Nov. 25, 2011--VIRGINIA BEACH -- The city's upfront cost for a proposed hotel to be built next to the Virginia Beach Convention Center on 19th Street would be more than half the project's total price, but city officials said the hotel would more than pay for itself over time.

City taxpayers would initially pay $61.8 million of the $109.2 million project to build the 15-story, 361-room Hyatt Regency under an agreement between the city and its developer, according to sources briefed on the proposal. The city would own parts of the project including hotel meeting space and the pedestrian bridge that would link the hotel to the convention center.

The details of the proposed deal were obtained by The Virginian-Pilot from sources who spoke on the condition of anonymity because the figures have not been made public. The Pilot also obtained a "term sheet" outlining the proposal.

Some City Council members have been briefed individually on the proposal, and the City Council was briefed by city staffers in a closed session Tuesday. A public briefing is scheduled Dec. 6 and a council vote is set for Dec. 13.

Deputy City Manager Steve Herbert, who agreed Thursday to talk about the project, said the city needs the hotel because it's losing conferences to other cities.

"If we don't have this, we're in danger of being less competitive in this marketplace," he said.

For years, the city has wanted a hotel to go with its $207 million convention center, which opened in 2005.

Critics fear the hotel won't be successful because it's not on the beach and question the large public cost.

In April, the city selected development company Armada Hoffler to build the hotel after a deal with another developer soured.

"It's an excellent deal for the city," said John Richardson, chairman of the city's economic development authority, which helped negotiate the deal.

Under the proposed terms with Armada Hoffler, the city would pay $42.7 million to build conference space in the hotel and some hotel assets that the developer would lease back and it would make street improvements.

The city would also spend $5.3 million on a walkway connected to the conference center. The city would own these facilities.

Virginia Beach would loan Armada Hoffler $13.8 million to be paid back by 2036, with interest.

In addition to the $61.8 million in upfront costs, the city would also make available to Armada Hoffler up to $4.8 million in city economic development grants and pay the company $450,000 a year to manage the city-owned meeting space.

The city spent about $28 million to help build the Westin Hotel in Town Center, a 12 percent contribution. The city also spent $31 million for parking and a park at the $79 million Hilton hotel at 31st Street.

Herbert said a convention center hotel would annually bring in 59 new events, generate 96,000 hotel room nights and stimulate $88.7 million in spending, while creating 900 jobs, according to a city consultant's report. He said over 20 years the hotel would bring in $111.7 million in new tax revenue.

"The bottom line is it does pay for itself," he said.

Bruce Thompson, who built the Hilton, said the convention center hotel deal didn't seem like a good one for the city.

"The hotel will need a significant subsidy from the city as the only time it will be busy is when there is a convention," he said in an email. "I don't understand with the size of the subsidy why the city, like many other municipalities, does not just own the hotel and hire an operator. They would have the asset, could sell it later if need be..."

Mayor Will Sessoms declined to comment on the deal.

"I'm very disappointed this information has gotten out," he said. "We're negotiating, and you just don't do business this way."

As Beach officials have inched toward the deal with Armada Hoffler, another group has started lobbying the city for their convention center hotel proposal. Officials with Harmony Investments, which owns the DoubleTree Hotel near the convention center, pitched a proposal to several council members.

Harmony has proposed spending $25.5 million to expand and upgrade the DoubleTree. The company is seeking $5 million to $10 million from the city to build an enclosed walkway between the hotel and convention center.

Page Johnson, president of Harmony Investments, said his company's proposal is "more cost effective," considering the city's current budget constraints and the city investment required for the Armada Hoffler deal.

The Beach is in exclusive negotiations with Armada Hoffler to build the convention center hotel and can't entertain another unsolicited bid until that process has concluded, said Rod Ingram, a city attorney.

Councilman Glenn Davis said he needs to see more specifics about Harmony's proposal.

"Some of us look forward to seeing the exact details in the weeks to come," he said.

Councilman Bob Dyer said, "We're going to be looking hard at Harmony's alternative."

Councilman John Moss objected to the speed of the deal with Armada Hoffler.

"The timeline does not permit a careful and due diligent examination of the proposal," he said.

Aaron Applegate, (757) 222-5122, [email protected]

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