|By Steve Lackmeyer, The Oklahoman,
Oklahoma CityMcClatchy-Tribune Regional News
June 8, 2010--Two veterans in the business of financing hotels cautioned that any city looking to add a large conference hotel should prepare to back it with either subsidies or incentives.
The "How You Build It" conference, hosted Monday at the Cox Convention Center by the International Economic Development Conference, also included warnings that getting such deals done in the current economy is tougher than ever.
Roy Williams, president of the Greater Oklahoma City Chamber, confirmed Monday civic leaders still hope to see a new conference center hotel built in conjunction with a $280 million convention center approved by voters in December as part of MAPS 3. But funding for a hotel is uncertain. A panel of experts with the Urban Land Institute warned during a presentation earlier this year the city will likely need to provide subsidies of up to $60 million.
Lisa Sexton, senior vice president of public finance investment banking at El Segundo, Calif.-based Piper Jaffray & Co., and J. Mark Tobin, principal with HREC Development Resources of Greenwood, Colo., said all but two of 17 hotels with 700 or more rooms built between 1997 and 2008 -- and not in gaming or resort areas -- required public participation.
"A private developer who says I can build a 500-room hotel in your backyard without any assistance is not going to happen," Tobin said.
Sexton listed convention hotels being built across the country the past several years that required municipal bond guarantees of 30 to 60 percent.
She added that over the past few years highly rated insurers are no longer giving any consideration to hotel properties and that most conference-size hotels require 100 percent municipal guarantees.
With such participation comes risk for cities, as recounted by not just Tobin and Sexton, but even those attending the conference.
A delegate attending from Cedar Rapids, Iowa, reported his city was struggling to revive the fortunes of a conference hotel defaulted by the developer, while Tobin recounted a Boston project where the developer "whittled" down planned meeting and public space, then sold it for a $40 million profit a year later.
Sexton recalled how Baltimore subsidized a conference hotel on its waterfront only to see it become so successful that the city was left without the ability to reserve the blocks of convention room nights that inspired the project.
Sexton said the city then chose another route and built a new hotel it would control.
She said such scenarios can provide cities with not just more control over quality and use, but also ensure the city gets its money back.
"There is no developer who will bring you a project that is on the same page as any governmental or quasi-government entity is," Tobin said. "They're never on the same page -- they can't be. They're two different business models."
That statement was challenged by John Weeman, who was the lead developer in the renovation and reopening of Oklahoma City's Skirvin Hilton Hotel.
The City of Oklahoma City, through the Urban Renewal Authority, sold the building but retained a ground lease that allows the city to recover most or all public funds contributed to the Skirvin Hilton redevelopment.
"We had exactly parallel interests with the Skirvin Hilton," Weeman said. "And it's enormously successful. There is an example of a hotel where the city can realize a benefit."
Tobin responded the Skirvin is a "fairly unique" project, adding the idea of "shared risk, shared reward" is a sophisticated approach not found in every community.
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