NEW YORK— The building or expansion of a city’s convention center can often bolster a sagging market, drive new business and even shift the center of commercial development. A key component to such planned development is having a property equal to the task of providing for conference-goers, as well as local exhibitions. This was the subject of a panel called “An Economic Engine: Convention Hotel Development,” during the recent NYU International Hospitality Industry Investment Conference here. Panelists included: William Weber, Esq., Hughes, Hubbard and Reed; Dean Stratouly, president, Congress Group Ventures; Matthew Messinger, senior vp/hotel and lodging investments, Forest City Ratner; Seth Berger, vp, Bruce Berger Realty; John Williams, senior vp/lodging development, Marriott International; and Felix Cacciato, vp/acquisitions and development, Starwood Hotels & Resorts. Michael Fishbin, partner/eastern region area director – hospitality services group, Ernst & Young (E&Y) moderated. Cacciato said the size of most convention properties results in economies of scale. “So, our GOP margins in these bigger hotels tend to be very strong… [Plus], like other big hotel companies, we want to expand our brands. We have major convention brands— Sheraton and Westin— and competence in the group segment with those” he said. Cacciato added that having a convention property was key in retaining larger corporate and association clients. Williams noted “almost without exception,” these projects require some sort of public/private partnership, although it’s possible to finance a convention hotel without public assistance based on current capital markets, but “you have to have the right group of people come together [on the project]. “We just financed a major project in Orlando which arguably is a convention hotel and resort location with a spa. We put together a Marriott hotel and a Ritz-Carlton, and we backed them up against one another so we could share loading docks and certain public areas. We needed to keep them separated because Ritz customers don’t want to be associated with Marriott, but it does have some efficiencies. “We bought the land very cheaply, but in financing it, then selling it, we have a huge exposure. We got $300 million in debt, and there’s no one source. We had three lead lenders who did a club effort on each of their loan pieces. We credit-enhanced the $300 million non-recourse first mortgage, then put mezzanine debt on it to the tune of $100 million; then we took a 20% piece of the equity. “So, it can be done if somebody really wants to do it, but those are few and far between,” said Williams. Berger’s firm, which developed the Canyon Ranch in Massachusetts, is developing a Hyatt in downtown Denver across from the convention center. The location prompted a paradigm shift for the commercial-real-estate-oriented group, which decided a hotel would serve “the highest and best use” if approved, although it had plans for possible retail, office and residential space. “We started as land entrepreneurs with multiple exit strategies,” he noted. There’s a private/public partnership with the city, county and Denver Urban Renewal Authority to bring the project forward, on hold at presstime pending court action regarding a $55.35 million grant to the overall project and whether it needed to be put to public vote. Messinger’s firm developed an Embassy Suites and the Hilton Times Square in New York City, and is trying to develop a convention hotel in Rhode Island. Stratouly noted in the case of the Boston Convention Center set to open in 2004, “we were offering a package [RFP] to the hotel industry which broke down the barriers to entry.” It offered it as the convention center hotel, and one that would serve demand in the undersupplied market and act as a back-up airport hotel. Starwood landed the ground lease and was delivered a fully permitted site, “which saved [Starwood] probably three to five years of permitting
