|By George Miller, Erie Times-News, Pa.|
Knight Ridder/Tribune Business News
Nov. 28, 2004 - HVS International believes the proposed 200-room host hotel for Erie's planned convention center will have an occupancy rate of 67 percent a few years after its start-up.
U.S. Realty Consultants thinks the occupancy will rise only to about 60 percent, and that the hotel won't make money.
Those differing occupancy figures -- and other projections -- are likely to play a central role in what is expected to be a contentious debate over the next couple of months over whether public financing should build the hotel.
The Erie County Convention Center Authority is expected to ask Erie County Council to guarantee a portion of the estimated $30 million to $35 million in tax-exempt bonds that are to be issued for the project.
Without a 200-room hotel built with public financing, the convention center project itself will be in jeopardy, authority officials have said.
U.S. Realty Consultants Inc. of Columbus, Ohio, was retained by local hoteliers, who oppose the public financing and who say a smaller, privately financed hotel should be built. Boulder, Colo.-based HVS International, which was hired by the Convention Center Authority, said the hotel can't be built with private financing, but is feasible with tax-exempt financing.
David J. Sangree, U.S. Realty's director of hospitality consulting, called HVS' projection of 67 percent occupancy "very optimistic" for the location of the project.
"We feel our projection of 60 percent is much more reasonable," he said.
Sangree noted that six comparable convention-center hotels in the region had an occupancy rate of only 47 percent in 2003. Those hotels are in Altoona; Scranton; Akron, Ohio; Toledo, Ohio; Oshkosh, Wis.; and Portsmouth, Va.
In addition, he said, Erie's existing downtown full-service hotels had occupancies in the 40 percent to 50 percent range.
But Charles Johnson, president of Charles H. Johnson Consulting of Chicago, the authority's overall consultant, and David G. Ong, president of Acquest Realty Advisors, the hotel project developer, disputed U.S. Realty's occupancy projections.
Johnson said U.S. Realty "could not have chosen a worse set of poorly performing hotels" for its comparison, and pointed to others with better performances.
Ong noted that the occupancy rate for Erie hotels this year is more than 68 percent.
"U.S. Realty totally ignores that information," Ong said. "We believe we can achieve the market average, pure and simple."
Sangree said the 68 percent figure reflects the higher occupancy rates for Interstate 90 hotels, partly the result of Splash Lagoon, and is only through August, leaving out lower occupancy for the remainder of the year.
A major component of the occupancy rates is the additional demand for hotel rooms that will be created by the convention center.
HVS is projecting the convention center will create a demand for an additional 35,000 rooms annually.
U.S. Realty believes the increase will be only 14,000 to 20,000 rooms annually, as projected in a 1999 study performed by QED Consulting to determine the feasibility of the convention center.
"We feel that the HVS projection is unrealistic based on the actual performance of comparable convention-center hotels in the region," Sangree said.
Ong said the demand created by comparable convention centers is actually higher than 35,000 rooms annually, according to HVS. The 1999 study also assumed a smaller host hotel, he said.
Room rates projected by the consultants are fairly similar. HVS said rates will be $101 at the opening and increase to $116 in 2009. U.S. Realty said rates will go from $103 to $109 in 2009.
The two consultants differ widely on net income as well.
U.S. Realty projected net operating income before debt service of $1.06 million in the first year, based on 55 percent occupancy. The net operating income would increase to $1.3 million in the third year at 60 percent occupancy.
HVS said the hotel will have first-year income of $1.18 million, based on 57 percent occupancy, and will stabilize at about $2.2 million in the third year, based on 67 percent occupancy, and increase thereafter.
Higher food and beverage revenue helps drive HVS' projections.
HVS is estimating $69 in food revenue per occupied room, which U.S. Realty said is "too aggressive." It estimated only $44.
Ong said HVS' estimate of food revenue is realistic, based on a full-service hotel and meetings rooms. "We do expect robust food and beverage sales," he said.
U.S. Realty is projecting annual debt service of $2.1 million. That debt will create losses ranging from $500,000 to $1 million annually over the next 11 years, the firm said. It said a smaller hotel would be profitable.
Ong said the debt payments are still being determined, but he said the income will be sufficient to cover them.
"We don't have anywhere near the kind of debt service structure they are suggesting," he said. "We're saying we're going to cover debt service right away."
According to U.S. Realty calculations, Ong said, the annual debt service will be $1.6 million, which will be adequately covered with the $2.2 million in operating income in the third year of operation. He said the debt payments may be even less.
Ong and Johnson support the HVS study and questioned the U.S. Realty study, since it was commissioned by hoteliers who oppose the project.
"(Hoteliers) were looking for somebody to rubber-stamp their conclusions," Johnson said. "It's as clear as a bell they don't want to have the hotel built. They wanted a consultant who would endorse their position and they found it."
Bill Correll, a spokesman for the hotel association, questioned HVS' projections.
"If (the hotel) barely makes it using these really aggressive numbers, that is a dicey way to do business," said Correll, who is vice president of Inn Services, which owns the Avalon Hotel, 16 W. 10th St., and the El Patio Motel, 2950 W. Eighth St.
And, if the projections are off, he said, "you could lose a ton of money."
Correll said hoteliers are concerned about the effect of a 200-room hotel on existing hotels and motels.
"It's probably a no-brainer that local occupancy will go down dramatically at first and then be somewhat depressed unless something changes," he said.
Ong noted the HVS study sees an initial dampening effect on occupancy at existing hotels, but then rebounding above existing levels as the convention center increases demand.
Authority officials said HVS is the premier consultant for hotels in the country.
Johnson said the proposed hotel operator, White Lodging, as well as Acquest and his firm have reached the same conclusion on the 200-room hotel.
"The general conclusion is the project will do fine," he said, adding that his firm's job is to protect the authority. "I can't allow the authority to make any mistakes."
Roger Richards, who is heading the authority's development team, said the critical issue is whether the bond underwriters accept the HVS' report since they will have to be satisfied the project is feasible before going out to sell bonds.
He said they have reviewed the report. "They are satisfied we can go forward," he said.
-----To see more of the Erie Times-News, or to subscribe to the newspaper, go to http://www.GoErie.com.
(c) 2004, Erie Times-News. 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 firstname.lastname@example.org.