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Developers of Proposed $60 million Downtown Lancaster, PA
 Marriott Hotel Answer Tough Questions Concerning Tax Relief

By John M. Spidaliere, Lancaster New Era, Pa.
Knight Ridder/Tribune Business News

Mar. 8, 2005 - Ask city and county officials what questions they have before they vote on tax relief for the proposed Marriott hotel project, and you'll get an earful.

Why can't Penn Square Partners pay its taxes?

Will the hotel make money?

If the hotel flops, will city taxpayers get the bill?

The New Era asked two county commissioners, two City Council members and three Lancaster school board members what they want to know about the $60 million hotel project.

Then we posed those questions to Nevin Cooley, president of Penn Square Partners, and David Hixson, executive director of the Lancaster County Convention Center Authority.

Penn Square Partners wants to build a $60 million hotel adjacent to the proposed convention center.

The private-industry group is asking council, the commissioners and the school directors to let it use the money they would ordinarily pay in property taxes to pay down the debt on the project.

The hotel will be built to go with the $69 million convention center.

QUESTION: Why can't three of the richest companies in Lancaster County assume the responsibility for their taxes?

--Veronica Urdaneta, school board member.

ANSWER: Cooley said the three partners are putting $34 million of their own money into this project. (That includes $10 million cash, and $24 million in borrowed money.)

"We're not asking to keep the taxes for ourselves," he said.

"We're asking to reinvest what would otherwise be taxes into the initial capital to build the project. This project is the catalyst to improve the city's tax base long-term and provide the SD with a growing tax base. This money will not go into the pocket of Penn Square Partners."

Q: Is there a guarantee that city taxpayers won't have to pay the bills if the hotel goes belly up?

--Nelson Polite Sr., and Luis Mendoza, councilmen.

A: "They are not going to be responsible for paying off the bonds," if Penn Square Partners defaults, said Cooley.

The partners will have letters of credit from banks to back the partners in case the hotel comes up short. If the owners default, the banks would take over ownership.

If the banks shut down the hotel, the city Redevelopment Authority would be responsible for debt repayment of about $1.1 million a year. But the partners are setting aside a $1 million escrow account for any shortfalls, Cooley said.

Q: Will the hotel make money?

--Dick Shellenberger, commissioner.

A: "Yes," said Cooley.

The hotel should turn a profit its first year in operation in 2007, and will be above a 12 percent return by 2009.

Q: Are there similar convention center/hotel projects that work?

--Mike Winterstein, school board member.

A: There are successful similar size convention centers, some with hotels, in Norfolk, Va. Saratoga Springs, N.Y. Franklin, Tenn. and Ocean City, Md., said Hixson.

City and county officials will hear more about them in coming weeks, he said.

Hixson pointed out that Ocean City's Roland E. Powell Convention Center is of particular interest.

The Powell Center does not have a hotel to draw convention guests, but last year it hosted 80 conventions and trade shows. The proposed Lancaster convention center should break even with 25 to 30 convention dates per year, added Hixson.

Q: If you don't have community support, why are you asking community representatives to approve this?

--Winterstein.

A: "On numerous occasions there has been large scale public support for this project," said Cooley.

The project is supported by the Chamber of Commerce and Industry, the Downtown Investment District, the Lancaster Alliance, the Economic Development Company, The Spanish American Civic Association.

"All have voiced their support on behalf of their membership," said Cooley.

He said he recognizes that a lot of naysayers are writing and calling public officials pooh-poohing the project, but Cooley said they don't represent the majority of countians who stand behind the project.

"There are 500,000 people in Lancaster County and you are hearing from maybe 200 people opposing this. Is that a demonstrative amount of opposition?" asked Cooley.

Q: Rumor has it there is a new feasibility study the convention center authority won't release?

--Patrice Dixon, school board president.

A: There is no new study, said Hixson.

Rumor has it that the authority is holding a feasibility study that casts doubt on the project's viability, but Hixson said the last feasibility study was produced by PriceWaterhouse Coopers in 2003.

What the authority has is an August 2003 "projection summary" by convention center consultant C.H. Johnson of Chicago. It updates, among other things, projections on the number of events the center would host per year, through 2010, and the number of employees that would be needed to run the center.

"It will be part of the presentation," said Hixson.

Q: Why is the city Redevelopment Authority involved?

--Mendoza.

A: "It was the state's idea, not Penn Square Partners'," said Cooley.

Under the hotel's financing plan, The Lancaster City Redevelopment Authority would hold title to the Watt & Shand building and the hotel tower, while Penn Square Partners would operate the hotel and pay its debt.

Under a new state law called Act 23, the partners can use state income tax dollars to pay off loans it is taking from the state to build the center.

But first, local taxing authorities have to approving a tax relief plan for the hotel.

Complicated? You bet, said Cooley.

"It is making our project far more complicated," he said.

The idea came from Gov. Ed Rendell. Before he offered the project another grant for $12 million, he wanted to see the community demonstrate its support for the project.

"The state indicated that this was a tool our community could use and was an opportunity for the city to involved some risk in the project," said Cooley.

"We would have preferred to keep the ownership of the hotel tower in our name."

Q: Marketing will be extremely important to the success of this project. Who will be marketing the convention center and hotel?

--Shellenberger.

A: It will be a team approach said Hixson. The authority and the partners are currently working with the Pennsylvania Dutch Convention and Visitor's Bureau and Interstate Hotels, the management company that will run both the center and hotel, to develop a marketing plan. The plan is due out in a few months.

When the convention center/ hotel is operational, Interstate, Marriott and the Visitors Bureau will work in concert to bring conventions and visitors here, said Hixson.

Q: Looking toward those 20 years, what's the average annual return for the hotel

--Molly Henderson, county commissioner.

A: Cooley said the expected annual return on equity will average about 16 percent.

"Most outside developers have told us it will be in the mid 20s.

They'd expect a return of 25 percent, compared to our 16 percent," said Cooley.

However, Cooley added, "because of our commitment to the city" Penn Square Partners would be content to see a 16 percent return on its investment.

Penn Square Partners includes general partner Penn Square General Corp., a High Industries affiliate, and limited partners Fulton Bank and Lancaster Newspapers Inc., publisher of the New Era.

-----

To see more of the Lancaster New Era, or to subscribe to the newspaper, go to http://www.lancasteronline.com/newera.

Copyright (c) 2005, Lancaster New Era, Pa.

Distributed by Knight Ridder/Tribune Business News. For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail reprints@krtinfo.com. MAR,

 
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