City, county, and even state governments are used to helping finance convention centers because the payback to local businesses, hotels, and the economy is so great. But headquarter hotels have always been another story.
Until now. With private investment 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.
What does this mean for planners? It may mean higher costs — or not. Anwar Elgonemy, of Jones Lang LaSalle Hotels, New York, a hotel investment services group, 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,” he says. “Conversely, 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 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.”
A November article in the Denver Post said that 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Others say that formula is outdated and that it's premature to estimate room rates.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 a city-owned nonprofit company to issue tax-exempt bonds to pay for construction of the hotel, would have to subsidize the hotel if it fell short of revenue goals. The bonds would be repaid over 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. Richard Grant, spokesman for the Denver CVB, anticipates a June ground-breaking for the hotel, with opening in late 2005 or early 2006.
How are center bookings affected when there's no headquarters hotel?
In Baltimore, Dan Lincoln, senior vice president, Baltimore Area CVA, says it has hampered marketing efforts. “It certainly affects the marketing of the center. … We sell to our strengths, but if a headquarters hotel is mandatory to the planner, it absolutely makes a difference.”
“The convention center was expanded in 1997. We now have three bids from hotel developers on the table with proposals to build a 750-room hotel, and have identified the lots,” he says. Lincoln is bullish on finally landing a hotel deal because Baltimore's hotels had a very good 2002.
Ditto for Fort Lauderdale. Nicki E. Grossman, president, Greater Fort Lauderdale CVB, says a $34 million center expansion that opened last year has succeeded even though there's been no headquarters hotel since the original building opened in 1991. “Our local industry continues to be concerned because we can't answer No. 1 on page one of that RFP, ‘Do you have an on-site convention center hotel?’ So, we never even get to page two.” A hotel deal that was in the works for five years failed last year, but efforts continue.
Public-private partnerships that finance hotels are sensitive to local politics. In Fort Worth, for example, a March 24 Fort Worth Star-Telegram article stated that a change of mayor and councilman “spelled doom” for a proposed city-owned convention center hotel. It meant rethinking 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 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 Convention Center. “The plan was put on hold when a 16,000-signature petition was presented … 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 be complete in June.
Of course, many cities have worked out their convention center hotel financing strife and are happily on the road to construction, among them Houston; Austin, Texas; Boston; Washington, D.C.; Irving, Texas; and Charlotte, N.C. For a rundown of where each project stands, see box, page 42.
Austin, Texas: A $110-million, 800-room Hilton will open by January 2004, adjacent to the newly expanded Austin Convention Center.
Baltimore: The Baltimore Convention center was expanded in 1997. The Baltimore Development Corp., a city agency, has identified the lots and received bids from developers to build an adjacent 750-room hotel.
Boston: An 800-room Sheraton hotel (opening fall 2005) will be built adjacent to the Boston Convention & Exhibition Center (opening June 2004). Another 320 rooms will be added in a second phase.
Charlotte, N.C.: The 700-room Westin Charlotte, across from the Charlotte Convention Center, has been delayed since December, but was scheduled to open in late April or early May. The project was subsidized with $16 million from taxpayers.
Columbia, S.C.: The Columbia Metropolitan Convention Center will open in August 2004, and a 300-room Hilton is scheduled to be built adjacent to it. It is being financed as a private-public partnership.
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: An 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 Greater Fort Lauderdale/Broward County Convention Center, opened in 1991, 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 completes another expansion in April, will complete its work in June. Then City Council will decide what steps the city should take to encourage a new 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 1 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 announced it had secured private financing for a 450-room hotel to be built adjacent to the new 350,000-square-foot convention center, projected to open in late 2005. Architectural 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 hotel developers to five. Financing options are being studied.
Myrtle Beach, S.C.: The 402-room Radisson Plaza Hotel Myrtle Beach Convention Center opened in January next to the newly expanded Myrtle Beach Convention Center.
Omaha, Neb.: The 450-room Hilton Omaha will open by April 2004, six months after the Omaha Convention Center opens in September. The hotel will be owned by City of Omaha Convention Hotel Corp.
Pittsburgh: The David L. Lawrence Convention Center debuted in April, the first certified green convention center in the country. The attached 619-room Westin Convention Center hotel has spent $10 million to renovate, and the authority that owns the new convention center and surrounding land is considering expanding that hotel. Alternatively, the authority may reissue an RFP to attract a developer with plans for a separate, larger facility.
San Antonio, Texas: The newly expanded Henry B. Gonzalez Convention Center offers more than 400,000 square feet of exhibit space. San Antonio's City Council continues to make plans for a 1,000-plus room convention center hotel a priority.
Washington, D.C.: A 1,500-room, $500 million Marriott has been proposed adjacent to the new 2.3 million-square-foot Washington Convention Center, which opened in April. The hotel plans to open in late 2006 or early 2007, with financing details still undecided; city officials said 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 construction of a headquarters hotel a priority.