Next summer, a giant hole will be excavated in the downtown Mall along Lakeside and St. Clair avenues. Cleveland’s musty, underground 1932 convention center will be dismantled and a new one built in its place with towering ceilings and fewer columns. Natural light will shine through a giant window overlooking Lake Erie and North Coast Harbor.
Public Auditorium, the city’s 1922 Renaissance-style jewel, will be renovated to host conferences and trade shows. Atop the convention center will sit the new Mall, remade as a friendlier space modeled on Millennium Park in Chicago. A dramatic entrance for the convention center will rise next to a modern new building, several stories tall — the Medical Mart, a showcase for medical manufacturers’ latest products, from hospital beds to MRI machines.
Slated to open in 2012 and 2013, the Medical Mart and convention center are the city’s biggest downtown projects in a decade, an $800 million bet. With the center, Cleveland will return aggressively to the competitive market for professional conventions. With the Medical Mart, the city will embark on an innovative but risky attempt to convince high-spending doctors and hospital administrators to hold their annual meetings here. If the project succeeds, visitors’ money could pour in to the city’s hotels, restaurants, taxicabs and museums, sparking new development and new street life. If it doesn’t work, if embarrassing vacancies plague the buildings, Clevelanders will surely grow even more skeptical about future downtown projects.
Cleveland spent four years debating whether to build the Medical Mart, how to pay for it and where to put it. The project has survived the transition between two mayors, a taxpayer revolt against its funding and a corruption scandal that tarnished the county government. It has withstood Cleveland’s strong populist opposition to any downtown project built with tax money — especially one built by a public-private partnership. It’s also survived two fights over its location: an early dispute about whether to build it near the Cleveland Clinic, followed by Forest City Enterprises’ campaign to land the project at Tower City.
Now, Cleveland’s key decisions are made. The mart and center will be built on the downtown Mall. In May, Cleveland Mayor Frank Jackson agreed to sell the site — the current convention center and Public Auditorium —to Cuyahoga County for $20 million. In April, the county commissioners signed a partnership agreement with Merchandise Mart Properties Inc., of Chicago. The company will build the center and mart with money from the county’s 2007 sales tax hike, then manage both buildings until 2027.
But the most important verdicts on the $800 million venture have not yet been handed down, and they will come from outside Cleveland. National medical manufacturers must now decide whether to sign leases in the Medical Mart’s showrooms. Medical convention and trade show organizers will choose whether to book their events in Cleveland and give the mart a try.
Inside Business has interviewed several knowledgeable people in both industries, comparing MMPI’s vision to the way they now do business. Their careful opinions make it clear that the Medical Mart project is not the sure bet some supporters claim, nor the certain failure its critics envision. It is a significant risk on a promising concept.
It could give medical manufacturers and medical professionals an easier, more efficient way to connect and do business. But as an unproven idea in the medical industry, it is built on a challenging startup strategy.
Meanwhile, organizers of nonmedical conventions will also take a new look at Cleveland. Once the 77-year-old convention center is replaced with a state-of-the-art one, will conventioneers return to Cleveland? This simpler prospect has gotten much less attention than the Medical Mart. But it could make the project a success, even if the Medical Mart concept fails or takes a while to catch on.
If the plans succeed, this is what you’ll see when you walk into the Medical Mart: Large diagnostic equipment, from MRI to X-ray to ultrasound machines, and medical furniture and furnishing such as hospital beds, bedding, carpet and antimicrobial fabrics.
The mart may also include surgical equipment, implants and medical software — “Anything you would see in a health care setting,” says MMPI senior vice president Mark Falanga. The target audience is huge: Anyone renovating a health care facility or building a new one.
“Health care right now is one-sixth of the U.S. economy, yet it’s a moveable feast,” says Toby Cosgrove, CEO of the Cleveland Clinic. “You go to one trade show after another, one meeting after another.”
Cleveland’s Medical Mart is Cosgrove’s idea. He got it from talking to the son of an influential Saudi sheik, who wanted to build a medical mart in Dubai. Cosgrove pitched the concept to MMPI in 2005. Since then, he says, his work as CEO has further convinced him of the mart’s potential.
“When we went out to try to build our new facilities, a third of the cost of that was the equipment that went into it — everything from carpet to beds, operating rooms, tables, sterilizers,” Cosgrove says. “I had to travel all over the place to go look at various manufacturers’ things: to Germany, Alabama, Michigan.” Instead, he says, the Medical Mart could become a national shopping mall for hospital administrators, architects and purchasing agents who could come to Cleveland to compare products and prices.
For the Medical Mart to prosper, it will have to attract both medical manufacturers and medical conventions and trade shows.
The manufacturers would gain “tremendous economic benefits” from leasing a Medical Mart showroom, Falanga argues. Today, their salespeople haul heavy equipment to medical trade shows throughout the country, incurring huge shipping costs. But if they lease space in the mart, he says, they’ll have permanent displays. “The company can benefit from the traffic of each of the trade shows cycling through the facility over a year,” he adds.
When doctors, nurses and administrators gather for their annual conventions, they take breaks from educational seminars to see the latest technology at trade show exhibits. The Medical Mart will draw those meetings to Cleveland, Falanga says.
MMPI wants to attract some of the largest manufacturers in the medical business to the mart, making the convention center attractive to trade-show organizers. “Those manufacturers will drive a lot of customers into those shows,” he says. More attendees at the trade show — prospective medical equipment buyers — will attract more temporary exhibitors, and vice-versa, making the trade shows successful, MMPI believes.
That’s how MMPI’s other facilities, including the Merchandise Mart in Chicago, succeed. “We pioneered this concept of marrying a temporary trade show to a permanent showroom,” Falanga says. But it hasn’t been done in the medical industry before, except for a failed attempt in Birmingham, Ala. in the early 1990s. (Cleveland is a more important medical center than Birmingham, and the medical products market has quadrupled since then to $2.2 trillion a year, Falanga told Crain’s Cleveland Business in 2007.)
On the other hand, the concept is becoming popular with developers. Cleveland is racing to beat two competing medical mart proposals: the World Product Centre in New York City and the National Medical Trade Center in Nashville. Cleveland Medical Mart supporters say the competitors don’t have secure funding. MMPI wants to open its first shows and showrooms in Public Auditorium by the end of 2010, in hopes of being first to market.
MMPI may have a head start on filling the Med Mart with hospital beds and interior furnishings, since it already has relationships with leading furniture companies at its other marts. Attracting high-tech diagnostic equipment might be more difficult. That’s where Cleveland’s international health care reputation may help. Doctors and hospital officials often want to see medical equipment used in a clinical setting. So Medical Mart showrooms may send customers to the Cleveland Clinic or University Hospitals to see some of the products in action.
MMPI’s eventual goal is to attract 60 medical trade shows and 100 smaller medical conferences to Cleveland every year — 10 percent and 5 percent, respectively, of all such events in the country. That, Falanga estimates, would mean 300,000 visitors to Cleveland, spending $330 million a year in the city.
Compare that to the cost of the project. The public will spend about $425 million to build it, or $630 million including interest on the construction bonds. The county will pay MMPI about $10 million a year until 2027 to operate the facility, plus a $12 million construction manager fee. (The county will own both buildings after 2027, and MMPI will pay for any construction cost overruns.)
That public spending — roughly $820 million total — should spark several times as much economic activity in the next 18 years alone, the project’s supporters say.
However, no one expects the project to meet MMPI’s goal right away. Starting the Medical Mart — getting the first manufacturers to lease showrooms — will be the greatest challenge.
“We believe we will need to subsidize those showrooms heavily to get them to try something new,” Falanga told a Cleveland City Council committee in February.
Bookings may start slow, but will build on each other, Falanga predicts. “It’s going to take many years for this to ramp up,” he says, “for Cleveland to prove itself to the medical community.”
The venture’s worst-case scenario is spelled out in MMPI’s agreement with the county. If the company can’t book five medical trade shows and lease 10 showrooms within a year, the county can back out. In a moderately bad scenario — if the mart and center book a steady but meager stream of traffic — the county could reduce MMPI’s annual fee for managing the facility. In the most severe situations, the county could fire MMPI and void its lease.
Inside Business contacted several manufacturers to whom MMPI hopes to pitch the project. Their noncommittal responses bolster Falanga’s prediction that MMPI may need to offer heavy subsidies to lease showrooms.
MMPI’s list of 100 top showroom prospects includes the health care divisions of major furniture makers, such as Nurture by Steelcase and Herman Miller for Healthcare. It also includes leading medical technology companies, such as Medtronic, which makes defibrillators and neurostimulators, and Stryker, whose products range from joint replacements to endoscopes and laproscopes. Several such manufacturers offered carefully neutral responses or declined to offer an opinion about the project, saying they were not knowledgeable enough about it.
“So much of it would depend on specific costs, and how it might fit into a plan,” says Lauren Green-Caldwell, a spokeswoman for Hill-Rom, a leading hospital bed and medical equipment company. “It’s not something that’s been seen elsewhere.”
Cleveland’s planned 270,000-square-foot convention floor will only hold small to medium-size trade shows. One staffer for a national medical society thinks that could hurt the Medical Mart: “A lot of manufacturers would take a look at it and say, ‘Why would we want to go somewhere where most of the large trade shows couldn’t go?’ ”
Two Cleveland manufacturers that Medical Mart supporters have courted expressed interest in the project.
“The concept is intriguing,” says Stephen Norton, director of corporate communications for Steris, the Mentor-based manufacturer of anti-infection products.
“It’s likely we will be involved,” he says. “If that means a big exhibit, a small exhibit or a sponsorship, I don’t want to speculate.” (Steris already has its own showroom in Mentor.)
“In general, I think it is attractive,” says Jim Fulton, senior vice president and general manager for Philips Healthcare’s CT scanners division, based in Highland Heights. “I think it will depend heavily on the product.”
The Medical Mart could become an attractive place to shop for heavy equipment, Fulton says, if it works with local hospitals to show off the machines in clinical settings. “It would potentially be more beneficial than some of the major trade shows,” he says.
However, Fulton isn’t sure if Philips would lease a showroom, since it already has a local presence. Meanwhile, manufacturers outside Cleveland are probably unfamiliar with the mart concept, he says. “I don’t know how widely it’s known outside of Cleveland at all,” he says. “[Companies] are so focused on the model they currently have today to sell product.”
MMPI may find it easier to cultivate the other audience it needs to support the Medical Mart: Medical conference organizers and attendees. Its prospect list for the convention center includes 264 small and medium-size medical conventions and trade shows, including the annual meetings of groups such as the National Osteoporosis Foundation, the American College of Radiology and the International Spinal Cord Society.
“A lot of medical and health care groups would love to meet in a modern facility that has a showroom next to it,” says Randy Bauler, corporate relations and exhibits director for the American Association of Critical Care Nurses. “For groups a little bit smaller than us, the concept is perfectly valid and has a lot of merit.”
Bauler organizes a six-day annual convention that includes a three-day trade show, with 500 companies displaying their wares. The AACN’s convention is a bit too large for Cleveland’s planned exhibit hall, but Bauler says the mart idea should work for groups that can fit. “Our nurses go onto our trade show floor to see new techniques and new products,” Bauler says. “I’m sure they would be interested in visiting the mart to see what’s new and different and special up there.”
Trade show organizers may have one hesitation, Bauler says: If their regular exhibitors are already in the Medical Mart, the organizers may worry that those exhibitors wouldn’t rent space in the trade show. But he thinks MMPI’s goal of attracting 60 medical trade shows and 100 conferences is reasonable: “There’s a tremendous number of health care events. Every niche of a medical profession has their own association, their own convention, their own meeting.”
The medical trade show industry has grown throughout the 2000s and tends to be relatively recession-resistant, according to the 2009 CEIR Index, an annual study of the trade show industry by the Center for Exhibition Industry Research. Attendance at established medical trade shows has grown at an average of 2.2 percent a year since 2000. It declined 0.4 percent in 2008, its first dip since 2001. (The index measures the size of shows that have existed since 2000, but does not measure growth or decline in the total number of events, which is relatively constant.)
Michael Hart, editor-in-chief of Tradeshow Week, says the mart concept, in theory, should work in medicine like it’s worked in other industries. Attracting health care shows is a good goal for any city, he adds. Though medical events don’t bring in as many people as other conventions, those who do attend tend to stay longer and spend more. “They’re doctors,” he says. “They’re going to stay at nice places and eat at nicer restaurants.”
Hart recalls visiting Cleveland and noticing a doctors’ meeting in the Renaissance Cleveland Hotel. “They were just jammed. They didn’t have enough space at all.” Hart has also visited Cleveland’s current convention center, so he understands why the doctors’ group didn’t book it. “I don’t think anyone in their right mind would ever hold a show there,” he says. “It certainly gives you a damp musty feeling.”
Hart concludes: “It’s clear medical people will go to Cleveland for events. The question is how to get them there.” The new project “will obviously help,” he says.
Cleveland has focused mostly on the Medical Mart, the innovative half of the project. So has MMPI. “We believe this facility will live or die based on how successful it will be with the medical marketplace,” Falanga told Cleveland City Council in February.
The county commissioners agree. “None of us are in favor of an exhibition hall standing alone,” Tim Hagan said at a 2007 meeting about the sales tax hike for the project. “What would make a difference, we believe, very clearly, is a Medical Mart backed to that exhibition hall.” The county’s deal with MMPI says medical events will have priority in the convention center.
But trade-show veterans elsewhere raise an idea that has fallen out of favor in Cleveland: A new convention center may actually be the safer bet, a chance for success if the Medical Mart falters.
“You want to have as broad a marketing base as possible for a convention center,” says Dave Brull, vice president of marketing and membership of the Trade Show Exhibitors Association. “You need to have a backup plan, a plan B.”
Positively Cleveland, the city’s convention and visitor’s bureau, has been pressing that point recently. Its president, Dennis Roche, argues that the new center could attract the convention business that used to come to Cleveland until a few years ago, when new competition made our convention center obsolete. Cleveland was a convenient location for large manufacturing shows and union and government meetings, Roche says, and it could be again.
“I don’t think those things tend to be on MMPI’s natural radar,” Roche said in an April interview. “MMPI has made it very clear their focus is medical meetings. We want to supplement that.”
The competition for conventions is fierce. Cities everywhere are building new facilities and expanding old ones. The total amount of convention space in the U.S. and Canada increased 38 percent from 1998 to 2008, from 64 million square feet to 88 million, according to a recent study by Tradeshow Week. Other cities already have an additional 5.8 million square feet in the pipeline. Meanwhile, the number of conventions doesn’t change much: Most sectors of the economy are already well covered by associations and annual meetings.
So investing in a convention center is a risk for any city — but not investing in one means losing visitors to rival cities. Cleveland’s 1932 convention center can no longer compete. As recently as 2003, it attracted 302,900 visitors. By 2007, attendance had plummeted to 133,705.
Even if the Medical Mart’s business model doesn’t catch on, the new convention center could benefit Cleveland simply by bringing back the visitors the city has lost.
“The Medical Mart concept mitigates risk for building the new center,” says Samantha Fryberger, Positively Cleveland’s communications director. “But if you reverse it, if there’s any problem with the Medical Mart concept, the other business available mitigates the risk.”
This spring, MMPI and Positively Cleveland began to meet weekly and share information about selling Public Hall and the new convention center to show organizers, says Tamera Brown, Positively Cleveland’s vice president for marketing.
While MMPI is preparing to target health care shows, the bureau plans to pursue mostly nonmedical events. The two may even jointly pursue certain shows, Brown says.
Positively Cleveland is also involved in discussions about the project’s architectural design. “Our job early on is to advocate for flexibility in the design,” Roche says, “so that it can be put to different uses, to appeal to different markets, so it’ll always be a convening center.”
Fred Nance, who negotiated the deal with MMPI for the county, says the health care niche is important to the new convention center’s health. At first, he predicts, the new center will generate an exciting buzz and book “lots of different groups, many things that we can’t imagine.”
The key to success is longevity, Nance says. “What happens five, six years out when the newness has worn off, and the weather is bad?” he asks. “That’s when the health care theme should help see us through. That’s why we didn’t just do a Pittsburgh, ‘Build it and hope they will come,’ because eventually you’re not the newest kid on the block anymore.”
If it all works, the project’s supporters predict a boost in downtown’s hospitality economy — more jobs in restaurants and hotels. More development downtown could follow a decade from now, they say. In a best-case scenario, a vibrant Medical Mart could even spark new manufacturing business in Cleveland.
Chris Kennedy, MMPI’s president, sounds like an evangelist for downtown prosperity as he makes his case for Cleveland’s benefits. “If you look at cities that have enjoyed urban rebirth, they are almost all associated with tourism and hospitality,” he says. “Unless you introduce that element back into Cleveland, I don’t believe any other strategy can be successful.
“Additionally, this strategy can turn a city around all by itself.”
Mayor Jackson says more convention visitors are key to his goal of making downtown vibrant again, along with more residents and more workers.
“The third leg to the stool,” Jackson says, is “having people come to the city, stay in hotels, visit restaurants, visit retail — all those things visitors do when they stay two, three or four days. This Medical Mart will attract more people to Cleveland and help create a 24-hour downtown again.”
Kennedy, Nance and Roche all predict that if the project succeeds, it’ll likely attract new hotels. A boom in restaurants and entertainment attractions could follow. “Depending on how successful the project is,” Nance says, “it has the potential to dramatically change downtown.”
The project’s supporters seem leery of over-promising, as if mindful of Clevelanders’ skepticism about claims attached to past projects, such as the 1991 Gateway deal. But in a best-case scenario, they say, a booming Medical Mart could also attract medical-supply business to town.
“This is speculation — let me say it loudly and clearly!” says Nance. “But if there’s enough of this stuff being sold here, manufacturers may say to themselves, ‘Maybe we need a distribution facility near Cleveland, where we’re having all these sales.’ Ultimately —and this would be the icing on the cake — they may actually decide to start to manufacture some of these equipment and devices near Cleveland.
“You’re seeding the clouds,” Nance says. “Exactly where it’s going to rain, when, and how hard, you can only speculate.” But, he says, “You know something good’s going to happen.”
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