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Feasibility Report Projects a 69% Occupancy in the First Year of
 Stabilized Operations after Opening in 2012 for the Proposed
 $180 million Tucson Convention Hotel

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By Rob O'Dell, The Arizona Daily Star, TucsonMcClatchy-Tribune Regional News

Feb. 12--A city consultant says a new downtown convention hotel is feasible because it will likely have one of the highest occupancy rates in the region, at annual room rates equal to those at luxury golf resorts on the outskirts of Tucson.

But the proposed $180 million hotel would only meet those marks if it the following occurs:

--A $160 million modern streetcar is built to connect the downtown and the University of Arizona.

--A $31 million expansion of the Tucson Convention Center is completed.

--The city completes most other projects ever proposed for Rio Nuevo, including projects that have been killed or put on indefinite hold because of a lack of money.

The HVS Convention, Sports, and Entertainment report, delivered to the city Thursday, said if those conditions, along with other "extraordinary assumptions," don't come true, it could alter the report's opinions or conclusions.

HVS Managing Director Tom Hazinski said he based his conclusion on those assumptions because there is a "high-level of confidence they are going to happen."

Hazinski said the city needs to complete most of the promised Rio Nuevo projects to get the hotel to 69 percent occupancy at an average annual room rates of $163 in 2015.

But the Rio Nuevo master plan on which he based his projections is nearly 10 years old and includes projects such as the UA Science Center, the Tucson Origins Heritage Park and several museums on the west side -- all of which have been mothballed for a lack of money.

It also includes a Sonoran Sea Aquarium, which was killed in 2002. It also assumes there will be investments of $95 million in residential development, $300 million in commercial development and $225 million in infrastructure over 20 years.

"I think it is a reasonable assumption or most or all will occur," Hazinski said of the Rio Nuevo projects.

The report projects there is a market for the hotel, but includes nothing about how the hotel would be financed and what the debt service would be.

"The report shows that the hotel has the potential to show a net income" and good occupancy and room rates, he said. "We haven't analyzed whether it's feasible under a financing plan."

That lack of financing detail was questioned by Councilman Steve Kozachik, who said the important issue for the hotel is "how much is the hotel going to cost and how are we going to finance it."

Kozachik also questioned how all the Rio Nuevo projects would be built. "Rio Nuevo has no money; they're broke," he said.

Mayor Bob Walkup and Councilwoman Karin Uhlich said they hadn't read the 160-page report and couldn't comment. Walkup said it is reasonable to assume many Rio Nuevo projects will be built.

The HVS report projects the hotel to reach 69 percent occupancy in 2015, which it concludes is the first year of stabilized operations after opening in 2012.

Sixty-nine percent is one of the higher occupancy rates in the region. Its primary in-town competitors such as the Marriott Tucson University Park, the DoubleTree at Reid Park, the Arizona Inn, and the Four Points University Plaza had similar or lower rates in 2008.

Going back to better economic times, its primary competitors averaged 70.5 percent to 73.8 percent occupancy. It's secondary competitors -- high-end resorts on the outskirts -- reported 69 percent occupancy in 2007 and 70 percent in 2006.

Jeff DiGregorio, the co-owner of the Royal Elizabeth and a Rio Nuevo board member, said 70 percent is a very conservative number, because he often has 70 percent occupancy at his bed and breakfast, even though it closes more often than most hotels.

In addition, he said downtown hotels are booked more consistently year round because of business travelers, adding that the convenience of being able to to walk to restaurants and attractions is a huge factor for how much people will pay.

The report concludes that the new Convention Center hotel will get an average room rate of $163 a night in 2015, compared to $113 for upscale in-town lodgings and about the same as the resorts.

But Stephen Moffett, the president of hospitality for hotel developer Garfield Traub, pointed out the $163 a night figure won't be until 2015, and its closest competitor the Marriott University Park achieved a $155-a-night average rate in 2008.

"I'd be shocked if we couldn't hit $163 in 2015," Moffett said.

He added that convention hotels operated by Sheraton and Westin had an average occupancy of 67.5 percent in 2009, which he called the worst year ever for hotels.

"It shows this is a very viable hotel," Moffett said of the report. "This is a really good project for Tucson."

COMING SUNDAY

Tucson's hotel occupancy rates and revenues fell in 2009.

Contact reporter Rob O'Dell at 573-4346 or rodell@azstarnet.com

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Copyright (c) 2010, The Arizona Daily Star, Tucson

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