplifying what were previously complex relationships among the various components of the overall development. • The convention centre expansion could proceed independently of other components, minimizing any real or perceived cross-subsidies and conflicts regarding their associated design, construction and infrastructure. • The adjacent hotel(s), while functionally part of the overall development, would proceed as independent private sector projects according to market conditions. • There would be no need to link the start of expansion construction to a parallel start of construction on a cruise ship terminal expansion as the expansion would not require the shutdown of the VPA’s berths during the construction period. With the Vancouver Port Authority’s January 2000 announcement that it is proceeding with the third cruise ship terminal, the two projects are now proceeding independently and will not interfere with each other in any significant way. PHASED EXPANSION PROCESS As construction on this site would not result in any immediate impacts on either the cruise ship terminal or the existing VCEC, it is recommended that construction would proceed in two phases. The first phase is the construction of the Burrard Landing site. During construction there will be no interruption in the operation of the VCEC. The ability to operate without interruption is a major economic advantage to the tourism industry and the three levels of government. 56 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE DESCRIPTION OF FACILITIES EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN The second phase is the renovation of existing facilities at Canada Place. With the Burrard Landing expansion now completed and open for business, there will be no interruption in VCEC operations while renovations to the VCEC are being carried out. At the conclusion of the second phase, the link between the two phases will be completed creating a single functioning facility linked by multi-level access corridors. This will be the final step in the completion of the convention centre expansion. There are significant advantages to this phased approach: • With the full program of spaces accommodated in the Burrard Landing expansion, there will be neither compromises in the efficiency of design, nor an interruption in the ability to meet customer needs until the Canada Place renovations have been completed. • The start of construction on the renovations to the existing VCEC will commence following completion of the Burrard Landing expansion. Renovations in Canada Place will then take place, which can respond to changes within the meetings market. • On completion, this expanded program of spaces will allow Vancouver to keep pace with expanding business opportunities and defer consideration of a second expansion program. CONTAINING COSTS The construction of a single purpose-built building on its own site reduces the complexity and overall cost of the project. In addition to the simpler design, there are a number of other factors that contribute to a lower project cost. The design team was able to modify the original Discovery Place design by moving the building footprint approximately 200 feet further on to the shore, significantly reducing marine and site preparation costs. The expansion will require renovations only, rather than retrofitting, to bring the existing VCEC up to the standard of the entire expansion. Therefore, the renovated VCEC will continue to generate revenues for a relatively modest investment only. Collectively, these measures helped to reduce the overall cost of the project while still delivering the full program of required components. ARCHITECTURAL CONCEPT LMN have designed more than 40 major convention centres throughout the world. A corporate profile of LMN is contained in Appendix F. Project designer George Loschky described the site as “the most dramatic and attractive location we have ever worked with”. 57 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE The architects’ approach is one that appreciates the setting, maintains full functionality and respects both the views and the existing prominence of the sails at Canada Place as an international signature statement. Mr. Loschky described the concept as follows: “The architectural concept creates a fully linked expansion to the west of Canada Place that takes maximum advantage of the site proximity to the central business district, upland concentration of hotels, topographic slope of the site to the harbour, connection to Harbour Green Park, and to the unsurpassed sweeping views from Stanley Park to the sails of Canada Place. The design of the expansion is to be sensitively developed as a complement to the internationally recognized imagery of Canada Place. An emphasis on the horizontal orientation of the program of spaces will be the foundation of the concept. The design vernacular is built around the concept of landscape as architecture. All development to the upper ballroom level is conceived as landscaped terraced ground form, rich in its context of northwest ecology, Vancouver culture and history. Metaphorically above the landscape terraces will be a floating sculptural roof structure of waves washing to the shore. The rolling horizontal orientation of the structure will reinforce the maritime concept of Canada Place without copying or competing with the ship metaphor.” 4.6 MEETING THE FUNCTIONAL REQUIREMENTS ARCHITECT’S DESCRIPTION Functionality was a high priority for the design of the expansion. In describing the proposed program of spaces Mr. Loschky said, “The design program proposed is a highly functional one that was developed in full consultation with the managers and operators of the existing VCEC and endorsed by them as meeting their most ambitious standards for operating efficiency. The design concept also responds fully to the concerns expressed by the industry users on reviewing the Portside project at the one day Industry Advisory Forum held on February 22, 1999. By meeting the entire space requirements in the first phase of expansion, there is an opportunity to create a fully integrated facility and eliminate the design and functionality compromises inherent in an adaptive refit of the existing facility.” 58 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE DESCRIPTION OF FACILITIES EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN PROGRAM OF FUNCTION SPACES The expansion will meet all of the program function and support area space requirements. Exhibit 4.1 summarizes the program of spaces following expansion. EXHIBIT 4.1 FUNCTION SPACE SUMMARY (Square Feet) FUNCTION SPACE EXPANSION EXISTING COMBINED FACILITY Exhibit Space 250,000 91,000 341,000 Meeting Space 83,000 26,000 109,000 Ballroom Space 50,000 17,000 67,000 Signature Room 12,000 – 12,000 Lecture Theatre 24,000 – 24,000 TOTAL 419,000 134,000 553,000 Source: Pacific Liaicon and Associates Inc. ORGANIZATIONAL CONCEPT The vertical organization is very simple. Three floors accommodate the main public space requirements of the program. Each level has a defined function – Level 11.5 for Exhibition Halls, Level 52.5 for Meeting Rooms and Registration and Level 76.0 for the Ballroom/Signature Room/Lecture Hall. A mezzanine at 31.9 feet provides an enclosed connection between Canada Place, Waterfront Centre, the potential new upland hotel developments, Sinclair Centre and the CP station hub for SkyTrain, SeaBus and commuter rail. It also provides one of the two levels of parking between Canada Place Way and Waterfront Road. ARRIVAL The topography of the site from the existing street grade to the waterfront below has facilitated a multi-level arrival concept, which will provide efficient and convenient traffic management for the project. The focus for pedestrian traffic will be the Burrard Landing Plaza and the Thurlow Gardens Plaza, where arriving delegates will encounter sweeping views of the waterfront and mountains, free from bus lines and taxi queues. Access from both the east and west to the registration lobby will provide a vehicular free environment for pedestrians. Between Burrard and Thurlow on the north side of Canada Place Way will be a formal ceremonial vehicular drop off that will lead directly into the registration area. A level below the street will be a large taxi and limousine arrival area with entries to the 31.9- foot mezzanine, which will link to the registration lobby above. Below the mezzanine at exhibit level is located a convention shuttle bus terminal adjacent to an arrival lobby linked to the levels above with escalators and elevators. The functionality and efficiency of this arrangement will make a significant contribution to the arrival experience. 59 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE Convenient, efficient and accessible visitor parking for 425 vehicles is provided on two levels, both immediately adjacent to the mezzanine. Entry from Canada Place Way is by way of a two-way ramp located to the east of Thurlow Street. 100 parking spaces for harbour related activities are located on the exhibit level at the east end of the building with access from Waterfront Road. REGISTRATION A 25,000 square feet dedicated registration lobby is provided at the Canada Place Way street level. Access is provided to this area for pedestrians from the Burrard Landing Plaza, the Thurlow Gardens Plaza, the vehicular street drop off zone and from the lobby connections to the taxi and bus lobbies. The lobby is set back out of the circulation paths to provide a controllable dedicated environment for registration. Conference/Meeting and registration support rooms ring the registration area. MEETING ROOMS All meeting rooms are in one location, on one level, with full back-of-house support and are surrounded by a wide pre-function concourse. All meeting rooms have 16-foot high ceilings. This provides a total of 83,000 square feet of meeting and conference rooms, subdividable into 37 rooms, which can be used in various combinations to provide an infinitely flexible combination of function space. Creating an enjoyable, easy to use environment is essential to having a successful facility. All of the meeting pre-function, concourse and lounge spaces have views of the city skyline, the plazas, Stanley Park, Lions Gate Bridge, The Lions, Burrard Inlet, Harbour Green Park and Canada Place. The extrovert quality of the pre-function space will provide a constant visual orientation reference for delegates. EXHIBITION HALL The Exhibit Hall is a single contiguous hall of 250,000 square feet, with 30-foot clear ceiling height that can be subdivided into three separate halls. Each hall can be independently operated, offering a variety of combinations that will accommodate the most demanding scheduling requirements. A 90-foot x 106 – 120-foot column spacing, along with a 30 foot x 30 foot floor utility grid, meets all of the industry standards. Unlimited future utility additions can be accommodated by the under floor utility tunnel. Each hall has direct escalator and elevator access from the mezzanine level, which acts as a control point distributor for multi event conditions. The openness of the lobbies to the exhibit space provides an interesting orienting overlook for delegates. The lobbies are 60 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE DESCRIPTION OF FACILITIES EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN 61 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE also highly visible from the exhibit floor providing an easy reference for delegates leaving the floor. A ceremonial escalator, stair and elevator rotunda connects the street level lobby entries to the mezzanine level. The openness of this feature area will bring natural light to the mezzanine. At the street level lobby the escalators, stairs, and elevators will continue on to the ballroom level. BALLROOM/SIGNATURE ROOM/LECTURE THEATRE The Ballroom, Signature Room and Lecture Theatre are located one level above the meeting/street level. The 50,000 square foot ballroom is sub-dividable into three separate rooms that can be used in various combinations with separate back-of-house service or as a single room. The ballroom has a 30-foot high ceiling. At the north end of the ballroom is the 12,000 square foot Signature Room. This room is designed with an operable wall separating it from the main ballroom, allowing for the combined rooms to provide a single 62,000 square foot room. The Signature Room’s east, north, and west walls have floor to ceiling glazing opening the room to the extraordinary surrounding views. The room has direct access to outdoor terraces to the east and west. A 1,500 seat lecture theatre is located directly above the main entry lobby. It will have back-of-house access to the stage and direct access to vehicle-size freight elevators that connect to the truck dock. A ceremonial escalator, stair and elevator rotunda connects the street level lobby entries to a large pre-function area overlooking the plaza to the west. Secondary escalator, stair and elevator access at the north end of the pre-function space connect to the meeting level below. The pre-function space opens to outdoor terraces on the north and west. From the west terrace, a monumental stair sweeps down to the plaza physically and visually linking the two. FOOD SERVICE The quality of food service is extremely important to those considering a meeting site. Association planners have ranked it second only to the number, size and quality of meeting rooms. Emphasis was placed on a concept that provides for efficient and innovative food preparation to accommodate the tastes of the convention centre’s world- wide clientele. 62 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE DESCRIPTION OF FACILITIES EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN Provisions for portable bars and food vending carts are provided throughout lobby and pre-function areas. Each section of the exhibit hall features a permanent concession stand. They will be equipped with modular portable cooking equipment systems that will allow the centre to offer a custom-developed concession stand menu to suit each event. The concession stands will be designed to be convertible from walk-up quick service units to kitchen/pantries capable of providing stir fried and other hot entrees as well as hot and cold beverages, for large functions in the exhibit halls. The exhibit halls also have provisions for portable bars, portable cafeteria modules and food vending carts. The main banquet kitchen will be located adjacent to the ballroom. Satellite pantry/kitchens will be located on the meeting room level with direct back-of-house service to the meeting rooms. All food service areas will be vertically connected by two large vehicle-size elevators and two cart-size elevators. SUPPORT AREAS All support area requirements have been reviewed with the VCEC staff for location and operation. The following is a brief summary of the essential support components: • secure loading dock area with direct truck access to each hall subdivision and 22 truck docks with all necessary dock support; • employee support areas located on the mezzanine below the Burrard Landing Plaza (which allows easy access to all the various public transportation options for the employees and is in a central location to all of the areas of the facility); • administration offices located on the mezzanine level at the east end of the exhibit hall in an area central to all areas of the facility, with offices looking out to the east at Canada Place and having window overviews of the exhibit hall; and • large FF&E storage areas throughout the facility (in back-of-house locations adjacent to the ballroom and meeting rooms they support, insuring operational efficiency). 4.7 RESPONDING TO THE MARKET OPPORTUNITY The expansion design as developed responds to the key marketing factors identified as critical to exploiting the best business opportunities available to Vancouver over the next decade. MAINTAIN AND ENHANCE KEY SALES FEATURES The signature location, views and architectural statement which have distinguished the VCEC in the meetings market for the past 13 years are fully developed. 63 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE The design optimizes the balance between internal efficiency and external views by arranging exhibit and sessional spaces in the interior of the building, but taking full advantage of the surrounding views for social and breakout functions. The “icon” of the sails at Canada Place will remain the most dominant architectural feature, with new views to the sails opened up from the expansion wing. DELIVER A POWERFUL MIX OF NEW EVENT SPACES AND FEATURES The size and proportion of all program spaces will be enhanced and new function spaces such as a plenary theatre added to the sales mix. All areas meet minimum industry standards for height, dimension and finish. A series of feature rooms are incorporated to develop the full potential of the waterfront location, and access to plazas and waterfront walkways is available throughout. The plaza can be configured to provide manageable spaces for event functions, and direct access to charter vessels and other waterfront amenities can complement the event experience. PROVIDE MAXIMUM FLEXIBILITY TO ACCOMMODATE A WIDE VARIETY OF EVENTS The program is designed to allow a wide range of space and access configurations to accommodate a full range of events from convention to international congress to stand- alone exhibition and banquet functions. Multiple access points and a large, adaptable registration lobby will provide flexible combinations of delegate traffic flow to meet the varying needs of different event types. RESPOND REALISTICALLY TO THE BUSINESS MIX While the consolidated facility will be capable of delivering over 750,000 square feet of pre-function and function space for events of up to 20,000+ delegates, the largest proportion of the available business opportunity will continue to be for events in the range of 2,000 to 5,000 delegates. This means that the ability of the facility to adapt to accommodate multiple simultaneous events is more important than a single large event configuration. The design provides the capability for multiple event business between the two wings as well as the ability to combine the two major areas for the largest events. APPEAL TO EVENT ORGANIZERS The site and design address the top priorities of event organizers such as building access, arrangement of spaces, adjacencies, traffic separation, loading efficiency and flexibility of spaces. It also addresses a number of deficiencies in the existing facility that have been ongoing issues with clients. These include limited access, loading facilities and overlapping traffic flows. 64 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE DESCRIPTION OF FACILITIES EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN REDUCE OR ELIMINATE DOWN TIME A key feature of the phased design is that it allows the VCEC to continue operations during the entire construction period. This will have an important impact on client relations and on the economic benefits of VCEC-hosted events. 4.8 COMMUNITY BENEFITS The proposed expansion has been designed to create a compatible mix of community benefits and the functionality required for a highly marketable facility that addresses the needs of the meetings industry. It is able to achieve this balance because major event spaces are either below grade or enclosed in a low level structure, while the development as a whole is surrounded by public open spaces, walkways and plazas animated by landscaping, dramatic harbour views and compatible retail areas. There are two major public plazas, each incorporating a number of features designed to attract and hold community interest. BURRARD LANDING PLAZA The Burrard Landing Plaza is a gathering place and grand forecourt to the convention centre and the city. The growing importance of Burrard Street has demanded that a great deal of attention be paid to its arrival at the waterfront. The footprint of the Burrard Landing Plaza incorporates an entry to historic Burrard Street and the formal or ceremonial arrival to the convention centre. The plaza has unparalleled views to the Canada Place sails, cruise ships and north shore mountains. A feature light beacon sits on the centre line axis of Burrard Street at the north edge of the Burrard Plaza. The 20-foot high transparent structure recalls the notion of a maritime navigation beacon. It marks the end of Burrard Street and acts as a visual focal point for pedestrians and vehicles travelling down Burrard Street to the water’s edge. THURLOW GARDEN PLAZA The Thurlow Garden Plaza, located at the base of Thurlow Street, is a significant open space which includes the following. Civic Performance Park The plaza is an open space capable of accommodating public performance gatherings, displays and noon-hour concerts, and allowing people to stand, sit and watch or move comfortably through to the city’s edge. Coal Seam Gardens Recognizing the site’s unique heritage, the Coal Seam recalls the significance of The Three Greenhorns Brick Kiln and the discovery of coal at Coal Harbour. The 65 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE ‘Coal Seam Gardens’, the brick kiln and the slabs of black granite that represent the coal seam, are on an axis with the Marine Building and Brockton Point. CIVIC GARDENS The Civic Gardens provide a garden link between Canada Place Way and the Civic Performance Park. The gardens provide the public and convention delegates with a place to sit, rest and socialize in smaller groups in a landscape which displays Vancouver’s floral attributes. The Narvaez Channel Water Feature The pedestrian connection from Thurlow Street is designed as The Narvaez Channel. The name recognizes the Spanish explorer José Narvaez who first charted the Coal Harbour Inlet and waterways. This water feature bisects the Civic Performance Park level. Marina Promenade The Marina Promenade provides waterfront pedestrian access around the entire downtown peninsula. The promenade is animated by retail frontage with seating opportunities overlooking a marina and with Stanley Park as a backdrop. The promenade continues along the water’s edge linking to Waterfront Road. Pedestrian access to the Civic Plaza level is by stairs or elevator. Amphitheatre The Amphitheatre provides a venue for staged events with terraced seating and unparalleled views of the Marina, Coal Harbour, Stanley Park and the north shore mountains. The stage of the Amphitheatre depicts an historic map of the British Columbia coastline. The Amphitheatre will offer unobstructed views of such events as the Canada Day fireworks and the Christmas Carol ships. Heritage Walk The Heritage Walk takes pedestrians via a gently sloped walkway from the water’s edge to the mid-level walkway and continues up to the main plaza. The walkway provides historic storytelling and interpretive opportunities. 4.9 CITY CONTEXT Both the site and the proposed facility represent a good fit with the surrounding city and integrate well with existing uses, corridors and streetscapes. As a “hospitality hub” and a converging point between the community and visitors, the expansion will serve as an excellent transition between the commercial downtown and the residential/recreational areas to the west. 66 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE DESCRIPTION OF FACILITIES EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN HOTELS The site is immediately adjacent to the highest concentration of both existing and planned hotel accommodation in the city. Marathon is also in the process of applying for rezoning of the two adjacent parcels for hotel use. While this process is independent of the Task Force activities, it is expected that one or two hotels would be announced coincident with or shortly after the announcement of the convention centre expansion. OTHER TOURISM INFRASTRUCTURE The site is immediately adjacent to the cruise ship terminal and the Vancouver TouristInfo Centre (visitor information) in the Waterfront Centre, which both service visitor and delegate interests. Nearby transportation options include the floatplane terminals, SeaBus/SkyTrain terminals, the Helijet terminal, Westcoast Express station and major bus connections. A major commercial marina, which would likely include both charter and rental boats, would be located immediately in front of the new facility. COMPATIBILITY WITH ADJACENT USES The convention centre will provide direct street level access to major downtown retail, restaurant and attraction areas. In recent years many businesses have relocated to the area in anticipation of convention and cruise ship expansion. TRAFFIC AND PARKING The design of the expansion provides for three-level access as an effective means of separating service, bus, taxi, private vehicle and pedestrian traffic. Off-road staging areas are provided for trucks, buses and taxis. The site is also immediately adjacent to the highest concentration of parking in the downtown area, much of it office related. As a result, more parking access is more likely to be available during peak requirement periods for local users (evening and weekend) as opposed to midweek convention use, which has minimal parking requirements. THE STREET GRID The north-south orientation of Burrard and Thurlow Streets allow taxis and other vehicles to approach the centre with a clear view of Burrard Landing Plaza and the convention centre main lobby along Canada Place before descending to the parking areas. This provides an opportunity for visitors to orient themselves before arriving or parking. 4.10 RENOVATIONS TO THE EXISTING VCEC Renovations to the existing VCEC are scheduled to take place as soon as the Burrard Landing portion of the expansion is able to host events. Renovations to the existing VCEC will consist mainly of upgrading the existing facilities including floor and wall coverings, washrooms and public areas. 67 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE The construction period for the Burrard Landing site will allow for an assessment of industry trends to determine the program of modifications to the existing VCEC. The separation of the existing VCEC and the Burrard Landing component of the expansion will allow the VCEC to attract multiple events that will appeal to a number of VCEC clients. The close proximity of the two buildings will allow the VCEC to host much larger events than could be contemplated at this time. 4.11 COMPLETION OF EXPANSION The final stage of expansion is the construction of the links that will integrate the entire facility. At the present time it is proposed that there will be two links – one at street level and the other a protected walkway below grade that offers views to the water. 4.12 SUMMARY ♦ The Burrard Landing site and design offer great opportunities for Vancouver to capitalize on the growing demand for quality space for the convention and meetings market. With the completion of expansion Vancouver will be able to provide high- quality space for conventions and meetings with great views, yet still with the amenities provided by a downtown core location. ♦ The expanded convention centre will appeal to a broad range of convention and meeting planners – for a city-wide convention that takes over the entire space or for a smaller convention that wants to retain a sense of identity. With expansion, many events can be operated simultaneously. ♦ The expansion will also complement the City, providing many community benefits such as public open spaces, open plazas, gardens, an amphitheatre and harbour access. 68 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE DESCRIPTION OF FACILITIES EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN 69 EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN “VCEC convention and trade show attendees currently generate significant economic benefits to the Greater Vancouver, British Columbia and Canadian economies. The expansion of the VCEC will …generate still greater economic benefits to tourism industry businesses and all three levels of government.” KPMG, Expanding the Vancouver Convention and Exhibition Centre, Market Justification and Economic Benefits 5.0 BENEFITS ANALYSIS 5.1 INTRODUCTION The VCEC is a significant economic generator of the Vancouver, British Columbian and Canadian economies due to spending by delegates and exhibitors to VCEC-hosted events. At the present time, the VCEC generates $245 million per year in delegate and exhibitor spending which, in turn, generates $73 million per year in taxes and supports 3,930 full- time jobs. Building on the proven success of the existing VCEC, the expanded convention centre will provide even greater benefits to the community at large. In its first year of normalized operations (2009), expansion will generate an incremental $229 million in spending, $12.5 million in net profits to industry, $76 million in taxes to all levels of government and 7,530 new, full-time jobs. Construction will generate $88 million in taxes to governments and create 6,702 person- years of employment. These are incremental net benefits produced solely as a result of expansion. One of the benefits not quantified in this report is that the form of expansion recommended in this Business Plan will allow the VCEC to continue to operate at capacity and generate its $73 million in benefits for governments and $245 million in delegate spending during the construction period. 5.2 METHODOLOGY The Task Force engaged the services of BC STATS to summarize the incremental impacts of the construction and annual operations of convention centre expansion. The Task Force provided BC STATS with: • capital cost estimates (prepared for the Task Force by PLA); • incremental spending estimates (prepared for the Task Force by KPMG); and • VCEC proforma net profit statements (prepared by VCEC management). 71 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE BC STATS used its British Columbia Input Output Model (“BCIOM”) to estimate tax revenues and employment impacts. While the report noted that not all municipal tax revenues will necessarily occur in Vancouver, the Business Plan assumes that all taxes occur in Vancouver. OVERVIEW Tax Revenue and Industry Profit As industry and governments are proposed investors in expansion, it is appropriate to compare the returns they receive from their investment. It is also important that an equitable measurement is used to compare their respective returns. For industry, the Task Force assumed that delegate spending is equivalent to gross sales and the appropriate comparison to government revenues should be net profit. For government, collection mechanisms are already in place to collect these incremental taxes and there is no appreciable incremental collection cost. Therefore, an equitable comparison is tax revenues for government and net profits for industry. CONSTRUCTION BC STATS estimated the economic and employment impacts for construction based on capital costs provided by PLA. OPERATIONS BC STATS estimated annual tax revenues and employment impacts for a normalized year based on the delegate and exhibitor spending estimates prepared by KPMG (Section 2) and the operating proforma prepared by VCEC management. The KPMG spending estimates and the BCIOM tax revenue estimates formed the basis of a financial model that was prepared to estimate the benefits of expansion over the thirty-year life of the project. The financial model made assumptions about growth, inflation and a discount rate that are described below. Pattern of Growth in Spending The financial model assumed that all components of spending would increase at 2.5% per year beginning in 2010. This is a more conservative estimate than a 3% estimate contained in a recent report to Tourism Vancouver. Pattern of Growth in Delegate Days The opening of the expanded convention centre will bring an immediate increase in delegates that will continue well past the 2009 normalized year. Based on an index of 100 for 2009, VCEC management estimated growth in delegate and exhibitor days by year which is set out in Exhibit 5.1. 72 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE BENEFITS ANALYSIS EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN EXHIBIT 5.1 GROWTH IN DELEGATE AND EXHIBITOR DAYS YEAR PERCENTAGE OF NORMALIZED YEAR 2005 65 2006 70 2007 80 2008 90 2009 100 2010 100 2011 onwards an additional 2% per year Net Profit Margins for Industry Sectors Using reference data obtained from Statistics Canada, the Task Force calculated net profit margins (as a percentage of sales) and applied them to the spending estimates to determine net profits. Selection of Discount and Inflation Rates A nominal discount rate of 6.5% was used to determine the net present value of the benefits. All net present values are stated in Year 2000 dollars. That rate is equivalent to the long-term bond rate for borrowings of the provincial government. Provincial government officials from the Ministry of Employment and Investment confirmed that this was an appropriate nominal discount rate for net present value calculations for this project. An inflation rate of 2% was assumed. 5.3 ECONOMIC IMPACT - OPERATIONS The VCEC operates at close to break-even, but is an economic generator that produces benefits to industry and to governments. For the thirty years from 2005 to 2034 the incremental benefits include: • incremental delegate and exhibitor spending: • $229 million per year • $15.3 billion over 30 years (net present value of $3.8 billion) • incremental net profit to industry: • $12.5 million per year • $835 million over 30 years (net present value of $208 million) • incremental government tax revenues: • $76 million per year • $5.036 billion over 30 years (net present value of $1.246 billion) • 7,530 new, full-time jobs BENEFITS TO INDUSTRY - OPERATIONS For the thirty-year review period, the expanded convention centre will generate $15.3 billion in incremental revenues and $835 million incremental net profits to industry. Revenues and net profits by industry sector are summarized in Exhibit 5.2. 73 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE EXHIBIT 5.2 ECONOMIC IMPACT - OPERATIONS INCREMENTAL REVENUES AND NET PROFITS TO INDUSTRY BY SECTOR ($millions) 2005-2034 GROSS REVENUES NET PROFIT NET PROFIT AS A PERCENTAGE OF GROSS REVENUES Accommodation $ 5,560.79 $ 425.40 7.7% Food & Beverage 4,627.11 155.47 3.4% Local Transportation 902.09 61.07 6.8% Retail 2,192.82 80.48 3.7% Recreation 503.32 51.34 10.2% Other 1,489.74 61.08 4.1% TOTAL 15,275.86 834.84 Note: Net Profit As a Percentage of Gross Revenues was determined from information obtained from Statistics Canada. The net present value of incremental net profits to industry is $208 million. REVENUES TO GOVERNMENTS – OPERATIONS For the 30-year review period, incremental revenues to governments as a result of expansion are $5.036 billion. Federal, provincial, and municipal government revenues are summarized in Exhibit 5.3. EXHIBIT 5.3 ECONOMIC IMPACT-OPERATIONS INCREMENTAL REVENUES TO GOVERNMENTS ($millions) Federal $ 1,956 Provincial 2,447 Local 633 TOTAL $ 5,036 The net present value of incremental government revenues is $1.246 billion. 5.4 ECONOMIC IMPACT - CONSTRUCTION The construction of the expanded VCEC will generate significant revenues to industry and governments. These impacts are of a shorter duration than those of operations, but have significant economic and employment impacts. Construction is projected to begin in 2001 and complete in 2005. 74 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE BENEFITS ANALYSIS EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN For the construction period, the benefits include: • benefits to industry: • $495 million in incremental revenues • $9.9 million in profits (net present value of $8.3 million) • benefits to governments: • $87.8 million in incremental tax revenues (net present value of $73 million) • 6,702 person-years of employment BENEFITS TO INDUSTRY - CONSTRUCTION Based on a net profit margin of 2% (determined from Statistics Canada data and discussions with industry representatives), the net profit to the construction industry on the $495 million construction cost is $9.9 million. The net present value of the profit to the construction industry is $8.3 million. REVENUES TO GOVERNMENTS - CONSTRUCTION BC STATS estimates that the construction of the expanded convention centre will generate revenues of $87.8 million to governments and create 6,702 person-years of employment. Incremental revenues to each level of government are shown in Exhibit 5.4. EXHIBIT 5.4 ECONOMIC IMPACT – CONSTRUCTION INCREMENTAL REVENUES TO GOVERNMENTS ($ millions) Federal $ 44.84 Provincial 36.21 Municipal 6.75 TOTAL $ 87.81 Source: BC STATS, BCIOM. The net present value of incremental tax revenues to government is $73 million. 5.5 TOTAL BENEFITS TO INDUSTRY - OPERATIONS AND CONSTRUCTION Incremental revenues and net profits to industry from the construction and on-going operations of the expanded VCEC for the period from 2001 to 2034 are estimated at $15.8 billion and $845 million respectively. The industries that benefit from the construction phase differ from those who benefit from the on-going operations once the expanded VCEC opens. The benefits to the tourism industry have been identified separately from those of the construction industry. 75 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE The net present values of the benefits to the tourism and construction industries are $208.1 million and $8.3 million respectively (for a total of $216 million). These are summarized by industry sector in Exhibit 5.5. EXHIBIT 5.5 ECONOMIC IMPACT - OPERATIONS AND CONSTRUCTION NET PROFIT BY SECTOR NET PRESENT VALUE ($ millions) INDUSTRY SECTOR $ Tourism & Hospitality: Accommodation $ 106.0 Food & Beverage 38.8 Local Transportation 15.2 Retail 20.1 Recreation 12.8 Other 15.2 Total Tourism & Hospitality 208.1 Construction 8.3 TOTAL INDUSTRY PROFIT $ 216.4 5.6 TOTAL BENEFITS TO GOVERNMENTS - OPERATIONS AND CONSTRUCTION The net benefits to governments are the taxes received by governments as a result of the construction and operations. Total incremental revenues received by governments during construction and the first thirty years of operations are $5.1 billion. The net present value of the incremental government revenues from expansion is $1.319 million as detailed in Exhibit 5.6. EXHIBIT 5.6 ECONOMIC IMPACT – OPERATIONS AND CONSTRUCTION REVENUES TO GOVERNMENTS NET PRESENT VALUE ($millions rounded) CONSTRUCTION OPERATIONS TOTAL % Federal $ 37 $ 484 $ 521 40% Provincial 30 606 636 48% Municipal 6 157 162 12% TOTAL $ 73 $1,246 $ 1,319 100% 5.7 JOB CREATION Exhibit 5.7 summarizes incremental employment impacts created by construction and operations generated by the expanded VCEC. All employment impacts from construction occur from 2001 to 2004. Employment impacts from operations are shown for the 2009 normalized year. 76 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE BENEFITS ANALYSIS EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN EXHIBIT 5.7 ECONOMIC IMPACT - OPERATIONS AND CONSTRUCTION INCREMENTAL EMPLOYMENT IMPACTS CONSTRUCTION OPERATIONS (PERSON-YEARS) (FULL-TIME JOBS) Employment Impacts 6,702 7,530 Source: BC STATS, BCIOM. 5.8 SUMMARY ♦ Industry and governments are significant beneficiaries of economic activity generated by the expanded convention centre. ♦ From construction and from the first thirty years of expanded convention centre operations, industry will enjoy incremental revenues of $15.8 billion and net profits of $845 million. The net present value of these profits is $216 million. ♦ For the same period, governments will receive incremental revenues of $5.1 billion with the federal government receiving 40%, the provincial government 48% and the municipal government 12%. The net present value of these government revenues is $1.319 billion. ♦ Construction of the expansion will generate over 6,702 person-years of employment and the spin-offs from the incremental spending of delegates attending VCEC-hosted events will support over 7,530 new, full-time jobs in Vancouver and throughout the province. 77 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE 78 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE BENEFITS ANALYSIS EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN “Every year that the opening of the expansion is delayed, $229 million in delegate and exhibitor spending, $75.8 million in tax revenues and 7,530 new, full-time jobs are being lost” Vancouver Convention Centre Expansion Task Force 6.0 FINANCIAL ANALYSIS This section sets out the costs of building the convention centre expansion and costs of operating the expanded convention centre during the period from opening of the expanded convention centre to normalized operations. Section 6.1 describes the capital cost estimate issues and Sections 6.2 through 6.5 describe operating issues. 6.1 CAPITAL COST ESTIMATES OF CONVENTION CENTRE EXPANSION PLA provided expert services to the Task Force in completing the technical components of the Business Plan including the site preparation and foundation work portion of the Project Definition Report. A corporate profile of PLA with its project experience is contained in Appendix F. The total capital cost for the convention centre expansion, including soft costs, land cost, interest during construction, as well as a provisional sum for retrofitting and linking to the existing VCEC, is $495 million. This capital cost estimate provided by PLA is based on an updated construction cost estimate developed by PCL Constructors for Marathon Developments in December 1999. The estimate has been revised to reflect the latest approach to site preparation/foundation costs, as well as land costs and interest during construction. These estimates are stated in Year 2000 dollars. No provision is made for GST in the capital cost estimates. The Business Plan assumes that the project will be GST neutral. The development calls for approximately 1.2 million square feet of construction on three main levels and four intermediate levels. The first main level is the 250,000 square foot hall located completely under Canada Place Way. The other two main levels are comprised of the main convention centre entrance, registration and meeting room level at the same elevation as Canada Place Way (effectively 52.5 feet above sea level), with the ballroom/lecture space located above the meeting room elevation at elevation 76 feet. Approximately half of the exhibition hall area below the Canada Place Way elevation is covered by the low profile two-storey building that houses the ballroom/lecture theatre, meeting rooms and registration. The remaining half of the area that covers the exhibition hall is a plaza of public open spaces animated by landscaping, dramatic views and compatible retail areas. The four intermediate levels are comprised of the utility tunnel 79 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE under the exhibition hall, mezzanine level overlooking the exhibition hall, two parking levels and an elevated perimeter walkway. Details of the project by square footage are set out in Exhibit 6.1. EXHIBIT 6.1 GROSS FLOOR AREA SUMMARY (SQUARE FEET) COMPONENT SQUARE FEET New Convention Facility 885,385 Parkade 135,574 Marine Support 7,491 Retail 36,872 Loading/Bus Staging 98,423 TOTAL (square feet) 1,163,745 Note: Parking area on deck of 34,679 square feet is not included in area calculations. Source: LMN Architects Detailed drawings are yet to be completed for the convention centre expansion. However, relying on PLA’s experience with large projects, the Task Force is confident that the preliminary capital cost estimate can be adopted as a not-to-exceed project budget. This confidence is based on PCL Constructors’ work on the cost estimates for the above ground structures and the estimates for site preparation/foundation costs provided by Sandwell Engineering in consultation with the contractors who did the caisson drilling. PCL Constructors (“PCL”)has significant convention centre experience in Canada and the United States. As well, PCL has recently worked on other major projects in western Canada/USA, including the Vancouver International Airport expansions. Sandwell Engineering provided the cost estimate with assistance from Malcolm Drilling and Peter Kiewit Sons Co. Ltd. for the site preparation/foundation based on the recently completed test drilling and caisson program on the Burrard Landing site. DETERMINING THE COSTS OF THE EXPANDED CONVENTION CENTRE When PLA presented the capital cost estimates to be incorporated as part of the Proposal for Expansion of the Vancouver Convention and Exhibition Centre in January 2000, PLA expressed confidence in the level of the cost estimate for the Convention Centre building, parkade, plaza and infrastructure. However, it expressed concern about its ability to control cost and schedule if the originally proposed site preparation and foundation installation methodology were to be implemented. It has been PLA’s experience that failure to meet budget and schedule, in most cases, can inherently be traced back to “getting out of the ground.” On PLA's recommendation, the Task Force decided that it would be prudent to identify and firm up a site preparation and foundation installation approach that would provide the same level of confidence in the cost and schedule of the site preparation and foundation 80 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE FINANCIAL ANALYSIS EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN components as the building components. The Task Force funded a detailed examination of this component of the project, in order to firm up the capital cost estimate and schedule that is incorporated into this Business Plan. The original Marathon Discovery Place proposal proposed that all the landfill material and marine sediment under the development area be removed to the glacial till and replaced with more seismically stable material that was less likely to be a problem during an earthquake event. It was anticipated that approximately one million cubic metres of material would require removal to an ocean dump site and be replaced with 1.5 million cubic metres of structural fill material. Franki-type piles would then be driven into the new fill material to a depth of 12 metres to support the structure. Although the proposed convention centre lands have been remediated satisfactorily in compliance with Ministry of Environment, Lands and Parks generic and matrix commercial standards for (i) residential land use and (ii) commercial land use and a Certificate of Compliance provided, PLA had concerns about the ability to obtain the necessary permit to ocean dump. The area had been used as a landfill site during the early development of the City, and even with the Certificate of Compliance, there remained the prospect that contaminants that had escaped detection may lie beneath the surface. In the event that contaminated soil was discovered during the removal, it is likely that any ocean dumping permit, would be suspended. The alternative of moving this massive amount of material to landfill would be prohibitively costly and would seriously disrupt the project schedule. Sandwell/Golder were engaged to recommend a more controllable alternative. Based on extensive investigation of alternative methods used in their overseas assignments, they recommended the installation of a series of large diameter caissons (steel tubes) into the bedrock that would support the structure on land and over the water. These caissons would be filled with concrete. This alternative would result in minimal disturbance of the soil and eliminate the need to remove any soil. In addition, some soil densification treatment was recommended to reduce the lateral movement of the soil during an earthquake. During the tendering process for the equipment trials, it was determined that there had been a recent technological advancement in North America in the installation of large diameter caissons. The new caisson equipment used a drilling technique to install a casing to and into the bedrock in contrast to the more traditional pile driving technique. This technique was considered superior because there was concern that contractors might not be able to force the piles through some of the debris. This new technique would allow them to cut through the debris. A test caisson was arranged to confirm its adaptability to the site soil conditions. The site preparation cost evaluation project confirmed that the equipment was capable of drilling through the site soil conditions and that the cost of the site and foundation works 81 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE for the project was well within the cost estimated for ocean dumping the fill and marine sediments and replacing with structural fill. PLA’s work on this project was funded by contributions from Task Force members at a cost of $550,000. CAPITAL COST ESTIMATES With the completion of the Project Cost and Evaluation Report, PLA was able to provide very definitive cost estimates of the single component that offered the greatest risk to the project cost and schedule. The December 1999 estimates from the Marathon proposal were then updated to incorporate the revised site preparation and foundation costs. PLA estimates that the total capital project cost will not exceed $495 million, stated in Year 2000 dollars. The total cost includes purchasing the land, planning, designing and constructing the new expansion, renovating the existing VCEC and providing the appropriate linkages. The capital cost estimates of the convention centre expansion, include the linkage and renovations to the existing VCEC, marine support, retail and loading/bus staging areas. Capital cost items by cost area are summarized in Exhibit 6.2. EXHIBIT 6.2 PRELIMINARY CAPITAL COST OF CONVENTION CENTRE EXPANSION BY COST AREA (YEAR 2000 $) COST AREA Hard Construction Costs New Convention Facility $ 233,500,000 Parkade 12,300,000 Plaza 10,100,000 Infrastructure 10,000,000 Site Preparation/Foundations 58,100,000 Renovations and linkage to existing VCEC 15,000,000 Total Hard Construction Costs 339,000,000 Soft Costs, Land & Interest During Construction 111,000,000 Contingency 45,000,000 TOTAL Capital Cost $ 495,000,000 Note. Soft Costs include architect, engineering and project management fees. Source: Pacific Liaicon and Associates Inc. A greater level of detail for the capital cost areas has been prepared. However, the project has not yet gone out to tender and for competitive bidding reasons, this greater level of detail has not been provided in the Business Plan. 82 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE FINANCIAL ANALYSIS EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN 6.2 FINANCIAL ANALYSIS OF OPERATIONS OF THE EXPANDED CONVENTION CENTRE In conducting the financial analysis of the operations of the expanded VCEC, the Task Force focussed on the following three primary issues: 1. estimating the operating performance of the expanded VCEC; 2. estimating the cashflow requirements of the expanded VCEC during the first years of its operation; and 3. estimating the level of incremental marketing investment required to attract the incremental business. OPERATING PROFORMA FOR THE YEARS FROM 2005 TO 2009 VCEC management worked with KPMG to estimate the level of activity for the normalized year and determine the projected operating results for the expanded VCEC for a normalized year. VCEC management then estimated the operating performance of the expanded VCEC for the years from 2005 leading up to 2009. VCEC management developed the proforma statements by applying revenues and costs to the projected level of delegate activity (as measured by the number of events and the number of delegates per event) for each event type. The VCEC currently generates a modest operating profit and, while there is demonstrated demand for an expanded convention centre immediately, it will take several years for the expanded convention centre to absorb the increased capacity and return to normalized operations. Until then, the expanded VCEC will incur a modest operating loss and require funding assistance. Exhibit 6.3 summarizes the projected net income statement for the years 2005 to 2009. 83 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE EXHIBIT 6.3 PROFORMA NET INCOME STATEMENTS ($000’s) EXPANDED VCEC Current 2005 2006 2007 2008 2009 $ % $ % $ % $ % $ % $ % REVENUE Rent 3,100 22 4,378 23 4,530 23 4,650 23 4,847 23 4,977 22 Food & Beverage 7,600 54 9,943 52 10,341 53 10,910 53 11,524 54 12,105 54 Event Services 3,000 21 4,375 23 4,525 23 4,618 23 4,806 22 4,912 22 Sponsorship & 300 2 245 1 255 1 255 1 260 1 265 1 Miscellaneous Total Revenue 14,000 100 18,941 100 19,651 100 20,433 100 21,437 100 22,259 100 DIRECT EXPENSES 7,700 55 9,991 53 10,373 53 10,818 53 11,380 53 11,845 53 GROSS MARGIN 6,300 45 8,950 47 9,278 47 9,615 47 10,057 47 10,414 47 FACILITY EXPENSES 6,100 44 9,817 52 9,888 50 10,033 49 10,033 47 10,033 45 NET INCOME/ (LOSS) 200 1 (867) -5 (610) -3 (418) -2 24 0 381 2 Note: No provision for depreciation or amortization in the statements. Source: VCEC Based on the proforma income statements the expanded VCEC will post modest losses through 2007 and return to profitability in 2009, the first year of normalized operations. It is expected that the expanded VCEC will continue to enjoy a modest profit in the years following 2009. Descriptions of the revenue and expense items used in the projected net income statements are outlined in Appendix G, Technical Information. 6.3 OPERATING CASHFLOW REQUIREMENTS FROM OPENING TO NORMALIZED OPERATIONS The management of the VCEC anticipates that a capital replacement program should begin in 2008, the third operating year of the expanded VCEC. Projected amounts are shown in Exhibit 6.4. EXHIBIT 6.4 PROJECTED NET CASHFLOW ($000’S) EXPANDED VCEC CURRENT 2005 2006 2007 2008 2009 Revenue 14,000 18,941 19,651 20,433 21,437 22,259 Net Income (Loss) 200 (867) (610) (418) 24 381 Capital Requirements 300 - - 100 300 500 Net Cashflow (100) (867) (610) (518) (276) (119) Source: VCEC. 84 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE FINANCIAL ANALYSIS EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN Estimated funding assistance until the VCEC reaches normalized operations is $2.39 million. It is assumed that the Province through PAVCO will continue to be responsible for any cash requirements of the expanded VCEC during this transition period as has been the case since the VCEC first opened. 6.4 INCREMENTAL MARKETING FUNDING REQUIREMENTS FOR EXPANDED VCEC As described in previous sections of the Business Plan, the facilities market is becoming increasingly competitive. With more than sixty new facilities planned or under construction in North America, the mere construction of a new facility is no longer sufficient to guarantee business. To compete effectively in this market environment will require an increasing investment in marketing. The industry will have to build on its successes, convert potential business and service customers in a manner that is superior and more aggressive than ever before. At present Tourism Vancouver, the VCEC and the local hotels invest in excess of $5 million per year in convention marketing. Expansion will create an additional 395,000 square feet of function and the incremental marketing investment required to market the expanded facility is beyond the financial ability of those who currently fund the marketing programs. The Task Force reviewed two methods of estimating the incremental marketing investment that would be required to secure the new business for the expanded VCEC. The first method was to review historical spending and performance and use that as a determinant of future requirements. The second was to compare the marketing budgets of the VCEC’s main competitors. INCREMENTAL MARKETING INVESTMENT BASED ON HISTORICAL SPENDING AND PERFORMANCE In 1999 the VCEC attracted 35 conventions whose delegates and exhibitors generated spending of approximately $245 million. During the same year the estimated marketing budgets of Tourism Vancouver, VCEC and the convention hotels were approximately $5 million - equivalent to $49 in spending generated for every marketing dollar invested or an average marketing dollar investment of $142,900 per convention. The KPMG report estimates that expansion will attract 32 additional conventions by the first year of normalized operations (2009). These conventions will generate $229 million in incremental revenues in 2009. Assuming the direct ratio of $49 of spending for every $1 of marketing, expansion would require an additional $4.7 million in marketing funding to generate the additional $229 million in spending bringing the total marketing investment to $9.7 million. 85 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE Assuming a marketing expenditure of $142,900 per convention, the 32 additional conventions forecasted would require $4.6 million in investment for a total investment of $9.6 million for marketing. A gross incremental marketing expenditure of $4.65 million was determined, based on the average of the two calculations. It is expected that there will be economies of scale in accessing some markets that are already being served through the existing marketing programs. Economies of scale are assumed to result in efficiencies of 25 percent of program costs. It is also reasonable to expect that there would be some administrative cost savings in the application of these incremental marketing funds. Administrative savings are assumed to result in efficiencies of 10 percent of program costs. Applying these cost efficiencies to the incremental marketing investment calculated above will result in an incremental funding requirement of approximately $3 million. EXHIBIT 6.5 ESTIMATED ANNUAL MARKETING INVESTMENT REQUIRED ($000’s) Existing Expanded Incremental Delegate and Exhibitor Spending $244,851,000 $473,433,000 $ 228,582,000 Number of Conventions 35 67 32 Spending per Budget $ 49 Budget per convention 142,900 Marketing Budgets Gross Budget $5,000,000 $9,650,000 $4,650,000 Less: Efficiencies on incremental funding (1,650,000) (1,650,000) 35% Net Budget (rounded) $5,000,000 $8,000,000 $3,000,000 INCREMENTAL MARKETING INVESTMENT BASED ON VANCOUVER’S COMPETITORS A second method is to compare Vancouver’s budget relative to its competitors. As Tourism Vancouver’s investment makes up approximately 70% of the total investment in convention marketing, the budgets of other convention and visitors bureaux in the cities that are Vancouver’s primary competitors were reviewed. The source information for the comparison is the 9th Annual Competitive Analysis Report prepared by the Chicago Convention and Tourist Bureau, Inc., which annually undertakes a survey of Convention and Visitors Bureaux (CVB’s) in Canada and the United States. The survey queries the CVB’s in the areas of budgets, exhibit space, labour rates, meal costs, hotel and room rates and overnight group meeting travel. 85 of 105 cities receiving the survey, responded to it. While not all CVB’s have identical responsibilities, the study 86 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE FINANCIAL ANALYSIS EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN provides a reasonable comparison of budgets and other categories for the industry in North America. The Task Force compared the Vancouver Convention and Visitors Bureau (Tourism Vancouver) with the 49 CVB’s with budgets of US$5 million or greater. Vancouver’s rankings are at the mid or lower end of the rankings according to overall budget, the budget per number of hotel rooms and the budget per square foot of exhibit hall space. These are detailed in Exhibit 6.6. EXHIBIT 6.6 RANKING OF TOURISM VANCOUVER’S BUDGET AS COMPARED WITH OTHER CONVENTION AND VISITORS BUREAUX VANCOUVER’S RANKING TH CVB Budget 38 of 49 TH CVB Budget / Number of Hotel Rooms (1999) 26 TH CVB Budget / Exhibit Hall Space (Expansion) 24 Source: 9th Annual Competitive Analysis Report, Chicago Convention and Tourism Bureau, December 1999 The Task Force then compared Tourism Vancouver’s budget against the budgets of those cities that KPMG listed as Vancouver’s main competitors in its March 2000 study (Exhibit 6.7). The comparison is intended to set out the level of marketing investment that Vancouver is making relative to its competitors. EXHIBIT 6.7 RANKING OF VANCOUVER (POST-EXPANSION) AS COMPARED WITH COMPETITIVE CONVENTION AND VISITORS BUREAUX BUDGET SIZE OF HOTEL ROOMS BUDGET/ BUDGET/ EXHIBIT HALL METRO AREA SQUARE FOOT HOTEL ROOM Denver 4 1 3 9 8 Minneapolis 9 5 5 6 9 Montreal 3 9 6 1 2 Portland 8 2 8 8 3 Salt Lake City 5 6 9 5 1 San Diego 1 7 2 2 5 San Francisco 2 3 1 4 7 Seattle 6 8 4 3 6 Vancouver 7 4 7 7 4 Source: 9th Annual Competitive Analysis Report, Chicago Convention and Tourism Bureau, December 1999. With expansion, Vancouver’s exhibit hall will rank fourth largest of the nine cities, but its overall budget will rank seventh. Vancouver also ranks seventh in budget per square foot of exhibit space and fourth in budget per hotel room. These rankings demonstrate that Vancouver’s marketing budget is at the lower end of the range compared with its competition. 87 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE To elevate Vancouver’s ranking to a mid-ranking position among Vancouver’s competitors requires that Vancouver’s total budget increase to $10.5 million (expressed in Canadian dollars for 1999). (The budget for Salt Lake City and Denver are CDN$10.4 million and CDN$10.6 million respectively.) Based on the budgets of its principal competitors, Vancouver requires an incremental investment in excess of $5 million to remain competitive. SUMMARY OF INCREMENTAL MARKETING INVESTMENT REQUIRED The two methods of determining the incremental marketing investment estimate that between $3 million and $5.5 million per year is required. For the purposes of determining external investment requirements, the lower limit of $3 million has been assumed as the minimum incremental investment required. This amount is expressed in Year 2000 dollars. The current sources for this funding are Tourism Vancouver, VCEC and the convention hotels, with Tourism Vancouver providing approximately 70% of the funds through its operating budget. In the longer term, Tourism Vancouver should be able to provide some of the additional funding required through additional revenues created by the voluntary two percent hotel tax that it receives for destination marketing. However, Tourism Vancouver’s ability to provide these funds is constrained by the increase in hotel room revenues (which generate the voluntary 2% hotel tax proceeds) as a result of the convention centre expansion and growth in other visitor markets. Hotel room nights are estimated to increase by 10 to 15 percent as a result of expansion. Consequently Tourism Vancouver’s contribution toward the incremental marketing investment would represent no more than 20 percent of the external investment required and would likely only be available to contribute at this investment level when the VCEC reached the first year of normalized operations (2009). Given that the lead time for attracting larger conventions is often several years, the marketing initiatives to book these additional conventions should begin as soon as expansion is announced. Therefore, the investment in marketing should be funded as soon as expansion is announced and continue beyond the first year of normalized operations (2009). EXHIBIT 6.8 INCREMENTAL MARKETING INVESTMENT REQUIRED (millions) 2001 2002 2003 2004 2005 2006 2007 2008 2009 TOTAL Investment Required $3.1 $3.2 $3.2 $3.3 $3.4 $3.4 $3.5 $3.6 $3.6 $30.3 88 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE FINANCIAL ANALYSIS EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN 6.5 REVENUE FROM ANCILLARY ASSETS The project will be the owner of a number of assets that, while not core to a convention centre operation, have the potential to contribute to the profitability of the expanded VCEC. These include parking, retail and commercial marina. The Task Force has not formally evaluated how to obtain the best return on these assets and recommends that the funding partners undertake an assessment of these assets. PARKING The development plan provides for a total of 525 parking spaces – 425 underground for the convention centre expansion and 100 for marina-related purposes. There will be demand for parking by event attendees and neighbouring office tenants that should provide a significant revenue stream. Options for the parking operation include: • leasing to a third party operator in return for a fixed fee or revenue sharing; and • operating the parking by the ownership group. The Task Force has not researched the business and financial benefits of each of the above alternatives for parking. However, based on comparable facilities, net revenues of $700,000 per year could be expected. Preliminary discussions have taken place with Canada Place Corporation who is responsible for the parking at Canada Place with a view to integrating the parking operations at Canada Place with those created by the VCEC expansion. MARINA The Burrard Landing site includes a water lot and existing zoning allows for a commercial marina to the north of the expanded convention centre. The marina would replace and improve on the temporary facilities and short-term leases that are currently on the Burrard Landing site. The convention centre expansion will occupy part of the water lot, but it is expected that the remainder water lot would be re-developed as a marina with commercial float plane access. As with the parking, there are a number of options available to develop the marina. Options for the marina include: • lease the water lot to an operator who would be responsible for all required permits and undertake all the improvements necessary to operate as a commercial marina; • improve the water lot for use as a commercial marina and lease to an operator; and • sell the water lot for use as a commercial marina. 89 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE Preliminary estimates are that the marina could generate net revenues of approximately $350,000 per year assuming the first option. RETAIL The development plan also proposes approximately 36,000 square feet of retail along the north perimeter of the expansion. There is a concern about the amount of traffic it will draw because of its location on the north side of the expanded convention centre and further investigation will be required. Revenue estimates from retail have been estimated at approximately $50,000 per year. Total net revenues from these sources is estimated at $1.1 million dollars per year expressed in Year 2000 dollars. It is assumed that the parking, marina and retail would begin to produce income coinciding with the opening of the convention centre expansion in 2005. 6.6 SUMMARY CAPITAL FUNDING ♦ The capital funding requirements for the convention centre expansion are $495 million expressed in Year 2000 dollars. OPERATING FUNDING ♦ Additional operating funds will be required both to fund operations from the time the expanded convention centre opens until it achieves normalized operations and to fund the additional marketing investment that will be required to secure the new business and generate the profits, taxes and jobs. ♦ It is important that this funding be part of any overall funding program for the convention centre expansion. It is assumed that this funding will be part of the discussions among the funding partners who participate in the governance of the expanded convention centre. 90 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE FINANCIAL ANALYSIS EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN 91 EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN Those who benefit from the convention centre expansion should contribute to its development. 7.0 FUNDING ANALYSIS 7.1 FUNDING OVERVIEW Construction of the existing Vancouver Convention and Exhibition Centre was funded entirely by the federal government who constructed the facility as the Canada Pavilion for Expo 86. Following Expo, the facilities were turned over to the Vancouver Port Corporation who now owns them through its subsidiary Canada Place Corporation. Canada Place Corporation leases the facilities to PAVCO for a nominal rent. PAVCO operates the facilities and is responsible for capital improvements. There are a number of funding options that are available for the financing of the convention centre expansion. Most U.S.-based models for financing are not relevant to the VCEC expansion as funding vehicles such as tax-free municipal bonds are not available in Canada. Most models that have a private funding component have the convention centre as an element of a larger development where the traffic that the convention centre generates enhances the value of the other elements in the overall development. Most other models consist mainly, if not entirely, of funding from federal and provincial governments for reasons discussed in the next section. The original public/private partnership funding model proposed by the provincial government in the Portside project changed substantially during the development process. Originally the private developer was to have been the developer in the private industry sense. However, given the large financial stake that the provincial government had in the project, the developer’s role migrated to that of a project manager for most of the development. The funding model contemplated for the convention centre expansion is a public/private partnership with industry and governments providing funding and also having a decision- making role in the structure and development of the expansion. RATIONALE FOR PARTICIPATION BY INDUSTRY AND GOVERNMENTS From the outset, a basic tenet of the Task Force has been that those who benefit from the convention centre expansion should contribute to its development. The tourism industry 93 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE and governments will receive substantial incremental economic benefits (i.e., in addition to the benefits generated by the existing VCEC) as a result of the convention centre expansion and financial participation by industry, the provincial government and the federal government is considered necessary for the expansion to proceed. This is not punitive or oppressive. There are compelling economic reasons for governments and industry to want the convention centre expansion to proceed. Expansion will bring significant incremental revenues to industry in revenues from the sale of goods and services to the delegates and exhibitors and to governments in taxes resulting from those sales and services. Each of the three proposed funding partners has expressed interest in participating in the funding of the convention centre expansion and each has criteria that must be met prior to agreeing to invest. Representatives of the federal government have said that it declined to invest in the Portside project because the cost of important elements of the project were never clarified and because a proper business plan was never prepared. Following Portside, the provincial government indicated that it would require meaningful financial participation by industry and the federal government as a condition of participation in any future expansion plans. The tourism industry has maintained that it is prepared to participate in a significant financial way, with the proviso that its investment would not endanger its destination marketing programs. The Task Force believes that there are positive reasons for the federal government, provincial government and industry to participate in funding the convention centre expansion. The convention centre expansion project is a well-defined project with very specific costs and with economic benefits that have been quantified for all proposed financial participants. The project is straightforward in that it involves only the development of the convention centre expansion. The costs are known and are well defined for all components of the development – as are the benefits. Independent experts have quantified the benefits to industry and to government. 7.2 FUNDING PROPOSAL The paragraphs below set out the Task Force’s framework for discussion of the funding of the $495 million project cost by the three proposed funding partners. 94 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE FUNDING ANALYSIS EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN The Task Force proposes that the tourism industry contributes $90 million and that the federal and provincial governments contribute the remaining $405 million. The tourism industry proposes that it lead discussions with the federal and provincial governments to expedite a mutually satisfactory funding agreement. TOURISM INDUSTRY PARTICIPATION Background Discussions with the Province of British Columbia about an industry contribution began in 1998 during Stage III – Detailed Negotiations and Re-Zoning Approval of the previous project. The conclusion of discussions with the provincial government was that the tourism industry would provide $90 million toward the development of the Portside project. The $90 million industry commitment has survived the cancellation of the previous project and is a stated condition of provincial participation in the convention centre expansion. The tourism industry is fully aware of the significant incremental financial benefit that will flow as a result of the convention centre expansion and is prepared to invest in a meaningful way to make expansion a reality. Tourism Vancouver and the Vancouver Hotel Association (“VHA”) have shared the lead role in structuring a tourism industry contribution that is designed to satisfy the needs of the industry and governments. How the tourism industry will finance its investment The tourism industry intends to finance its investment against the security of the income from the voluntary hotel tax generated in Vancouver. Private funding sources may be available, but based on current discussions, industry expects that the Province will finance its investment against the security of the voluntary hotel tax in Vancouver and industry will repay the government the principal and interest over a thirty-year term. Provincial officials indicate that the government would expect to charge industry a small premium above its thirty-year long-term borrowing rate for the credit facility. Industry did not pursue discussion with the federal government in respect of up-front funding by the federal government as none of the collection methods contemplated for repayment of the loan is under the federal government’s jurisdiction. The voluntary two percent hotel tax was initiated by the private sector as a fair and effective collection mechanism to fund tourism marketing and initiatives. In 1988, the tourism industry, together with the City of Vancouver, approached the provincial government to implement a voluntary incremental 2% levy on the room tax for hotel and motel accommodations in the City. The voluntary 2% hotel tax has been in place in Vancouver since 1988 and has been implemented in a number of other municipalities around British Columbia. In 1999, the voluntary 2% hotel tax proceeds provided for destination marketing of Greater Vancouver were in excess of $8 million. 95 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE The voluntary two percent hotel tax is an example of an income stream that provides the Province with appropriate security and administrative simplicity. The Province collects the tax under a provincial statute, remits it to the City, who in turn remits it to Tourism Vancouver. Tourism Industry Investment The tourism industry proposes that it will fund its $90 million investment from two sources: • $33 million from the current operating funds of Tourism Vancouver; and • $57 million from a .5% increase in the voluntary Vancouver hotel tax from 2% to 2.5%. With respect to the investment of $33 million from Tourism Vancouver operating funds, Tourism Vancouver’s Board of Directors has already committed these funds. With respect to the $57 million to be raised by an increase in the voluntary hotel tax from 2% to 2.5%, the process to obtain this increase has been initiated. Provincial guidelines now state that a majority of the hotels and a majority of the hotel rooms in the municipality must agree to the implementation of the hotel tax before it will be considered by the province. At the present time, the Vancouver Hotel Association is working with the Vancouver accommodation sector to gain the support necessary. The Vancouver Hotel Association is hopeful that the required majorities will be secured in the near future. In addition, the City will be required to approve this arrangement and make formal application to the Province to increase the rate. It is proposed that the Province would advance funds against the security of the revenues from voluntary hotel tax charged on hotel rooms in Vancouver and collected by the province. The tax would continue to be directed to Tourism Vancouver, who would be responsible for payments to the Province. Tourism Industry Investment - Economic Benefits The incentive for industry to invest in the convention centre expansion is powerful. For the first normalized year of the expanded convention centre operations, the incremental net profit for the tourism and related industries will be $12.5 million. For the first thirty years of operations, these net profits will total $835 million. The net present value of these benefits is $208 million. This compares with industry’s investment of $90 million. The thirty-year stream of incremental profits from delegate and exhibitor spending will yield an average annual rate of return of 11.5% to the industry for its $90 million investment. The net profits earned by the construction companies who will build the expansion were not included in the calculations of the return on the tourism industry’s investment. 96 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE FUNDING ANALYSIS EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN EXHIBIT 7.1 MEASURES OF ECONOMIC BENEFITS TO INDUSTRY 30 YEAR TERM (2004 – 2033) MEASUREMENT AMOUNT Investment (millions) $ 90.00 Annual return (normalized year) (millions) $ 12.51 Net Cashflow Face Value (millions) $ 834.84 Net Present Value (millions) $ 208.10 Annual return on investment (%) 11.5% NOTES: No assumption is made of the funding source. Net present value rate is 6.5%. 7.3 FEDERAL AND PROVINCIAL GOVERNMENT PARTICIPATION BACKGROUND Both the Federal Government of Canada and the Provincial Government of British Columbia have a long history of successful involvement with the Vancouver Convention and Exhibition Centre. The international icon created by the VCEC’s sails on Vancouver’s waterfront first housed the Canadian pavilion for EXPO 86, the 1986 World Exposition. The federal government selected the site and design to provide a long-standing legacy for Canadians in the form of a world-class convention and exhibition centre. That investment in infrastructure can be looked upon with significant pride as it gave cause for community pride and stimulated a surge in tourism business that has yielded a financial return to Canadians many times over the original investment. Canada Place stands as an important symbol of federal government involvement in British Columbia. 2000 marks the thirteenth year that the British Columbia government has had responsibility for management of the VCEC. Managed by the Provincial Crown Corporation, PAVCO, the VCEC has experienced growth and success that now demands expansion. It was the provincial government that launched the process to arrive at the best means of expanding the existing convention and exhibition facilities. With the cancellation of the Portside project, BC’s former Premier charged industry with responsibility for developing a viable alternative. The assumption remains that the provincial government will make a significant financial contribution to the expansion, in keeping with the sizeable revenue stream for government that expansion will provide. While the federal government has at no time made a financial commitment to expansion it is assumed the federal government will consider the project an expansion of the highly successful Canadian icon they first established, Canada Place. It is also assumed that the 97 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE demonstrable significance of the revenue stream to the federal government will deem involvement an excellent investment in the expansion of infrastructure the government previously established. Finally, the senior Minister for British Columbia, the Honourable David Anderson, requested that a Business Plan be developed to provide the opportunity to carefully review the investment opportunity. The Business Plan confirms the business case for proceeding with this project. The Task Force makes no assumptions as to the vehicles government will utilize to contribute to the expansion. Further, in recognition of the ongoing nature of financial relationships between federal and provincial levels of government the Task Force assumes the two levels of government will negotiate the contribution each will make to the project. MEASUREMENT OF ECONOMIC BENEFITS By any economic measure, the argument for federal and provincial participation in convention centre expansion is persuasive. The federal and provincial governments will receive $88 million in taxes from the construction of the convention centre expansion. In the first year of normalized operations the federal government will receive $29.4 million, the provincial government $36.8 million and the municipal government $9.5. Over the period from the start of construction in 2001 until 2034, the governments will receive $ 5.1 billion in incremental taxes from the convention centre. These amounts are all expressed in nominal dollars. Rather than recommend that each government invest a specific amount, the Task Force assumed that each government’s investment would fall in a range from one-third to two- thirds of the $405 million investment required from governments for the project to proceed. The Task Force then calculated a number of financial performance indicators for the governments for each end and the mid-point of the suggested range. (Exhibit 7.2) The Task Force is not attempting to prejudge the criteria for investment by either government. These returns are shown for illustrative purposes to demonstrate the financial viability of the convention centre expansion to the two senior levels of government in their roles as investors in the expansion. 7.4 MUNICIPAL GOVERNMENT The City will not be a direct contributor to the development costs, but it is expected that the City will agree to provide a number of concessions such as foregoing property taxes for the convention centre expansion. The City will receive annual revenues of $9.5 million and total revenues of $633 million over the thirty years. The net present value of the benefits is $157 million. 98 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE FUNDING ANALYSIS EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN The City of Vancouver is responsible for issuing all necessary development approvals. The convention centre expansion is subject to the normal City zoning applications and required public hearings. No estimates of the value of the City’s contribution has been made at this time. EXHIBIT 7.2 MEASURES OF ECONOMIC PERFORMANCE BASED ON SELECTED FUNDING OPTIONS – INDUSTRY AND GOVERNMENTS Low end Mid-point High end FEDERAL GOVERNMENT Investment (millions) $ 135.0 $ 202.5 $ 270.0 Annual Return 2009 ($millions) $ 29.43 $ 29.43 $ 29.43 Net Cashflow Nominal Value (millions) $ 1,866 $ 1,798 $ 1,731 Net Present Value (millions) $ 386 $ 319 $ 251 Annual Return on Investment (%) 23.6% 16.9% 13.5% Payback (years) 8.4 10.6 12.5 PROVINCIAL GOVERNMENT Investment ($millions) $ 135.0 $ 202.5 $ 270.0 Annual Return 2009 (millions) $ 36.82 $ 36.82 $ 36.82 Net Cashflow Nominal Value (millions) $ 2,348 $ 2,280 2,213 Net Present Value (millions) $ 501 $ 433 $ 366 Annual Return on Investment (%) 25.6% 18.7% 15.2% Payback (years) 6.8 8.4 9.8 MUNICIPAL GOVERNMENTS Annual Return 2009 ($millions) $ 9.53 $ 9.53 $ 9.53 Net Cashflow Nominal Value (millions) $ 633 $ 633 $633 Net Present Value (millions) $157 $157 $157 TOURISM INDUSTRY Investment $ 90.0 $ 90.0 $ 90.0 Annual return (normalized year) $ 12.51 $ 12.51 $ 12.51 Net Profits Nominal Value (millions) $ 834.84 $ 834.84 $ 834.84 Net Present Value (millions) $ 208.10 $ 208.10 $ 208.10 Payback (years) 7.9 8.9 9.9 Annual return on investment (%) 11.5% 11.5% 11.5% Note: Industry measures of performance do not include profits from construction 99 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE 7.5 SUMMARY ♦ The Task Force is proposing that industry provide $90 million and governments provide $405 million to fund the convention centre expansion. ♦ Based on this funding proposal, industry will receive an acceptable 11.5% annual rate of return on its investment and governments will receive impressive annual rates of return ranging from 13.5% to 25.6% depending on the level of investment. Payback to government will vary depending on the level of investment, but in most cases governments will recoup their entire investment in ten years or less. ♦ The annual rate of return for the three partners based on their investment in three funding options is summarized in Exhibit 7.2. Industry’s investment and return rate is shown for comparative purposes. 100 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE FUNDING ANALYSIS EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN 101 EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN “The governance, marketing and operation of the existing Vancouver Convention Centre appears to be very good. We recommend that the existing arrangements be used as the model for the expanded convention centre.” The Vancouver Board of Trade, Governance Report to Vancouver Convention Centre Expansion Task Force, July 2000 8.0 GOVERNANCE 8.1 INTRODUCTION This section addresses ownership, management and operation of the convention centre expansion. Following formation of the Task Force, the Task Force requested that The Vancouver Board of Trade prepare a report of its recommendations for governance of the convention centre. The Vancouver Board of Trade’s recommendations were endorsed by the Task Force and The Vancouver Board of Trade’s complete report is attached to the Business Plan as Appendix E. 8.2 RECOMMENDATIONS OF THE TASK FORCE The Task Force recommends a governance model using an Authority for the ownership, management and operation of the convention centre expansion. The recommendations of the Task Force for the Authority model are outlined below. STRUCTURE The Task Force recommends that a non-share capital corporation be established under the Canada Corporations Act, Part II to own, manage and operate the expanded convention centre. The new Authority should be designed through consultation with the Task Force, other key stakeholders such as the two senior levels of government, the City of Vancouver and selected business organizations. A proposed name for the Authority is the Vancouver Convention and Exhibition Centre Authority . Among its general powers, the Authority would have the power to conduct business, enter into agreements, borrow funds and issue debentures. The Authority model is similar to that set up for the Portside project and recommended for the proposed Ottawa Convention Centre. 103 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE The Task Force supports The Vancouver Board of Trade’s recommendation that the Authority set up for the Portside project be wound up and not be used for this convention centre expansion. OWNERSHIP The owners of the Authority would be the investing partners – Federal Government, Provincial Government and tourism industry – who will provide the investment for the expanded convention centre. The Task Force also recommends that the Province assign the VCEC lease including options to the Authority. This would allow for common control over the entire expanded convention centre. BOARD OF DIRECTORS The board of the Authority would comprise nominating entities representing industry and governments. If the City of Vancouver were to make a contribution to the infrastructure required, the City might be given a seat on the board. The industry representatives would need to be designated by industry, not selected by government. The nominating entity model utilized to identify board members for the Vancouver International Airport Authority board might be an appropriate mechanism for this selection process, provided that sufficient provision for accountability is included. REPORTING The disclosure requirements for the Authority should be the same as for public bodies in British Columbia. MANAGEMENT The Task Force recommends that the Authority have a supervisory role in the affairs of the expanded convention centre rather than a “hands on” operating role. It recommends that the board of the Authority contract for the management of the expanded convention centre rather than take on these roles itself. Contracted functions would include operations and marketing. The Task Force recommends that the Authority enter in to an agreement with PAVCO for the operations. The Vancouver Board of Trade in its report recommended that the informal arrangement between Tourism Vancouver and PAVCO be formalized. The Task Force also recommends that the Authority enter into an agreement with Tourism Vancouver/PAVCO for marketing once a formal agreement has been entered in to (that is acceptable to the Authority). 104 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE GOVERNANCE EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN GOVERNANCE DURING CONSTRUCTION The Task Force recommends that that there be additional representation on the board of the Authority during the construction period. These additional representatives would have expertise in construction and development. Their term would expire at the conclusion of the construction period. 8.3 BACKGROUND THE CURRENT GOVERNANCE MODEL The existing VCEC is part of the Canada Place development, which is owned by the Canada Place Corporation as agent for the Federal government. Canada Place Corporation leases the VCEC property to the Provincial Government, who have engaged PAVCO, a provincial crown corporation, to operate the VCEC (and other facilities in British Columbia). PAVCO is responsible for the operations of the VCEC. The marketing of the VCEC is a collaborative effort between Tourism Vancouver and PAVCO. While no formal agreement exists between the parties, Tourism Vancouver, in its role of marketing Greater Vancouver as a destination, plays a major role in the marketing of the VCEC. The Vancouver Hotel Association and its member hotels also assist in providing significant hotel room blocks required by larger events. In preparing its report The Vancouver Board of Trade representatives met with a number of industry stakeholders to determine the level of effectiveness of the current governance model. These stakeholders included representatives from the tourism industry, hotel community, PAVCO, Tourism Vancouver and others. The consensus was that governance, marketing and operation of the existing VCEC appear to be very good. The Vancouver Board of Trade recommended that the existing arrangements should be used as the model for the expanded convention centre and the roles of PAVCO and Tourism Vancouver should be continued and expanded to encompass the expanded convention centre. GOVERNANCE OPTIONS FOR THE EXPANDED CONVENTION CENTRE The current governance model is relatively straightforward in large part because it involves few parties. The Federal Government leases the property to the Province who, through PAVCO, operates the VCEC. The governance model for the expanded convention centre is more complex because the underlying ownership of the two properties on which the expanded convention centre will be located will be different. 105 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE In preparing its report The Vancouver Board of Trade of Trade set out a number of criteria for ownership, management and operations of the expanded convention centre. These included the requirement for: • seamless operation of the expanded convention centre; • formal agreements between parties for the marketing of the expanded convention centre; • broad industry-dominated governance of the operations; and • full disclosure and transparency in reporting. Each of these issues is dealt with in the context of ownership, management and operation. 8.4 OWNERSHIP The Vancouver Board of Trade examined a number of ownership options in its report prior to recommending ownership by an authority. These included ownership by the Federal Government, Provincial Government, by industry and by an authority. Single ownership by either the Federal or Provincial Governments or industry, when each party was making a substantial contribution, was rejected because it seemed illogical that one party would own the entire development, when three parties were making significant contributions. A convention centre funded entirely by a private developer was considered impractical because virtually no North American convention centre produces (or is intended to produce) an operating profit. As a result, a private-sector developer would have no ability to finance the development cost of the project from operations of the centre. FORMAL AGREEMENT AMONG STAKEHOLDERS There will need to be a formal agreement among the owners and/or operators as to how the initial and any ongoing operating deficits and any ongoing operating surpluses are to be shared. It is expected that parking and retail revenues from the expanded convention centre would flow to the Authority. These items should also be considered in any agreement. The assignment of overheads to the convention centre would need to be spelled out in advance. The rights of the owners of the buildings to make improvements and then charge them to the lessee(s) would need to be negotiated. Participants in these agreements would be the two senior levels of government, industry, potentially the City of Vancouver, PAVCO and Tourism Vancouver. 106 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE GOVERNANCE EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN 8.5 SUMMARY ♦ The Vancouver Board of Trade was asked by the Task Force to prepare a report on governance. The consensus was that governance, marketing and operation of the existing VCEC appear to be very good. In its report, The Vancouver Board of Trade recommended that the informal arrangement between Tourism Vancouver and PAVCO for marketing be formalized. ♦ The Task Force recommends a governance model using an Authority for the ownership, management and operation of the convention centre expansion. ♦ The owners of the Authority would be the investing partners – federal government, provincial government and tourism industry – who will provide the investment for the expanded convention centre. The Task Force also recommends that the Province assign the existing VCEC lease including options to the Authority. This would allow for common control over the entire expanded convention centre. ♦ The board of the Authority would comprise nominating entities representing industry and governments. There would be additional representation with expertise in construction and development on the board of the Authority during the construction period. ♦ The board of the Authority would contract for the management of the expanded convention centre rather than take on these roles itself. Contracted functions would include operations and marketing. ♦ The Authority would enter in to an agreement with PAVCO for the operations and with Tourism Vancouver and PAVCO for marketing once they have formally entered into an agreement. ♦ There will need to be a formal agreement among the owners and/or operators as to how the initial and any ongoing operating deficits and any ongoing operating surpluses are to be shared. 107 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE 108 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE GOVERNANCE EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN “The expansion project could be complete and operational fifty months from the date of project approval.” Pacific Liaicon & Associates Inc., Project Evaluation and Cost Report, September, 2000 9.0 PRE-CONDITIONS FOR CONSTRUCTION START The following major items are considered pre-conditions requiring resolution prior to the start of construction. The items are listed in the general order of priority. In respect of pre-conditions it is assumed that the Task Force and the boards of the founding group members will have ratified the Business Plan prior to its release. 9.1 LAND ACQUISITION COMMITMENT PAVCO is currently in the final stages of concluding a purchase agreement with Marathon Developments Inc. for the property to expand the convention centre on the Burrard Landing site. Among the proposed conditions, the agreement requires that the purchaser: • pay a non-refundable downpayment; • commit additional funds to advance the facility design; • begin the rezoning process with the City of Vancouver; and • finalize the Burrard Environmental Review Committee (“BERC”) habitat compensation requirements. The purchase agreement will contain provisions to assign the property to an authority or other ownership entity once the governance issues have been resolved. 9.2 FUNDING APPROVAL Funding approval from industry, the federal government and the provincial government will be required for the project to proceed. INDUSTRY Tourism Vancouver’s Board of Directors has already approved in principle the $33 million contribution from Tourism Vancouver. The process to increase the voluntary hotel tax from 2% to 2.5% to generate the additional $57 million has been initiated as outlined in Section 7. After this process is completed successfully, industry will then be in a position to enter into a formal loan agreement with the Province for its $90 million secured by the proceeds from the Vancouver voluntary hotel tax. 109 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE FEDERAL AND PROVINCIAL GOVERNMENTS The expansion project will need $405 million from the federal and provincial governments to proceed. An agreement of the level of the investment by each party will be required. 9.3 COMPLETE BALANCE OF PROJECT DEFINITION REPORT PLA’s work program to date on behalf of the Task Force has included the development of a concept design, a detailed project schedule and a not-to-exceed capital cost estimate. PLA has also prepared a Project Definition Report level of analysis on the site preparation/foundation portion of the Burrard Landing site. As part of the commitment to acquire the Burrard Landing property, funds will be required to complete the balance of the Project Definition Report (“PDR”) including updated schedule and final apportioning of costs within the not-to-exceed capital cost. The PDR will contain a more detailed description of the facilities, permitting, project schedule and capital cost breakdown. The PDR will also contain a Policies and Procedures Manual, which will dictate the process for the project. Once approved, the PDR will set out the procedures and guidelines for proceeding with the project to its conclusion. It is expected that the PDR will require approximately four months to prepare. The following planning and design issues will need to be resolved during the preparation of the PDR (and prior to the start of construction): • resolve the issue of the location of the civic arts centre which is currently a City of Vancouver requirement on the Burrard Landing site; • amend existing environmental approvals granted to the Burrard Landing site by BERC; • coordinate the planning and construction with adjacent construction sites; • resolve use of building density currently attributed to the site; • finalize parking, traffic, and loading requirements associated with the development; • address design and location issues of the civic arts complex currently located on the Burrard Landing site; • determine final elevation of the Thurlow Garden plaza relative to existing street grades; • resolve outstanding urban design issues, including open spaces, sidewalks, bicycle paths, and public waterfront access; • determine final road widths for Waterfront Road and Canada Place Way; and • schedule public hearings for the rezoning and permitting process. 110 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE PRE-CONDITIONS FOR CONSTRUCTION START EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN The following planning and design issues will be partially addressed during the PDR stage: • modify the approved zoning and City agreements currently in place on the Burrard Landing site; and • address City enactment conditions, sub-division and legal agreements including services and amenity agreements (i.e., daycare, public art). It is anticipated that approval-in-principle will be granted by the end of this stage and final rezoning and final enactment will be reached four and ten months later, respectively. Every effort is being made to include approval agencies early in the planning/design process. Ongoing discussions with the City of Vancouver and BERC regulatory authorities lead the Task Force to believe that these issues are manageable, and there is a real desire to resolve them successfully in a timely manner. Immediately following the final approval of the PDR by the stakeholders, the plan is to tender, award and start construction of the site preparation and foundation work which will be the first major construction contract of the VCEC Expansion Project. Based on an approval in principle by the funding partners by January 1, 2001 the summary project schedule shows that the convention centre expansion would be completed in 2005. A project schedule is shown as Exhibit 9.1. 9.4 EVALUATION OF ANCILLARY ASSETS The expansion project has three assets that, while not core to the operations of the convention centre, have the potential to contribute significant revenues to the operation of the expanded convention centre. These include parking, retail and a commercial marina. Options for the development of these assets should be evaluated by the Authority. 9.5 PROJECT SCHEDULE Based on an approval in principle by the funding partners by January 1, 2001 the summary project schedule shows that the convention centre expansion would be completed in 2005. Exhibit 9.1 is a project schedule provided by PLA. 111 EXHIBIT 9.1 SUMMARY PROJECT SCHEDULE EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN 113 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE “Convention centre expansion is a low risk project that will create significant benefits. It is strongly recommended that this project proceed without delay.” Vancouver Convention Centre Expansion Task Force 10.0 SUMMARY AND CONCLUSIONS When the Task Force was formed, its vision was to provide leadership, direction and focus leading to a workable industry-driven Business Plan for expansion of the VCEC. The Plan was to be prepared on the premise that funding would be provided by the federal government, provincial government and industry. Approximately one year later the Task Force is delivering on that vision. The Business Plan provides overwhelming evidence that an investment in convention centre expansion is a great business decision – for industry and for governments. The convention centre expansion project is not a speculative investment – it builds on past successes. The KPMG report states “Most if not all attributes associated with a successful convention destination (e.g., quality of service, easy access, tourist appeal, range of facilities and attractions) are in place in Vancouver – as demonstrated by the City’s past successes in hosting conventions”. The convention centre expansion is a well-planned project that builds on the long history of success of the existing VCEC and is poised to generate even larger revenues for industry and governments. 10.1 THE INVESTMENT Expanding the existing VCEC requires an investment of $495 million. It is proposed that the project is funded by industry and by governments. Industry has committed to provide $90 million and proposes that the federal and provincial governments together contribute $405 million to the project. 114 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE SUMMARY AND CONCLUSIONS EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN 10.2 WHAT ARE THE RETURNS? The returns are very attractive for the tourism industry and for governments. For the construction period, the incremental benefits include: • benefits to industry: • $495 million in incremental revenues • $9.9 million in incremental profits (net present value of $8.3 million) • benefits to governments: • $87.8 million in incremental tax revenues (net present value of $73 million) • 6,702 person-years of employment For the thirty years from 2005 to 2034 the incremental benefits from operations include: • incremental delegate and exhibitor spending: • $229 million per year • $15.3 billion over 30 years (net present value of $3.8 billion) • incremental net profit to industry: • $12.5 million per year • $835 million over 30 years (net present value of $208 million) • incremental government tax revenues: • $76 million per year • $5.036 billion over 30 years (net present value of $1.246 billion) • 7,530 new, full-time jobs Payback of the investment will take place in less than 11 years. What makes the investment particularly attractive is that the profits to industry and revenues to governments are generated by delegates attending VCEC-hosted conventions and trade shows who are predominantly from outside BC and increasingly from outside Canada. In essence, these delegates are injecting foreign capital into our economy and creating these significant revenues to industry and governments. The funds generated will be available to governments for programs such as health care, infrastructure and education. An additional return is the opportunity of the entire tourism industry to capitalize on the increased number of foreign visitors to British Columbia who will be exposed to tourism opportunities throughout the province. 10.3 WHAT ARE THE RISKS? The convention centre expansion is a major project involving construction bridging water and land and as such, involves the usual risks associated with such projects. However, the Task Force has addressed these risks through its due diligence and, specifically, by 115 EXPANDING THE VANCOUVER BUSINESS PLAN CONVENTION & EXHIBITION CENTRE obtaining a detailed technical plan and cost estimates which include appropriate contingencies. On a theoretical basis, there is a risk that the market for conventions and trade shows may not increase in the future. However, all studies and indications strongly support the view that the conventions and trade show market generally will continue to be very strong and Vancouver will continue as a premier destination for that market. 10.4 WHAT ARE THE RISKS OF NOT PROCEEDING? The existing VCEC is a good facility. However, the market has outgrown the ability of the VCEC to service its clients. The KPMG study reported that “… the size of the facility is causing: • existing users to outgrow the building; • potential users to bypass the VCEC in favour of larger facilities; and • VCEC management to decline business that could be accommodated in parallel with another group were the VCEC facilities suitable for hosting multiple events.” Not proceeding puts at risk the current $245 million spent annually by delegate at VCEC- hosted events. This spending accounts for $12.5 million in profits for the tourism industry and $73 million for governments annually. They provide 3,930 full-time jobs. The KPMG report was conclusive on this issue. “The status quo is not an option. … the current benefits realized by Greater Vancouver’s tourism industry will decline as the VCEC is unable to effectively compete in an environment of increasing attendance and demands for additional exhibit space.” Time is of the essence. There is a great risk that the Task Force will lose the property if this project does not proceed expeditiously. The Task Force has tied up the Burrard Landing site only for enough time to secure the project funding. If funding approval is not obtained in the near future, the site will revert to Marathon and likely be sold as a hotel or office tower. It will not be available for consideration as a convention centre. 10.5 GOVERNANCE AND MANAGEMENT The Task Force recommends a governance model that provides an appropriate balance of industry and government representation. The VCEC continues to be a well-run facility with a long history of success. Building on that success, it is proposed that the current operators would continue to manage the expanded facility. 116 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE SUMMARY AND CONCLUSIONS EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN In addition, the tourism industry, and its ability to market the City and provide the tourism products and services has an outstanding international reputation and is often looked to by other cities as a model of excellence. 10.6 MARKET DRIVEN OPPORTUNITY What could be a better situation than to have customers who want your product or service? Meeting planners want to bring events to Vancouver. Delegates love to come to Vancouver where the warmth of its citizens and the safety of the surroundings are a wonderful complement to its physical beauty – and the market is growing. The KPMG study concluded that “… additional convention facilities in Vancouver are necessary to meet demand”. 10.7 CONCLUSION Convention centre expansion is a low risk project that will create significant benefits. The Task Force strongly recommends that this project proceed without delay. 117 EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN APPENDICES A. Members of Vancouver Convention Centre Task Force Vision Statement, Mandate, Principles and Terms of Reference Business Plan Outline B. Expanding the Vancouver Convention & Exhibition Centre, Market Justification and Economic Benefits, KPMG, February 2000 C. BC Input-Output Analysis for Vancouver Convention Centre Expansion, BC STATS, Ministry of Finance and Corporate Relations, Province of British Columbia, September 2000 D. Project Cost and Evaluation Report, Executive Summary, Pacific Liaicon and Associates Inc. E. Governance of the Expanded Vancouver Convention and Exhibition Centre, Report to the Vancouver Convention Centre Task Force, The Vancouver Board of Trade, July 20, 2000 F. Corporate Profiles • Pacific Liaicon and Associates Inc. • LMN Architects G. Technical Information H. Restrictions APPENDICES EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN APPENDIX A MEMBERS OF VANCOUVER CONVENTION CENTRE TASK FORCE VISION STATEMENT MANDATE PRINCIPLES TERMS OF REFERENCE BUSINESS PLAN OUTLINE APPENDICES VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE BUSINESS PLAN OUTLINE I. Executive Summary II. Introduction 1) Brief Statement of how Task Force was created III. Rationale for Expanded Facilities 1) status and position of existing facilities 2) client and market demands IV. Market Analysis 1) Historical Performance 2) Potential for increased business 3) Competitive analysis 4) Marketing Plan reference 5) Marketing resources (funding and organizations) 6) Constraints (hotels, infrastructure, etc.) V. Overview and Description of Facilities 1) General site description 2) Expansion i) Description of facilities 3) Retrofit i) Description of facilities 4) Integration of existing and new facilities VI. Benefits Analysis 1) Economic Impact Model 2) Economic Impact Results i) Industry ii) Federal Government iii) Provincial Government VII. Funding Partners 1) Funding overview 2) Industry investment 3) Federal Government investment 4) Provincial Government investment December 2, 1999 page 1 of 1 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE BUSINESS PLAN OUTLINE VIII. Financial Analysis 1) Preliminary Capital Cost Estimates of Convention Centre i) Expansion ii) Retrofit 2) Operating proforma i) Pre opening ii) Opening iii) Normalized iv) Sensitivity analysis (best, worst, expected cases) IX. Governance 1) Capital phase 2) Operating phase X. Pre-conditions for Construction Start XI. Conclusions and Recommendations 1) Brief synopsis and review of alternatives 2) Timelines and action steps Appendices December 2, 1999 page 2 of 2 EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN APPENDIX B EXPANDING THE VANCOUVER CONVENTION CENTRE, MARKET JUSTIFICATION AND ECONOMIC BENEFITS KPMG February 2000 (Will be available shortly) APPENDICES VANCOUVER CONVENTION & EXHIBITION CENTRE EXPANSION PROJECT PROJECT EVALUATION AND COST REPORT APPENDIX C BC INPUT-OUTPUT ANALYSIS FOR VANCOUVER CONVENTION CENTRE EXPANSION BC STATS Ministry of Finance and Corporate Relations Province of British Columbia September 2000 1.0 EXECUTIVE SUMMARY / page 7 1 BC STATS Ministry of Finance & Corporate Relations BC Input-Output Analysis for Vancouver Convention Centre Expansion This report summarizes the estimated economic impacts of the construction and operation of an expanded Convention Centre in Vancouver. This work was undertaken at the request of the Vancouver Convention Centre Expansion Task Force and relies on data supplied by the Task Force. The 1996 British Columbia Input Output Model was used to generate the results. A description of the BCIOM, and the assumptions underlying input/output analysis, is included in the Appendix. Estimates generated by the BCIOM The economic impact of a change in the demand for a commodity or group of commodities is made up of the following three components: • The direct effect, which measures the change in domestic output required to satisfy an initial change in demand. This would include the actual expenditures and the employment directly generated in the scenario. • The indirect effect, which measures the change in domestic output generated by the activity of sectors that supply goods and services used in the construction or operating phases of the project. • The induced effect, which measures the overall impact of more income accruing to the household sector. It is assumed that BC residents spend 75% of their gross earned income on goods and services. The migration (no safety net) scenario assumes that all new jobs are filled by people who previously earned no income in BC or, in the case of a negative impact, that the income of everyone who loses their job drops to zero. The no migration (safety net) scenario assumes that those who lose their jobs stay in the province and collect employment insurance or social assistance, or use their savings; new jobs are assumed to be filled by people who formerly received social assistance. The induced impacts in this report are shown as a range of values with the low end corresponding to the safety net case and the high end corresponding to the no safety net case. Economic impacts take a number of forms; specifically, • Output is the simple sum of all expenditures in the BC economy which result from the project under study; however, this figure to some extent exaggerates the impacts because the purchase of finished products often involves the purchase of components of those products at some earlier stage in the overall production process. • Gross Domestic Product (GDP) is a measure of the value added (the unduplicated total value of goods and services) to the BC economy by current productive activities attributable to the project and taking place within the province. • Provincial and Federal Revenues are estimates made up of the provincial and federal shares of personal income taxes and commodity taxes (PST and GST), as BC STATS 10/19/00 2 well as other commodity taxes like gas taxes, air tax, etc. Specifically excluded from these estimates are corporation taxes and royalties on natural resources. • Municipal Revenues have been estimated by using a provincial average of the share of indirect taxes on production which is received at the local level. Because the BCIOM is a provincial model, not all of these revenues will necessarily occur in the municipality where the direct effects occur. Summary of Results (all results are in thousands of dollars unless otherwise specified) Construction Phase Project expenditure: $494.8 million Economic Impact Direct Indirect Induced Total Output 428,000 210,886 77,673 – 191,367 716,559 – 830,253 GDP 188,915 94,601 43,267 – 106,598 326,782 – 390,114 Employment (person years) 4,275 1,715 712 – 1,755 6,702 – 7,745 Provincial Revenues 22,786 6,960 6,464 – 15,925 36,210 – 45,671 Federal Revenues 16,298 7,768 5,759 – 14,190 29,826 – 38,256 Municipal Revenues 3,514 1,306 1,834 – 4,518 6,654 – 9,338 Operations Phase (annual) These impacts have been estimated in three components: (1) those impacts resulting from the other spending of non-residents who come to Conventions or Trade Shows; (2) impacts resulting from the expenditures of exhibitors at Trade Shows and Consumer Shows; and (3) those expenditures associated with the operation of the facility itself. 1. Delegate Impacts (estimated for the year 2008) Economic Impact Direct Indirect Induced Total Output 318,200 136,123 60,339 – 151,608 514,663 – 605,932 GDP 175,616 55,466 33,611 – 84,451 264,694 – 315,533 Employment (jobs) 4,414 814 437 – 1,097 5,665 – 6,325 Provincial Revenues 15,885 4,776 5,021 – 12,616 25,683 – 33,278 Federal Revenues 12,970 4,120 4,474 – 11,242 21,564 – 28,332 Municipal Revenues 4,428 1,717 1,424 – 3,579 7,569 – 9,724 2. Exhibitor Impacts (estimated for the year 2008) BC STATS 10/19/00 3 Economic Impact Direct Indirect Induced Total Output 138,300 57,869 17,978 – 45,034 214,147 – 241,203 GDP 45,087 25,042 10,014 – 25,086 80,144 – 95,215 Employment (jobs) 1,155 375 130 – 326 1,659 – 1,855 Provincial Revenues 5,906 1,995 1,496 – 3,748 9,397 – 11,649 Federal Revenues 3,067 1,910 1,333 – 3,339 6,311 – 8,317 Municipal Revenues 566 596 424 – 1063 1,586 – 2,225 3. Facility Operation Impacts (estimated for the year 2008) Economic Impact Direct Indirect Induced Total Output 21,218 27,954 2,805 – 7,019 51,977 – 56,191 GDP 3,320 6,891 1,563 – 3,910 11,774 – 14,121 Employment (jobs) 79 106 20 – 50 205 – 235 Provincial Revenues 123 663 233 – 584 1,019 – 1,370 Federal Revenues 237 535 208 – 520 981 – 1,293 Municipal Revenues N.A. 124 66 – 166 N.A. Total Operating Impacts (estimated for the year 2008) Economic Impact Direct Indirect Induced Total Output 477,718 221,946 81,122 – 203,661 780,787 – 903,326 GDP 224,023 87,399 45,188 – 113,447 356,612 – 424,869 Employment (jobs) 5,648 1,296 588 – 1474 7,529 – 8,415 Provincial Revenues 21,914 7,434 6,750 – 16,948 36,099 – 46,297 Federal Revenues 16,274 6,565 6,015 – 15,101 28,856 – 37,942 Municipal Revenues 4,994+ 2,437 1,914 – 4,808 9,345+ - 12,239+ Assumptions and Caveats 1. Construction impacts were estimated using total construction cost and the Non- residential building construction, Repair construction, and Professional services industries in the BCIOM database. It was not possible to use detailed specific construction costs because the categories differ from those required by the BCIOM 2. Delegate impacts were estimated assuming the delegate spending estimates prepared by KPMG for the Task Force. 3. Exhibitor impacts were estimated assuming the exhibitor spending estimates prepared by KPMG for the Task Force. BC STATS 10/19/00 4 4. Facility operation impacts were estimated using detailed information on operating expenses and facility costs (for the year 2008) supplied by the Task Force. No GST or PST were estimated for the direct expenditures in these categories. Direct employment (79) in this category has been estimated using industry average wages so if the actual number is known, that figure could replace the estimate. 5. Municipal Revenues associated with the operation of the facility itself have not been estimated because it makes more sense to estimate these using known characteristics of the facility and appropriate Vancouver mill rates, etc. 6. Note that these estimates may overstate the true net provincial impacts to the extent that: (1) some attendees and/or exhibitors are from the lower mainland and therefore do not spend as much as has been assumed; (2) the Vancouver facility may capture business which otherwise would have occurred elsewhere in the province; (3) if the delegates or exhibitors spend some of their food & beverage money in the facility itself there may be some double-counting because the groceries that are bought to satisfy these demands are counted twice: once as part of the Operations impacts and again as part of the Delegate/exhibitor impacts. 7. On the other hand, the government revenue estimates may be somewhat understated because not all sources of government revenue have been estimated. BC STATS 10/19/00 Appendix 5 Some background on input-output models and analysis Input-output analysis is based on statistical information about the flow of goods and services among various sectors of the economy. This information, presented in the form of tables, provides a comprehensive and detailed representation of the economy for a given year. An input-output model is essentially a database showing the relationship between commodity usage and industry output. It consists of three components: • a table showing which commodities–both goods and services–are consumed by each industry in the process of production (the input matrix) • a table showing which commodities are produced by each industry (the output matrix) • a table showing which commodities are available for consumption by final users (the final demand matrix). These data are combined into a single model of the economy which can be solved to determine how much additional production is generated by a change in the demand for one or more commodities or by a change in the output of an industry. Changing the usage or production of a commodity or group of commodities is often referred to as shocking the model. The known relationship between goods and services in the economy is used to generate an estimate of the economic impact of such a change. If a change in demand is met by increasing or decreasing imports from other jurisdictions, there is no net effect on domestic production. All of the benefits or costs associated with employment generation or loss, and other economic effects, will occur outside the region. Therefore, it is important to identify whether or not a change in the demand for a good or service is met inside or outside a region. The British Columbia Input-Output model The BCIOM can be viewed as a snapshot of the BC economy, taken in 1996. It is derived from the 1996 Interprovincial Input-Output tables developed by Statistics Canada and includes details on 679 commodities, 243 industries, 180 “final demand” categories, and a set of computer algorithms to do the calculations required for the solution of the model. It can be used to predict how an increase or a decrease in demand for the products of one industry will have an impact on other industries and therefore on the entire economy. Limitations and caveats associated with input-output analysis Input-output analysis is based on various assumptions about the economy and the inter- relationships between industries. These assumptions are listed below: • Input-output models are linear. They assume that a given change in the demand for a commodity or for the outputs of a given industry will translate into a proportional change in production. • Input-output models do not take into account the amount of time required for changes to happen. Economic adjustments resulting from a change in demand are assumed to happen immediately. • It is assumed that there are no capacity constraints and that an increase in the demand for labour will result in an increase in employment (rather than simply re- deploying workers). BC STATS 10/19/00 Appendix 6 • It is assumed that consumers spend an average of 75% of their personal income on goods and services. The remaining 25% of personal income is consumed by taxes, or goes into savings. • The BCIOM is based on a “snapshot” of the BC economy in 1996. It is assumed that relationships between industries are relatively stable over time, so that the 1996 structure of the economy continues to be applicable today. However, it should be noted that employment estimates have been adjusted to reflect wage levels for the year 2000. • The BCIOM does not distinguish between regional effects. It will not, for example, differentiate between the economic impact of a plant located in one region of the province and a similar plant elsewhere in BC. BC STATS 10/19/00 EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN APPENDIX D PROJECT COST & EVALUATION REPORT EXECUTIVE SUMMARY Pacific Liaicon and Associates Inc. September 2000 VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE APPENDICES Vancouver Convention & Exhibition Centre Expansion Project PROJECT EVALUATION AND COST REPORT 1.0 EXECUTIVE SUMMARY In June 2000, B.C. Pavilion Corporation (PAVCO) and Tourism Vancouver, on behalf of the Vancouver Convention Centre Expansion Task Force, retained Pacific Liaicon and Associates Inc. (PLA) to develop updated and refined capital cost estimates for a Vancouver Convention & Exhibition Centre (VCEC) Expansion at the “Burrard Landing” site immediately to the west side of Canada Place. The conceptual design on which the cost estimates are based is described in the Burrard Landing Design Proposal Evaluation, which was endorsed by the Vancouver Convention Centre Expansion Task Force in March 2000. The proposed site is located on property currently owned by Marathon Developments Inc. (Marathon) and designated in the City of Vancouver Official Development Plan By-Laws as the Burrard Landing precinct. Refer to Figure 1.1 attached at the end of this section. PAVCO has secured the property with an agreement in principle to purchase the proposed convention centre lands. The formal purchase and sale agreement is currently being finalized for respective Board approvals and signatures. Preliminary construction cost estimates were prepared based on the Burrard Landing Design document and with the benefit of pricing developed for the 1997 Marathon Development Inc.’s “Discovery Place” concept and the 1999 Concert Properties Ltd. “Portside” concept. The pricing for both of these concepts had been estimated by PCL Constructors Canada Inc. The expansion costs include provisions for an integrated link, on two levels, to a fully renovated existing VCEC facility at Canada Place. Additional engineering and costing completed in the Site Preparation and Foundation Report, dated September 2000 by Sandwell Engineering Inc. and Golder Associates Ltd. resulted in the development of an alternative site preparation/foundation methodology, which can be implemented with a lower risk impact to schedule and cost. The capital cost estimate for the proposed VCEC Expansion Projects presented in this Project Evaluation and Cost Report (Table 1.1) is $495 million, based on the following premises. • The project will consist of the following components, as described in the Burrard Landing Design Proposal Evaluation and modified by the Site Preparation and Foundation Report: – New Convention Facility – Parkade – Plaza – Infrastructure – Site Preparation/Caisson Installation – Renovations and Linkage to Existing VCEC at Canada Place • The VCEC Expansion Project provides the opportunity to construct the full program of meeting spaces within a purpose-built facility with a total facility area of approximately 1.2 million square feet. 1.0 EXECUTIVE SUMMARY / page 1-1 Vancouver Convention & Exhibition Centre Expansion Project PROJECT EVALUATION AND COST REPORT The proper combination of meeting spaces in one building provides for a greater flexibility and efficiency in accommodating the movement of delegates between the various meeting spaces and the cost-effective back-of-house servicing of these spaces. Including the meeting spaces within the existing facility at Canada Place and in response to the fact that the largest proportion of the available business opportunity will continue to be for events in the range of 2,000 to 5,000 delegates, the design of the combined facilities has created opportunities for discrete, separated modules that can accommodate multiple simultaneous events. • The new convention facility will not require a new cruise ship berth, SeaBus terminal, retail pavilion or hotel. • As discussed later in this Executive Summary, an Arts Complex is required by the City of Vancouver. The capital cost estimate not only does not include an amount for building the Arts Complex adjacent to the new convention facility, it is in fact, predicated on satisfactorily relocating it off-site. • Once the project has received approval to proceed, a project management team will be established and a formal Project Definition Report will be prepared. The Project Definition Report will form the “road map” for managing the project, as scoped, through to on-time and on-budget completion. The Soft Costs include provisions for a project management consultant and the costs of preparing a Project Definition Report, as well as other design and inspection costs. • The major land acquisition costs have been negotiated and include provision for land costs, shared Arts Complex commitment costs and shared site servicing costs as part of the overall budget estimate. • The site preparation/foundation methodology, described in Sandwell’s Site Preparation and Foundation Report, dated September 2000, will be the accepted alternative to removal and ocean dumping of existing fill and marine sediments and backfilling with structural fill proposed in previous reports. • The project assumes commencement by early 2001 and will be operational in early 2005 based on a 50-month schedule. All estimates for hard construction, soft and land costs are in end of year 2000 dollars and include provisions for escalation. During the completion of the balance of the Project Definition Report, the detailed cost breakdown will be prepared and the anticipated cost escalation over the construction period will be estimated. • With a project duration of four years, the capital cost estimate provides for interest during construction using a rate of 6.5%. 1.0 EXECUTIVE SUMMARY / page 1-2 Vancouver Convention & Exhibition Centre Expansion Project PROJECT EVALUATION AND COST REPORT • Designs are conceptual at this stage; therefore, a 10% project contingency is included in the capital cost estimate. The major outstanding issue that must be dealt with by the City of Vancouver before the rezoning process begins, is the location of the proposed Arts Complex. The Arts Complex site is a City registered encumbrance within the Coal Harbour Project, Phase 2, Burrard Landing precinct. The Arts Complex site sits on the western edge of the proposed convention centre lands. To remain at this location, the Arts Complex will have major implications to project design, schedule and costs. As a result, PLA recommended that a formal study be undertaken to investigate the feasibility of converting the now vacant Ford Theatre into meeting the functional and design requirements of the proposed Arts Complex. With study terms of reference and a team of design specialists assembled by the City’s Office of Cultural Affairs, PAVCO and Tourism Vancouver commissioned PLA to undertake the four-week study, which started on September 21, 2000. Moving the City registered encumbrance to the Ford Theatre will permit the design and construction of the expanded convention centre to proceed in the most effective and efficient manner which will have a positive impact on both schedule and costs. Two other minor property issues that will be resolved during the rezoning stage with the City of Vancouver are as follows: • A small portion of the southeast corner of the convention centre footprint including the integrated link to the existing VCEC facility is on Vancouver Port Authority (VPA) property. The building encroachment does not affect the docking of ships in the west berth of Canada Place. As a counterpoint to this item, the cruise ships cross the corner of the water lot, that is included within the convention centre lands, during their docking manoeuvres. • A small portion of the perimeter waterfront walkway on the west end of the convention centre expansion extends over and into the adjacent water lot north of the City’s Harbour Green Park. In conclusion, it is PLA’s professional opinion that if funding agreements are finalized and project approval to proceed is granted by the end of 2000, the expanded convention centre could be completed and operational in 2005 within a budget of $495 million, subject to the above premises. This opinion is based on PLA’s project management experience on similar-sized projects, PLA’s role as Provincial representative on the Portside Project and the cost estimates developed for this report. 1.0 EXECUTIVE SUMMARY / page 1-3 Vancouver Convention & Exhibition Centre Expansion Project PROJECT EVALUATION AND COST REPORT Table 1.1 VCEC Expansion Projects Capital Cost Estimate Summary (in end of year 2000 dollars) Hard Construction Costs $339,000,000 New Convention Facility $233,500,000 Parkade1 12,300,000 Plaza 10,100,000 Infrastructure 10,000,000 Site Preparation/Caisson Installation 58,100,000 Renovations and Linkage to Existing VCEC2 15,000,000 Soft Costs, Land Costs and Interest During Construction 111,000,000 Contingency 45,000,000 Capital Cost Estimate $495,000,000 1. Parkade structure cost includes the costs of providing support for the Canada Way extension. 2. No design work has been undertaken on the VCEC Canada Place Renovation Project at the time of writing this report. It is envisioned that the design will take place during the construction of the VCEC Expansion Project and will be renovated to market condition requirements after the opening of the new expansion facility. A cash allowance of $15,000,000 has been set aside for the renovation work in Canada Place and for the linkage to the new facility. Note: 1. Line estimates and unit prices have been obtained from contractors, suppliers and wherever possible from historical data from similar projects. 2. Estimates have been compiled using industry standard estimating techniques and procedures. 3. All estimates include PST, but exclude Goods and Services Tax (GST). 1.0 EXECUTIVE SUMMARY / page 1-4 Vancouver Convention & Exhibition Centre Expansion Project PROJECT EVALUATION AND COST REPORT Figure 1.1: City Context Plan 1.0 EXECUTIVE SUMMARY / page 1-1 VANCOUVER CONVENTION & EXHIBITION CENTRE EXPANSION PROJECT PROJECT EVALUATION AND COST REPORT APPENDIX E GOVERNANCE OF THE EXPANDED VANCOUVER CONVENTION AND EXHIBITION CENTRE, REPORT TO THE VANCOUVER CONVENTION CENTRE TASK FORCE The Vancouver Board of Trade July 20, 2000 1.0 EXECUTIVE SUMMARY / page 9 July 20, 2000 EST. 1887 ER BOARD THE VANCOUV OF TRADE The Vancouver Board of Trade GOVERNANCE OF THE EXPANDED VANCOUVER CONVENTION AND EXHIBITION CENTRE REPORT TO THE VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE Terminology This report has been prepared for the Convention Centre Expansion Task Force by representatives of The Vancouver Board of Trade who are concerned with the proposed expansion of the centre. Accordingly, it is assumed that those reading the report will be familiar with the terminology employed and the different components of the expanded convention facility. In particular, the “existing facility” is the existing Vancouver Convention and Exhibition Centre. The “new structure” refers to the new convention centre structure which it is proposed be built on the Burrard Landing site immediately to the west of the existing facility. The “expanded convention centre” is the combination of the existing facility and the new structure. Throughout this document the term “industry” refers to the business community and specifically to that part of the private sector involved with and concerned with the convention centre and with ancillary enterprises such as hotels, attractions, and convention-related transportation. 1.0 GOVERNANCE 1.1 Existing Convention Centre The governance, marketing and operation of the existing Vancouver Convention Centre appears to be very good. We recommend that the existing arrangements be used as the model for the expanded convention centre. The roles of PAVCO and Tourism Vancouver should be continued and expanded to encompass the expanded facility. In addition, there should be a formal involvement of the Vancouver Hotel Association to help ensure the ongoing optimization of marketing and sales efforts for the expanded facility. Page 2 Governance of the Expanded Vancouver Convention and Exhibition Centre July 20, 2000 1.2 Requirement for Seamless Operation The effective and efficient operation of the expanded Vancouver Convention Centre will require seamless management of the combination of the existing facility and the new structure (i.e., common management, a common operating entity, and common marketing). The expanded convention centre must seem to be and must operate as a unified entity. 1.3 Ownership of Existing and New Facility The underlying ownership of the existing facility and the new structure may be different. The existing facility is owned by the Federal Government, and leased to the Province to operate. The new structure may have underlying ownership reflecting various financial contributions made towards its development. Thus the Federal and Provincial Government, industry, and potentially the City of Vancouver could have an ownership interest in the new structure based on their respective contributions. 1.4 Lease of Existing Facility The existing convention centre is leased to the Provincial Government by the Federal Government. The lease was assigned to PAVCO by the Province. The first 20-year term expires in 2007; there are options to extend the term for three further 20-year terms at the option of the Province. 1.5 Ownership of the New Structure 1.51 Federal Government Ownership as an Option While it might be simpler to try to arrange Federal Government ownership of the new structure to parallel the ownership of the existing facility, that might not be easily achieved. As outlined above, the other major contributors to financing the expansion might logically wish to hold an interest in the new structure, and to have a voice together with the other owners. 1.52 Provincial Government Ownership as an Option Provincial Government ownership of the new structure is another option. In that case for the duration of the existing lease and its extensions the operating control of the existing facility and the new structure could be joined in a seamless manner. However, as discussed later, this option was already rejected for the previously proposed extension to the east of the existing facility. Page 3 Governance of the Expanded Vancouver Convention and Exhibition Centre July 20, 2000 1.53 Convention Centre Authority Option A newly created Convention Centre Authority (“Authority”) is recommended as the approach to providing an effective mechanism to offset the potential differences in ownership of the existing facility and the new structure. The ownership and high-level management of the new structure would be vested in this Authority. A board of directors would direct its governance with representation from the stakeholders providing the financing, and representation from other key community stakeholders. The Authority should be established as a not-for-profit corporation under federal legislation, in the same way that the Vancouver International Airport Authority is incorporated. Note: This envisions the winding up of the existing convention centre authority which was established to undertake development and operation of the expanded convention centre which would have resulted from constructing an expansion to the east of the existing structure. This pre-existing authority should be extinguished once its existing financial obligations are discharged. The new Authority should be designed through consultation of the Convention Centre Expansion Task Force with other key stakeholders such as the two senior levels of government, the City of Vancouver, and selected business organizations. 1.6 Board of Directors for New Convention Centre Authority The board of the Authority in which would be vested the ownership of the new structure should reflect the ownership of the new structure, and also reflect key community interests. Assuming that both senior levels of government and industry make financial contributions to the expanded centre, board members could be appointed by each of the Federal Government, Provincial Government, and industry (relevant private sector organizations). If the City of Vancouver were to make a contribution to the infrastructure required, the City might be given a seat on the board. The industry representatives would need to be designated by industry, not selected by government. The “nominating entity” model utilized to identify board members for the Vancouver International Airport Authority board might be an appropriate mechanism for this selection process, provided that sufficient provision for accountability is included. The members of the Authority should be the nominating entities. These entities would appoint the directors, and the board of directors would be accountable to the nominating entities. There is precedent for this at the provincial – federal government level for joint initiatives, with indications that this arrangement works well. Page 4 Governance of the Expanded Vancouver Convention and Exhibition Centre July 20, 2000 It is important that the business community lead the board of directors, with nominees from all nominating entities individually and collectively having experience and qualifications to help ensure sound management of the convention centre. 1.7 Reconciliation with Existing Arrangements The arrangement proposed above would leave the Province through PAVCO with the operating responsibility for the existing facility, and the need to extend that responsibility to the new structure part of the expanded convention centre. That should be done by the provincial government reassigning to the Authority the lease for the existing facility, and the Authority then contracting with PAVCO for the operation of the whole convention centre. This would ensure that PAVCO continued to play its existing role, but for the expanded convention centre. 1.8 Marketing of Expanded Convention Centre The marketing plan for the expanded convention centre is in the process of being developed, and will be one of the core documents guiding progress towards the expanded facility. The activities and responsibilities outlined below would be undertaken in support of that plan. Marketing of the expanded centre should continue to be shared between Tourism Vancouver and PAVCO, with participation as well by the Vancouver Hotel Association. It would be helpful to the situation to have a marketing accord that would spell out the relative responsibilities and involvement of each of these three organizations. For example, Tourism Vancouver could have primary responsibility for marketing the expanded convention centre beyond an agreed time horizon, while PAVCO could have primary responsibility for marketing the centre from the current date up to that horizon. The Vancouver Hotel Association would need to participate on an ongoing basis to help ensure coordination and cooperation with the convention-oriented hotels. The three organizations would need to work together regardless of the time horizon, and should be formally charged with responsibility to coordinate their activities and cooperate in their efforts to market the facility. A mechanism likely would be required to help achieve the synergy outlined above. The three key organizations involved are separate entities, but need to work coherently and in concert. A structured process should be established involving the executive and senior management of each of the organizations. This group should meet at least annually to review and update the marketing plan. Personnel involved in marketing and sales for each organization should carry out preparatory work and draft the revised marketing plan. The executive and management of each of the organizations should be Page 5 Governance of the Expanded Vancouver Convention and Exhibition Centre July 20, 2000 programmed to meet annually to update the marketing plan. It may prove worthwhile to hold regularly scheduled quarterly meetings of the three participants to maintain continuity of dialogue and ongoing updates of the marketing plan. Ongoing operational cooperation would need to continue in any event. There should be equal accountability and performance measures for each of the participating organizations. As required, an outside facilitator and other resource personnel could be added to help ensure that the process achieves the desired results. 1.9 Formal Agreement Between Stakeholders A number of aspects of the situation would need to be covered in an agreement between the stakeholders, including the two senior levels of government, industry, potentially the City of Vancouver, PAVCO, Tourism Vancouver and the Vancouver Hotel Association. There will need to be agreements between the stakeholders as to how the initial and any ongoing operating deficits are to be shared, and how any operating surpluses are to be shared. Similarly, there would need to be agreement on the utilization or splitting of returns from the parking and retail part of the new structure and other revenue opportunities from that facility. The assignment of overhead to the expanded convention centre would need to be spelled out in advance. The rights of the owners of the existing facility and new structure to make improvements and then charge them to the lessee(s) would need to be negotiated. 1.10 Transparency/Public Disclosure The disclosure requirements for the Authority in essence should be the same as for public bodies in British Columbia. The Authority should be transparent and open in its operations and governance. 1.11 Governance During Construction of New Structure The construction of the new structure would require some different board of directors expertise from that outlined above for ongoing operations. During construction of the new structure, the Authority should add directors whose background is appropriate to governance of that type of project. The composition of the board should be changed as required when construction is completed and operation of the expanded convention centre begins. This could be achieved by having the terms of some of the directors with appropriate construction oriented expertise expire after completion of construction. Page 6 Governance of the Expanded Vancouver Convention and Exhibition Centre July 20, 2000 1.12 Governance of Convention Centres in Other Cities Governance of convention centres in other cities in North America varies. Those variations include ownership by a city, county, state/provincial government or government authority. Private ownership is infrequent. Management may be government, private, or not-for-profit. There are numbers of situations where the marketing of the facility is undertaken jointly by the facility operator and a tourism/visitors bureau. 1.13 Need for Public Sector Involvement Governments recover their investment in convention centres through the increased tax revenues which they receive as a result of the economic impact of the facilities. As noted in the business plan for the previously proposed convention centre expansion in Vancouver, a convention space developer could never recover through rent the cost of constructing convention and exhibition space. Almost all major convention centres in North America are financed through tax measures of one kind or another. A public sector role in governance therefore follows. 1.14 Summary • The governance, marketing and operation of the existing Vancouver Convention Centre appears to be very good. • The effective and efficient operation of the expanded Convention Centre will require seamless management of the combination of the old and new facilities, including operations and marketing. • The current roles of PAVCO, Tourism Vancouver and the Vancouver Hotel Association should be continued and expanded to encompass the expanded convention centre. • The underlying ownership of the existing facility and new structure may be different. • To accommodate that and the current lease arrangements for the existing facility, a Convention Centre Authority should be utilized. • The ownership and high-level management of the expanded convention centre would be vested in the Authority. A board would direct its governance with representation from the stakeholders. Page 7 Governance of the Expanded Vancouver Convention and Exhibition Centre July 20, 2000 • This arrangement for the new structure could be reconciled with the current arrangements for the existing facility by the provincial government re-assigning to the new Authority the lease for the existing facility. The Authority then would contract with PAVCO for the operation of the whole of the expanded convention centre. • Marketing of the expanded centre should continue to be shared between Tourism Vancouver and PAVCO in coordination with the convention-oriented hotels through the Vancouver Hotel Association. This should involve a marketing accord between these three organizations. • An agreement between the stakeholders in the expanded convention centre would need to cover the arrangements selected, together with how the initial and any ongoing operating deficits are to be shared, and how any operating surpluses and revenues would be used or shared. • The disclosure requirements for the Authority should be the same as for public bodies in British Columbia. • The governance of the construction phase of the expanded convention centre should use the same Authority as for operations, but with part of the expertise on the board changing when construction is complete. • Governance of convention centres in other cities in North America varies. Those variations include ownership by a city, county, state/provincial government or government authority. Private ownership is not frequent. Management may be government or private. • Governments recover their investment in convention centres through the increased tax revenues which they receive as a result of the operations of the facilities. • There are numbers of situations where the marketing of the facility is undertaken jointly by the facility operator and a tourism/visitors bureau. • The convention centre expansion, which was proposed for the site immediately to the east of the existing convention centre in Vancouver, was to have been governed by a convention centre authority. • That authority still exists, and carries with it the debt associated with the project that was terminated. • Accordingly it is important that the new authority be quite separate, and that the previous authority be extinguished to ensure that there is a fresh start. Page 8 Governance of the Expanded Vancouver Convention and Exhibition Centre July 20, 2000 APPENDIX Approach to Governance of Previously Proposed Expansion in Vancouver Options The convention centre expansion proposed for the site immediately to the east of the existing convention centre in Vancouver involved the development of an extensive business plan document that included consideration of ownership options. The documentation concerning that proposed development notes that the proposal presented six ownership scenarios, which were simplified into two basic options as follows. 1. A private sector developer finances, builds and owns and leases the facility back to the Province. 2. The Province finances and owns the facility, using (the development company) as builder/developer. Convention Centre Authority “The first option has been rejected for reasons of cost, lack of risk transfer from the Province and uncertainty ---. (The) business plan accordingly (assumed that) the project (would be) built and owned by the Vancouver Trade and Convention Centre Authority (VTCCA) ---.” The proposal for the convention centre expansion involving the existing facility and new construction to the east of the existing facility “--- did not have a solution for the logistical issues which arise when the two portions of the expanded and retrofitted facility are owned by two different landlords under different lease terms. Neither the retrofitted portion owned by Canada Place Corporation nor the expanded portion owned by (another entity) would be able to operate independently ---.” “To eliminate the legal and financial problems associated with the --- arrangement, a non-share, not for profit corporation was incorporated, the Vancouver Trade and Convention Centre Authority, (VTCCA) as a vehicle to own both leases, to represent the interests of the federal, provincial and industry stakeholders and to maintain the common areas of the project. The VTCCA is incorporated under the Canada Corporations Act, Part II.” The VTCCA structure, objectives, relationship to PAVCO and the financial benefits of the proposed structure are outlined in the Appendix to the Vancouver Convention & Page 9 Governance of the Expanded Vancouver Convention and Exhibition Centre July 20, 2000 Exhibition Centre Expansion Summary Business Plan. That Appendix previously was distributed to members of the Convention Centre Expansion Task Force. EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN . APPENDIX F CORPORATE PROFILES PACIFIC LIAICON AND ASSOCIATES INC. LMN ARCHITECTS VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE APPENDICES Pacific Liaicon and Associates Inc. Consulting Engineers / Management Consultants CORPORATE PROFILE Managing projects on schedule and budget on a corporate level has been the primary service provided by Pacific Liaicon and Associates Inc. (PLA) to private industry and governments since it was established in 1970 by Henry Wakabayashi. As Owner’s Representative and Project Managers on a variety of private industrial and public sector developments, PLA specializes in handling the requirements of Project Owners through all development phases, including: – conceptual design – feasibility and environmental assessment studies – project definition (scope, schedule and cost) – design and engineering – regulatory approvals and permitting – construction – start-up and commissioning PROJECT MANAGEMENT EXPERIENCE While the company’s past focus of expertise was the pulp and paper sector, PLA has during the past 30 years undertaken project management contracts for a wide variety of public projects, namely the Advanced Light Rapid Transit System (SkyTrain first phase), North East Coal Development and Expo 86. Some of the present assignments include: Vancouver Convention & Exhibition Centre Expansion, Burrard Landing Project For the BC Pavilion Corporation (PAVCO), 1999 to present Owner’s Representative and Project Manager to evaluate the design and construction cost of a new convention centre expansion site immediately west of Canada Place. Vancouver International Airport Expansion Projects For the Vancouver International Airport Authority, 1992 - present Owner’s Representative and Project Managers for a number of expansion projects: • New International Terminal Building and Parallel Runway Projects, 1992 – 1996 $400 million project to build the new International Terminal Building and Parallel Runway • International Terminal Building (ITB) Expansion Projects, 1996 – 2000 $120 million expansion including: East Concourse Expansion, East Apron Expansion, East Chevron Expansion, and Transborder Apron Holdroom Upgrade • West Apron Expansion and ITB Passenger Flow Enhancement Projects, 1999 - present $39 million expansion of the West Apron including associated works, and $3 million in upgrades to the ITB to improve passenger movement through the building A202 – 3823 Henning Drive Burnaby, British Columbia, Canada V5C 6P3 tel: (604) 299-8860 / fax: (604) 299-8722 / website: www.pla.bc.ca Pacific Liaicon and Associates Inc. Corporate Profile Page 2 of 2 Drinking Water Treatment Program For the Greater Vancouver Water District, 1995 – present Under contract to provide program management services for the first phase (over $300 million budget) of the following components of the Drinking Water Treatment Program: • Primary Disinfection and Corrosion Control Facilities (design and construction) • Secondary Disinfection Stations (design and construction) • Pilot Plant Study and Predesign for Seymour Filtration Plant to be constructed under a design-build-operate approach Berth 4/5 Redevelopment Project For Vancouver Wharves Limited, 1997 - present Project Manager for upgrades and expansion to Vancouver Wharves’ facilities, completion of which will allow more efficient handling of specialty agricultural products, fertilizers and sulphur. This $110 million project is comprised of the following major components: • Sulphur Project, including a new rail car dumper, storage and reclaim system feeding the existing Berth 4 shiploader • Agri Project, including a new dumper, storage and reclaim system feeding a new Berth 5 shiploader • Related work 2010 Olympic Games For the Vancouver Whistler 2010 Bid Corporation, 2000 Project Advisors for the bid submission phase of the 2010 Olympic Games to be held in and around Vancouver and Whistler, British Columbia THE PACIFIC LIAICON AND ASSOCIATES INC. PROJECT TEAM The PLA team on the Vancouver Convention & Exhibition Centre (VCEC) Expansion Project is headed by three of PLA’s principals. • Henry Wakabayashi, P.Eng. • Ray Zibrik, P.Eng. • Verne Janzen, P.Eng. Their combined project management experience is over 90 years. Although Ray Zibrik joined the company in 1988 and Verne Janzen, in 1998, both Ray and Verne were involved in PLA projects prior to joining the company. PLA has a core group of 25 professional and technical staff, more than 6 support personnel, and has ready access to other associate consultant resources for specific project requirements. A202 – 3823 Henning Drive Burnaby, British Columbia, Canada V5C 6P3 tel: (604) 299-8860 / fax: (604) 299-8722 / website: www.pla.bc.ca VANCOUVER CONVENTION & EXHIBITION CENTRE EXPANSION PROJECT PROJECT EVALUATION AND COST REPORT APPENDIX G TECHNICAL INFORMATION 1.0 EXECUTIVE SUMMARY / page 11 VANCOUVER CONVENTION & EXHIBITION CENTRE EXPANSION PROJECT PROJECT EVALUATION AND COST REPORT TECHNICAL INFORMATION DETERMINATION OF NET PROFIT MARGINS Net profit margins as a percentage of sales were derived based on data obtained from Volume III, Small and Medium Firms, Principal Financial Ratios by Detailed 4 Digit SIC, published by Statistics Canada. The E series SIC (SICE) classify companies according to primary activity. The publication contained Financial Performance Indicators for 1996, 1997 and 1998. Using the SICE classifications, net profit margins were recorded for those industries that are sub-sectors of the six industry spending sectors set out in the KPMG report. Specifically, the Net Profit Margin (as a percentage of sales) was collected for the top quartile of Canadian small businesses in each industry sub-sector for 1996, 1997 and 1998 (the last years for which information is available). An average of net profit margins was taken for the three years for each SICE industry. From these average net profit margins for each SICE classification, a weighted average net profit margin for each of the industry sectors was calculated based on the number of businesses in each sector. These net profit margins were applied to the KPMG spending estimates to determine the net profit by industry sector. The derivation of the net profit margin is shown below for the Accommodation sector. Accommodation Sector SICE Industry No. of Firms 1996 1997 1998 9111 Hotels and Motor Hotels 2,168 5.70% 6.20% 6.90% 9112 Motels 1,812 8.20% 9.10% 10.70% 9114 Guest Houses 105 6.00% 6.20% 5.20% 9121 Lodging Houses 248 7.00% 8.20% 9.50% Total 4,333 WEIGHTED AVERAGE NET PROFIT MARGIN 7.65% There is an argument that a marginal profit rate on the incremental sales to delegates and exhibitors is higher than an overall net profit rate in the short term because only operating costs are required to create the incremental profit. While acknowledging this argument’s validity in the short term, over the longer term market pressures in the form of additional competition will return profitability to historical levels. Because the Task Force is measuring the impact due to VCEC-hosted events over a thirty-year period, it considered that industry net profit percentages would be more reliable than marginal profit percentages. The Task Force appreciates that industry profit percentages used to estimate net profits in the Business Plan may not represent the precise profits earned by companies affected by the spending by these delegates and exhibitors. However, the profit estimates are 1.0 EXECUTIVE SUMMARY / page 13 EXPANDING THE VANCOUVER CONVENTION & EXHIBITION CENTRE BUSINESS PLAN designed to provide a reasonable indicator of the incremental benefits to industry as a result of the convention centre expansion. VCEC PROFORMA STATEMENTS Definitions of a number of the terms used in the VCEC proforma statements in Section 6.0 of the Business Plan are shown below. Revenue and Direct Expenses Revenue for the expanded VCEC is derived from the sources shown in the statements. Room rent is based on the number of Events, Food & Beverage on the number of Delegate Days and Event Services on the number of Event Days. These three revenue components are the primary sources of revenue from events. Sponsorship is for agreements with sponsors and suppliers who provide cash or services in kind for promotional affiliation with the VCEC. Direct expenses are the direct charges that relate to these expense categories. Facility Expenses Facility expenses include staffing, fees, general administration, business development, operations, property taxes and lease costs. VANCOUVER CONVENTION CENTRE EXPANSION TASK FORCE APPENDICES VANCOUVER CONVENTION & EXHIBITION CENTRE EXPANSION PROJECT PROJECT EVALUATION AND COST REPORT APPENDIX H RESTRICTIONS 1.0 EXECUTIVE SUMMARY / page 15 RESTRICTIONS The results of this Business Plan are based on estimates and assumptions that are inherently subject to uncertainty and variation depending upon evolving events. We do not represent them as results which will actually be achieved. Assumptions may not materialize and unanticipated events may occur; therefore actual results achieved during the estimate period will vary from our projections and these variations may be material. We reserve the right (but are under no obligation) to review all calculations included or referred to in this report and, if we consider it necessary, to revise our conclusions in light of any information which becomes known to us after the date of this report. The report and financial projections contained herein pertain only to the facilities and locations described and conditions prevailing during the course of the research completed on September 20, 2000.
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