May 10, 2009--Construction of a $3 million entry on the east side of the Tucson Convention Center could begin as early as Oct. 1 to make room for a hotel on the southwest side of the complex.

The new entrance must be done before work can start on a $240 million Sheraton hotel, parking garage and Convention Center expansion to be built by Garfield Traub Development.

The hotel is supposed to include 525 rooms and 35,000 square feet of meeting space attached to an expanded Convention Center exhibit area. The parking garage is slated for 1,160 spaces.

The City Council is expected to approve the master development agreement for the project Tuesday.

The agreement says Garfield Traub would also get a fee of 3.5 percent of the total project budget.

A memo from City Manager Mike Letcher says the parking garage estimate of $33.2 million is high because of "extraordinary site and design issues." He said it could end up costing less.

The additional exhibition space could be reduced by about 15 percent to reduce costs too, Letcher said in the memo.

The city plans to get a guaranteed maximum price for the project from the developer. The project would likely be paid for with bonds to be repaid by future hotel and Convention Center revenue.

That bond financing cannot be done now, but the Rio Nuevo Multipurpose Facilities District hopes to sell the bonds by the time construction on the main hotel and meeting-space expansion begins next spring, according Letcher's memo.

In a presentation to the City Council last week, project staff said they hope the city puts the 6 percent hotel-tax revenues from this property into paying off the bond. Another 2 percent surcharge could be added to the taxes charged at the hotel for debt service, said Stephen Moffett, president of the Garfield Traub hospitality division.

That surcharge would put Tucson's city-run hotel at the national average for hotel taxes, Moffett said.

"The hotel would have to be significantly underperforming before it wouldn't be able to cover the debt," he said last week.

However, outgoing Rio Nuevo Director Greg Shelko emphasized last week the financial plan for the project isn't nailed down. "None of us can tell you the final form of the financing yet," he said.

Councilman Steve Leal said he was comfortable with the plans. "I don't think we're settling," he said.

The hotel design will incorporate rocks, water and light to make it reflect a "sense of place" in Tucson, said Ken Martin, principal in DLR Group, the architecture firm for the project.

Councilwoman Nina Trasoff said she thought the project showed a sensitivity to the community, but she wondered whether the hotel would be successful right when it opens.

Other Sheraton hotels will start advertising the new Tucson hotel as soon as construction starts, said Hoyt Harper.

"We'll sell the newness," he said.

Councilwoman Shirley Scott also questioned the occupancy estimates and said the project is "a very ambitious and exciting move."

If the city cancels the project because it is "neither legally nor economically feasible," it would owe the developer all costs to date on the project, according to the master development agreement.

If the city cancels the project without cause, it would owe the developer all costs to date and would be prohibited from entering another agreement with another developer for one year, the agreement says.

Contact reporter Andrea Kelly at 573-4243 or [email protected].

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