|By Jennifer Davies, The San Diego
Knight Ridder/Tribune Business News
Jan. 31, 2006 - A proposed hotel and meeting facility on the Chula Vista waterfront would siphon business from the San Diego Convention Center and its nearby hotels, resulting in lower hotel tax revenue for the city of San Diego, says a report by PricewaterhouseCoopers.
The analysis, which the San Diego Convention Center Corp. commissioned, found that the proposed Gaylord Hotel could result in the loss of six to 11 events annually. Those events would account for between 15,000 to 30,000 attendees and between 30,000 to 60,000 room nights a year.
Gaylord Entertainment Co., which currently operates three hotel/convention properties around the country, is in exclusive negotiations with the Port of San Diego to build a hotel and convention facility in Chula Vista with as many as 2,000 rooms and exhibit and public space of nearly 400,000 square feet.
While San Diego city and convention center officials say they are supportive of Chula Vista's development efforts, they are worried that the proposed Gaylord project would strain the city's budget by decreasing the amount it receives from the transient occupancy tax, which is the room tax hotels collect.
In 2009, for example, the report estimated that the city of San Diego's hotel tax receipts would be reduced by between $1.8 million and $2.3 million.
"We are rightly concerned about the impact that this particular development will have on our TOT receipts, especially at a time when our budget is so tight," said Fred Sainz, spokesman for San Diego Mayor Jerry Sanders.
Another concern is whether the Port of San Diego, which is essentially the landlord for the Convention Center and the proposed Gaylord property, is planning to subsidize the proposed Gaylord project.
While Gaylord Entertainment is known to request a subsidy to build its hotel and meeting projects, the Convention Center doesn't currently receive any such subsidy.
Kevin Tilden, chairman of the Convention Center Corp., said that if the port does subsidize the Gaylord property, it would amount to a public entity helping a private entity compete with the Convention Center, a public entity.
"The issue is that we need to have a level playing field," he said.
Gaylord officials could not be reached for comment.
Irene McCormack, the port's spokeswoman, said the negotiations with Gaylord were in the early stages and that there have been no decisions about granting a subsidy. The port has conducted its own impact study on the Gaylord property and will release it Feb. 7.
While no decision has been made on whether the port will provide a subsidy to Gaylord, David Kloeppel, the company's chief financial officer, explained the typical subsidy deal it looks for during a 2004 earnings call.
In short, the company asks for a $95 million bond, which Gaylord receives when the project opens. In exchange, Gaylord hands over the property for a 30-year term, the same amount of time as the bond. During that time, Gaylord is paid an 8 percent return on the $95 million.
Kloeppel estimated that over a 30-year period, his company gets a total of around $270 million in cash payments, which is the $95 million plus a compounded 8 percent return. Kloeppel said his company also receives an annual $2 million subsidy to help market the facility.
To compete against such a well-financed Gaylord property, Tilden said, the Convention Center would itself need more resources to aggressively market the facility as well as offer deals on its rents.
However, it isn't only the Convention Center that would be affected if the Gaylord property were to open. The PricewaterhouseCoopers report estimated that the 12 downtown San Diego hotels in close proximity also would see a drop in business.
The report projected that in 2009, occupancy at those hotels would be between 4.1 percent and 5.4 percent lower with lower room revenue of $17 million to $22 million. By 2025, the report said, the Gaylord hotel would take away between 500 and 600 rooms of business from the downtown hotels each year.
Ray Warren, general manager of the San Diego Marriott Hotel & Marina, which is next door to the Convention Center, said Gaylord is a tough competitor with top-notch facilities.
"It has the ability to take some business away," he said. "The business that they are chasing is really not different from the business we and the Convention Center are chasing."
If the Gaylord property comes in, that doesn't necessarily mean that business at downtown hotels will falter, said Greg Crown, vice president at PKF Consulting, a lodging industry research firm with offices in Dallas.
When Gaylord opened a property in Grapevine, Texas, which is about 22 miles from Dallas, there were predictions that it would be "catastrophic" for local hotels, Crown said.
So far, that hasn't been the case, he said.
"The Gaylord did very well but the others improved as well," Crown said. "You can't paint them as the villain."
Tilden said he thinks there is enough business for everyone but that there has to be some level of coordination.
"This is an opportunity to increase the pie," he said, "or it is an opportunity to go after the same business and cannibalize each other and make the pie smaller."
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