Corporations Invest In Conference Centers Of Their Own

<B> Corporations Invest In Conference Centers Of Their Own</B>

By Chris Davis

With meeting space in major cities still hard to come by, and rates on the rise, large corporations in fast-paced industries like technology and finance are building, buying and significantly upgrading conference centers of their own.

Among the newest is the 50,000-square-foot Oracle Conference Center, opened in November by Oracle Corp., the Redwood Shores, Calif.-based software giant. Unlike most corporations--which cite a secure, consistent and high-tech environment for employee training as the compelling factor in the decision to develop a conference center--Oracle sees it as a method of travel cost reduction.

"Any kind of Oracle meeting where we might have used a hotel in the past, whether it's a training meeting with partner companies or launching new products, we want to have at the conference center, if we can accommodate it," said Randy Smith, Oracle's senior director of U.S. real estate. "I think we'll save 20 to 25 percent across the board over what we spend in hotels."

Oracle also needed a large enough site for "staff kickoff meetings for groups, which weren't happening anywhere, onsite or offsite," Smith said.

Not surprisingly for a software company, Oracle was insistent on incorporating many of the latest technologies. In addition to an onsite video production studio and rear-screen projection, the center includes Internet access that is tied to Oracle's local area network, allowing meeting participants to access Oracle's servers and the Internet.

The center has operated at about 70 percent occupancy Monday through Friday. Most meetings involve single-day or half-day programs, but about 20 percent lasting three days or more, Smith said.

Despite Oracle's apparent success, though, experts cautioned that building a meeting place of your own is not for every company. "It takes a very significant workforce at a campus or a headquarters location to make this viable," Smith said. "Look at the corporations you see that are doing it--like Compaq (<I>Meetings Today,</I> July 20, 1998) and AT&T, which both have huge campuses. That's where it makes the most sense. This would not have made sense for Oracle a few years ago, but now we have about 8,400 employees at headquarters. "

Analysts agreed that if there is one constant throughout the industry, it's that the initial investment is not cheap. PKF Consulting vice president Brian Bash in Philadelphia estimated that construction of a corporate site runs $200 to $250 per square foot. Add guest rooms, he said, and the cost rises to anywhere from $150,000 to $225,000 per room.

To offset that, some corporations have gone into the conference-center management business, opening their facilities to outsiders as well as employees. And the industry is growing steadily. According to the International Association of Conference Centers in St. Louis, about 20 percent of the corporate centers it knows of are less than four years old, and IACC's membership of corporate-owned centers has increased about 14 percent over the past two years.

Bash estimated that the current nationwide total--a number difficult to ascertain because some corporations don't like to publicize their centers--is between 150 and 200.

Among the ones that welcome outside groups is the Chase Conference Center at Chase Manhattan Plaza, opened in May 1998 by Chase Manhattan Bank, a long-time corporate center fan. "I try to keep 15 to 20 percent external business at all times, which is a balancing act," said K.C. Hoover, vice president of sales and marketing for Chase Conference Centers. "We can offer our training and our expertise in the field. In return, it helps keep the Chase name recognized as a well-known institution."

Like Oracle's center, and indeed conference centers in general, Chase's 63,000-sq.-ft. building prides itself on offering advanced technology. It features 200 ISDN lines, T1 lines and connections to Chase's internal computer network. And the center has facilities for eight separate videoconferences to take place simultaneously.

Chase primarily uses the center for employee training, which the facility's advanced technological capabilities promote better than other facilities can, Hoover said. "As long as corporations view training as they do, with technology and software as a constant, you can't do it in hotels--it's too expensive. Not that this isn't expensive, but with all the bells and whistles, we can offer it to the outside world as well."

<B>The Cutting Edge of Technology</B>

Even existing corporate conference centers understand the importance of keeping their technology up to date, and upgrades are taking place across the industry. The five-year-old Bank of Montreal Institute of Learning recently upgraded its technology as part of a gradual shift towards smaller and customized learning programs.

"This is state-of-the-art technology here," said Geoff Lawson, general manger of the Institute. "We have a complete local area network in the building, we have videoconferencing capabilities internally and externally and all of the equipment is new."

The customized learning program, which was created to address employees' specific problems and needs, is bolstered by the center's technology, staff and seclusion. "Employees bring the problem to us and we create something for them. It may incorporate components from other courses or something totally new," Lawson said. "So we're leveraging the facility to manage employee performance and shareholder value."

While the Bank of Montreal Institute has a proven track record of financial viability, the decisions by Oracle to hold all meetings at their center and by Chase to open their center to the outside seem financially sound, considering the substantial initial startup investment and the money it will take to operate the centers in the years to come.

"About 90 percent of all corporate conference centers that start out as exclusive corporate-use facilities eventually open up, not because companies necessarily want to take on more outside business, but rather because their own internal needs change, sometimes substantially," Bash said. "A property that may have initially been heavily used might see usage decline once the demand from its corporate owner decreases, and then open up to the public. Corporations don't know what else to do with it."

That fact illustrates the risk companies take when they open expensive centers without a guaranteed and steady stream of internal customers. "It's a reflection of how much corporations change these days and how little predictability there is for that kind of corporate need," Bash said.

But corporations are learning from each others' mistakes and concentrating more on developing ways in advance to properly handle a conference center in a changing business environment, said Sam Haigh, chief operating officer of Benchmark Hospitality, a conference center chain based in The Woodlands, Texas. Selling a corporate conference center, opening it up to outside users or sharing it with another company are all ways to mitigate future losses.

"Corporations are getting smarter about exit strategies," Haigh said. "There are corporations out there with private centers that wish they didn't have them today. They built the centers without exit strategies and in remote locations that made it less desirable to acquire them when the company no longer had a need for them, or convert them to open-market facilities. The landscape is dotted with these white elephants."

For that reason, Haigh said, it's difficult to develop a corporate center with the goal of cost containment.

"Developing corporate centers is driven not so much by cost considerations, although that may become part of the rationale when companies are selling the idea to the chairman," Haigh said. "The primary motivation for companies is the desire to have their own environment to accomplish what they need to accomplish. But if you have the facility and are able to utilize it and generate high occupancy, there really is a cost savings. It's much cheaper per head than an open-market facility. But you have to balance that with the cost of building and maintaining it."

Cost containment has to be a long-term goal that includes a set plan for future center usage, said Andy MacLellan, president and chief operating officer of Montvale, N.J.-based conference center chain Dolce International.

"Most of the companies creating these kind of centers are looking beyond the cyclical nature of the economy and their business because they have tremendous investments in these infrastructures," MacLellan said. "It would not make sense for them to build one in good times and then not use it in bad times. It's a cost center for them, no question, but they are able to justify the expense versus the cost of utilizing hotels and resorts to try to provide the same kinds of facilities."

Large corporations with many employees have an easier time guaranteeing future use and future viability of their centers by continuously offering and promoting employee education, and therefore have the highest likelihood of owning a successful private center, MacLellan said.

"Companies in industries that are changing rapidly, like technology, are prime candidates to build, because in order for the company and its associates to keep up, there has to be constant training and involvement," MacLellan said. "One of the biggest fears is that the center would be underutilized and the company wouldn't get a return on its investment. But it's a matter of making sure that they are continuously promoting learning in the company. If that happens, they'll also likely improve their product and earnings, so the ROI will be pretty good."

The large initial investment and operating costs tend to keep smaller and mid-size corporations away from owning private conference centers. But there are ways for those companies to get into the business as well, if they are committed to keeping usage up and costs down. For them, the way to go is through a formal written policy mandating the use of the center for company meetings.

"A smaller corporation that wants its own center needs to commit to no longer spending money on outside properties if money is invested in its own facility," Bash said. "As long as there is a sufficient level of utilization, the corporation may not see a financial gain, but it will at least be reducing expenditures to outside vendors. And possibly the company can provide those services more efficiently and effectively through better scheduling and better cost control."

Another option, though not yet a common one, is for small corporations to band together and build a conference center as a joint venture, suggested Laila Rach, associate dean of the Center for Hospitality, Travel and Tourism Administration at New York University's School of Continuing and Professional Studies.

"You're going to see consortia and groups of corporations that will do this so that none of the smaller corporations solely retains complete fiduciary responsibility," Rach said. "That will happen more and more, and that way size doesn't matter."

But MacLellan said the easiest way for small corporations to bolster a center's financial future is still to simply invite the public in.

"That's always an option for companies that are smaller and that have requirements for these facilities but aren't necessarily multinational Fortune 500 companies," he noted.