March 16, 2011--VIRGINIA BEACH -- The public could have to pitch in nearly 50 percent of the total $110 million cost of a new convention center hotel under a new proposal, according to City Council members briefed on the project and city staff.

Preliminary numbers estimate that public meeting space and ballrooms, which the city would own, could cost about $38 million. Further, a separate $14 million gap for financing the rest of the hotel would be filled by sales tax revenue generated by the project, city officials said.

The city is in discussions with developer Armada Hoffler to build the hotel to complement the 6-year-old, $207 million convention center and lure larger groups and more revenue to Virginia Beach.

"It's something that the city really, really needs," said John Richardson, chairman of the Virginia Beach Development Authority.

The authority on Tuesday agreed to pitch in up to $160,000 to help Armada Hoffler with its more detailed analysis and price estimate for the hotel. Armada Hoffler will cover the remaining cost of the estimated $400,000 study. Lenders and investors have been upbeat about financing this hotel, said Lou Haddad, president and CEO of Armada Hoffler.

The study will help pin down the costs for taxpayers and the developer and provide a better scope of the hotel's elements, Richardson said.

These rough numbers suggest that the public investment sought for the initial 400-room tower could be far more than previous local public-private hotel projects.

For the Westin Hotel, part of the third phase of Town Center, which was also built by Armada Hoffler, the city contributed about $28 million or about 12 percent of the total cost.

Convention center hotels are different and nationwide they rely on public subsidies, Richardson said.

The hotel is expected to bring in $4.7 million annually in direct taxes that should help pay off the city's investment in the meeting space and ballrooms in about nine years, City Councilman Glenn Davis said.

In addition, a city consultant expects that the hotel would bring in about 18 percent more convention-goers and generate about $116 million in new spending at restaurants, stores and other establishments, Beach officials said.

Beach tourism officials have advocated for a convention center hotel for several years. Larger, higher-end convention groups want to stay right next to the meeting space and Virginia Beach has a difficult time competing with cities that have adjoining hotels, said Jim Ricketts, director of the city's Convention and Visitors Bureau.

Between 2007 and 2009, Virginia Beach lost bids for 163 conventions, and about 42 percent of the groups that decided not to come here did so strictly because the city lacked a headquarters hotel, Ricketts said.

Raleigh, which Virginia Beach competes with for business, opened a new convention center and hotel in 2008. That city contributed $20 million to the construction of a $70 million Marriott hotel.

Virginia Beach had been in discussions with Dallas-based developer Garfield Traub to build the hotel until last fall, but the deal soured. The city then turned to Armada Hoffler, another finalist.

The study should be complete in about three months.

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