City, county, and even state governments are used to helping finance convention centers because the payback to local businesses, hotels, and the economy can be 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, uncertain occupancy rates, 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 meeting planners? It might mean higher costs — then again, 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 to accept business that fills the center, principally religious and association meetings, which garner lower room rates. But outside those “black-out periods,” Elgonemy says, “the hotel needs to maximize room rates and go after the corporate meetings market.”

Concern in Denver

An article in the Denver Post this past November 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Others say that formula is outdated and that it's premature to estimate room rates.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 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, that will give 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 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 hotel occupancy and average daily rates.

Ditto for Fort Lauderdale. Nicki E. Grossman, president, Greater Fort Lauderdale Convention & 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 on-site 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 Upheaval

Public-private partnerships that finance hotels are sensitive to local politics, and that means projects could take longer or could have more bumps along the way. A change in local politicians, for instance, could ruin such a deal in Fort Worth. In a March 24 Fort Worth Star-Telegram article, a change of mayor and councilman “spelled doom” for the proposed construction of a city-owned convention center hotel. 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 have worked out their convention center hotel financing strife and are happily on the road to construction; among them are Houston; Austin, Texas; Boston; Washington, D.C.; Irving, Texas; and Charlotte, N.C. For a rundown of where each project stands, see box, page 27.

Who's Building What?

  • Austin, Texas: A $110 million, 800-room Hilton convention center hotel will open by January 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 received three 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).

  • Charlotte, N.C.: The 700-room Westin Charlotte has been delayed since December, but was scheduled to open in April. 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 hotel 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. While there is discussion about a convention center hotel, funding would require amending a state law.

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

  • Fort Lauderdale, Fla.: The Greater Fort Lauderdale/Broward County Convention Center completed a $34 million expansion last year. Negotiations with a hotel developer fell apart last year after five years of talks.

  • Fort Worth, Texas: A citizens commission was created to study a proposed 600-room Hilton hotel adjacent to Fort Worth Convention Center, which completed another expansion in April.

  • Houston: A 1,200-room Hilton Americas hotel, connected to the George R. Brown Convention Center, will open in November. The last phase of the center's master plan will give it more than one million square feet of exhibit space, to be completed October 15. The hotel was financed by 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, a Westin, to be built adjacent to the new 350,000-square-foot convention center, projected to open in late 2005. Work was placed on hold last summer pending the outcome of a financial package.

  • Knoxville, Tenn.: The Knoxville Convention Center opened last July. The city's convention center consultant has narrowed the field of possible developers to five.

  • 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, six months after the new Omaha Convention Center opens. 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 619-room Westin Convention Center hotel, which is attached, has had a $10 million renovation. The authority that owns the convention center and surrounding land is considering a proposal for expanding that hotel. The authority could reissue an RFP, potentially attracting a developer with plans for a new hotel.

  • 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 hotel has been proposed adjacent to the 2.3 million-square-foot Washington Convention Center, which opened in April. The hotel is slated to open in late 2006 or early 2007; financing details are still to be determined.

  • 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 her top priority.