CITY, COUNTY, AND EVEN STATE governments often help to finance convention centers because the payback to local businesses, hotels, and the economy is so great. But headquarters hotels have always been another story. Until now.

With private investment for convention center hotels down as a result of the poor economy, uncertainty related to occupancies, and above-average development costs, cities around the country are coming up with creative ways to get those headquarters hotels built. Moreover, because so many of the new and expanded convention facilities coming on line in recent years — and scheduled to open in the near future — are second-tier destinations, the financing issue is particularly hot in these markets.

What does this financing difficulty mean for meeting planners? It might mean higher costs — but it might not. According to Anwar Elgonemy, of Jones Lang LaSalle Hotels, New York, a hotel investment services group, who recently wrote a report on convention center hotel financing, “A convention headquarters hotel must commit room nights to the convention center, even at the cost of displacing higher-rated business. Conversely,” he says, “the convention center must book events, which generate room nights, perhaps foregoing higher-revenue — generating consumer shows that tend to be oriented to a local audience.”

In other words, in public-private partnerships, the headquarters hotel has an agreement in place to accept business that fills the center, principally association meetings, which garner lower room rates. But outside of those “black-out periods,” says Elgonemy, “the hotel needs to maximize room rates and go after the corporate meetings market.”

It's a case of the cart before the horse. Since convention centers can pull big conventions only if there are enough nearby hotel rooms, the headquarters hotel sometimes shares the same fate as the center: It's full up when large conventions are in town, but dark when they're not. Therefore, other nearby hotels, anxious for business all year round, are becoming more competitive and are joining the fight with the “no new taxes” politicians to limit or deny any public subsidies or involvement with new hotel construction. So fewer and fewer headquarters hotels are being built. Consequently, some convention centers in large and second-tier cities are capturing less business.

Concern in Denver

An article in the Denver Post last November said the city's proposed 1,100-room convention center hotel, a Hyatt, would require higher-than-average room rates — as much as $300 a night — to pay for its construction and operation, based on an industry formula that determines hotel project costs.

Others say that formula is outdated and that it's premature to estimate room rates. High room rates might prompt concern that Denver taxpayers, already subsidizing a plan that calls for setting up a city-owned nonprofit company to issue tax-exempt bonds to pay for the construction of the hotel, would also have to subsidize the hotel if it fell short of revenue goals. The bonds would be repaid over the next 30 years with proceeds from the hotel.

The hotel is needed to support a $300 million expansion of the Colorado Convention Center, planned to open in December 2004 and giving the center a total of 584,000 square feet of contiguous exhibit space. Richard Grant, spokesman for the Denver Convention and Visitors Bureau, anticipates a June groundbreaking for the hotel, with an opening in late 2005 or early 2006.

No Rooms at All

How are center bookings affected when there's no promise of a headquarters hotel? In Baltimore, Dan Lincoln, senior vice president, Baltimore Area Convention and Visitors Association, says the lack of a hotel adjacent to the center has hampered the center's marketing efforts. “The convention center was expanded in 1997, and we now have three bids from hotel developers on the table with proposals to build a 750-room hotel, and we have identified the lots,” he says.

“It certainly affects the marketing of the center. We have to sell around that fact, and stress that we have 5,000 rooms within a one-mile radius, 4,500 within a few blocks. We sell to our strengths, but if a headquarters hotel is mandatory to the planner, it absolutely makes a difference. We track lost business, but it's the business that won't even consider us that we can't track.” Lincoln is bullish on finally landing a hotel deal, though, because Baltimore's hotels had a very good 2002, maintaining both hotel occupancy and average daily rates.

Ditto for Fort Lauderdale. Nicki E. Grossman, president, Greater Fort Lauderdale Convention and Visitors Bureau, says a $34 million center expansion that opened last year, which added 230,000 square feet for a total of 600,000, has succeeded despite the fact that there's been no headquarters hotel since the original building opened in 1991. The center does have 2,500 rooms within six blocks and a wide variety of hotels, but “our local industry continues to be concerned because we can't answer No. 1 on page one of that RFP, ‘Do you have an onsite convention center hotel?’ So, we never even get to page two,” she says. A hotel deal that was in the works for five years failed last year, but efforts continue, she adds, and the community is hopeful.

Political Pressure and Upheaval

Public money being what it is means public-private partnerships that finance hotels are sensitive to local politics, and projects could take longer or have more bumps along the way. A change in local politicians, for instance, could ruin a PPP deal in Fort Worth, Texas. In a March 24 Fort Worth Star-Telegram article, the proposed construction of a city-owned convention center hotel “spelled doom” with a change of mayor and councilman. It meant a rethinking of the previous endorsement of a city-owned hotel to support the $75 million renovation and expansion of the convention center, which opened in April.

“A new 600-room convention center hotel was proposed, calling for the city to issue $160 million in certificates to build the hotel,” says Pat Svacina, spokesman for the City of Fort Worth, which owns the Fort Worth Convention Center. “The plan was put on hold when a 16,000-signature petition was presented to the city asking that the issue of a city-owned hotel be put to public vote, and a 24-member citizens committee was appointed to study the proposal. The committee's work will not be complete until June, and at that time, City Council will decide what the city can and should do to encourage a new convention center hotel.”

Of course, many cities are well on their way to working out their convention center hotel financing strife and are on the road to construction, among them Houston, Austin, and Irving, Texas; Boston; Washington; and Charlotte, N.C. For a rundown of where each project stands, see below.

Who's Building What?

Headquarters hotel projects are taking place in cities around the country. Here's a handy reference to the status of many of these developments:

  • Austin, Texas: A $110 million, 800-room Hilton convention center hotel will open by January 2004 adjacent to the newly expanded Austin Convention Center.

  • Baltimore: The Baltimore Convention Center was expanded in 1997. A city agency called the Baltimore Development Corp. has identified the lots and received three bids from developers to build an adjacent 750-room hotel. Plans are being reviewed.

  • Chattanooga, Tenn.: In April, an expanded Chattanooga Convention Center opened, triple its original size, at 298,000 square feet. A Staybridge Suites hotel is set to open in July with 124 units next door to the center. If all goes well, the developer plans to add 40 units to the Staybridge in late 2004. He said that in two to three years, the hotel could have some 300 units.

  • Charlotte, N.C.: The 700-room Westin Charlotte had been delayed since December, but it officially opened its doors in May. The project was subsidized with $16 million from taxpayers. The Westin Charlotte is not considered a headquarters hotel, says a CVB spokesperson, but it is the largest hotel in the city and is directly across from the Charlotte Convention Center.

  • Columbia, S.C.: The Columbia Metropolitan Convention Center will open in August 2004, and a 300-room Hilton hotel is scheduled to be built adjacent to it, with an opening date of spring 2005. It is being financed as a private-public partnership, with the city to issue subordinate bonds.

  • Dallas: A 1,200-room convention center hotel has been proposed near the newly expanded Dallas Convention Center. Funding would require amending a state law.

  • Denver: A 1,100-room Hyatt plans to break ground in June across from the Colorado Convention Center, which will complete a $300 million expansion in December 2004. The hotel will open in late 2005 or early 2006.

  • Fort Lauderdale, Fla.: The original Greater Fort Lauderdale/Broward County Convention Center opened in 1991 and completed a $34 million expansion last year. Negotiations with a hotel developer fell apart last year after five years of talks. There are currently no other discussions for a hotel.

  • Fort Worth, Texas: A citizens commission created to study a proposed 600-room Hilton hotel adjacent to the Fort Worth Convention Center, which wrapped up another expansion in April, will complete its work in June. At that time, the City Council will decide what steps the city should take to encourage a new convention center hotel.

  • Houston: A 1,200-room Hilton Americas hotel, connected to the George R. Brown Convention Center, will open in November, just after the opening of an expansion that will bring the center to more than one million square feet of exhibit space. The hotel was financed via tax-exempt bonds issued through a nonprofit corporation created by the city.

  • Irving, Texas: In March, Stormont Hospitality Group LLC, the city's hotel developer, announced it had secured private financing for a 450-room convention center hotel to be built adjacent to the new 350,000-square-foot convention center, projected to open in late 2005. Then, in late April, one of the potential developers, Barcelo Crestline, backed out, citing the weakness in the global hotel industry. However, city officials and the developer said the project would go forward with no further delays. Architectural and schematic work on the project was placed on hold last summer pending the outcome of the search for a financial package. The hotel will be a Westin.

  • Knoxville, Tenn.: The new Knoxville Convention Center opened in late July. The city's convention center consultant has narrowed the field of possible developers to five. Several options for financing the 400-room project are being studied, but “there is no guarantee it can be built because of uncertain market conditions,” said a city spokesperson.

  • Myrtle Beach, S.C.: The 402-room Radisson Plaza Hotel Myrtle Beach Convention Center opened in January adjacent to the newly expanded Myrtle Beach Convention Center.

  • Omaha, Neb.: The 450-room Hilton Omaha will open by April 2004, just six months after the new Omaha Convention Center opens in September. The hotel will be owned by City of Omaha Convention Hotel Corp.

  • Pittsburgh: Pittsburgh debuted its new David L. Lawrence Convention Center in April, the first certified green convention center in the country. The 619-room Westin Convention Center hotel, which is attached to the new center, has undergone a $10 million renovation. During a gala opening weekend in late April, Joe Kane, general manager, The Westin Hotel Pittsburgh Downtown, which is adjacent to the new center with 625 rooms, said Westin will hang its flag on a new 400- to 500-room convention hotel on the other side of the center. He says they'll physically join all three facilities for a hotel/convention complex with more than 1,000 guest rooms.

  • Portland, Ore.: The Portland Development Commission is seeking proposals from developers and investors to provide private financing for an 800-room hotel in the Oregon Convention Center Urban Renewal Area. Efforts have been under way since 1998. If a deal can be struck without public monies, a hotel could open by early 2008.

  • Providence, R.I.: For two years, the Rhode Island Convention Center Authority has been campaigning for money to build a companion hotel to the state-owned Westin Providence, adjacent to the center. At the end of April, the Authority announced it wants to be the majority owner of another hotel near the center and full partners with the developer. The proposed 392-room hotel would probably be a Sheraton.

  • San Antonio, Texas: The newly expanded Henry B. Gonzalez Convention Center offers more than 400,000 square feet of contiguous exhibit space. San Antonio's City Council continues to make plans for a convention center hotel a priority, with the goal for it to have at least 1,000 rooms.

  • Washington, D.C.: A 1,500-room, $500 million Marriott headquarters hotel has been proposed adjacent to the new 2.3 million-square-foot Washington D.C. Convention Center, which opened in April. The hotel is slated to open in late 2006 or early 2007, and details for financing the project are still being debated and are to be determined. City officials stated the hotel might be financed with tax-exempt revenue bonds.

  • West Palm Beach, Fla.: The $80 million Palm Beach County Convention Center is scheduled to open this fall. A new mayor has made the construction of a headquarters hotel her highest priority, and several local government officials have indicated they might be willing to spend taxpayer money to get it built.