Convention center financing plan doesn’t include hotel

Friday, December 4, 2009 at 1:11am

Mayor Karl Dean and his administration have unveiled plans to pay for a $585 million convention center using tourist-targeted tax revenues and fees, but their financing package doesn’t include a companion hotel.

At a special joint committee Metro Council meeting Thursday, Dean insisted a hotel remains central to the project, though he said it’s best to wait on private financing for the hotel rather than relying on taxpayer dollars.

“We will have a convention center hotel,” Dean vowed to Council members. “This proposal may come in the spring, it may come much later next year, but I’m confident it will come.”

Metro officials months ago tapped a veteran hotel development team of Phelps Development and Portman Holdings to lead the hotel project, but depressed capital markets have left the separate entities looking for financing options, according to Metro Finance Director Richard Riebeling. Consultants have estimated the hotel to include 750 to 1,000 rooms.

“I can’t predict to you with certainty which way it will go, if they’re going to be able to find it, because I can’t really predict the capital markets,” Riebeling said. “We hope they’re getting better.”

Because the hotel is envisioned considerably smaller than the 350,000-square-foot Music City Center, Dean said it can be built in two years, 12 months less than it would take to construct the convention center, allowing the two projects to emerge together in time for a February 2013 opening if the hotel breaks ground in a year.

Despite absolute assurance of private hotel financing, Dean called delaying approval of the convention center finance plan “a grave mistake” because the city would miss the chance to cash in on low construction costs and lose conventioneers who have already booked the center. He said the plan handed to the Council would pay off debt incurred by the convention center even without revenue from the hotel.

Dean added that this week’s proposal of a Medical Trade Center, slated for construction at the current home of the Nashville Convention Center on Commerce Street, has arrived as a “game changer,” as it would complement the Music City Center by strengthening the city’s tourism and health industries.

Councilwoman Emily Evans, a frequent critic of the proposed convention center, called “hoping a hotel deal happens” a “risky bet.”

“We’ve been told as recently as Sept. 29 that we had to have a hotel, so I presume we still have to have a hotel,” Evans said. “And if we don’t have a hotel, we probably shouldn’t be building a convention center.”

Details of the finance package itself add some flesh to the administration’s desire to pay off the project’s bonds through a combination of six sources of capital including hotel taxes, visitor fees and revenue from a tourism development zone.

Riebeling said these taxes, which the Council has already authorized, would pay off debt service on the property, but added a “backup pledge” is designated for a portion of the debt, which will be generated by non-tax revenues from Metro’s general fund. He said he doesn’t anticipate it ever being used and that its main purpose is to provide comfort to bond holders.

Consultants helped devise the finance plan using two different revenue projection formulas, one that factors in a convention hotel and another that acts as if a hotel is never built. According to a final study submitted by HVS Consulting, an estimated $50.7 million in tax revenues would be generated by 2023 in their forecast without a hotel, with the figure rising to $66.6 million if the hotel’s revenue is tallied.

Debt service for the bonds would average between $39 million and $40 million each year. If the need calls for expansion then Metro could issue additional debt.

Under the plan, bonds for the project would be sold in two different installments. While revenues collected by the tourist-targeted taxes cover both versions, a second series would be partially backed by the non-tax revenue that the administration said it wouldn’t need to dip into. Analysts anticipate the two transactions to receive a mid-A rating and high-A rating, respectively.

The plan also takes advantage of Build America Bonds, a program outlined in the federal American Recovery and Reinvestment Act that allows state and local government to cover part of their borrowing costs through a 35 percent subsidy from the federal government.

David Levy of Goldman Sachs, the bank holding company that would underwrite the city’s bonds, said the proposed debt structure is very conventional for municipalities to go through when financing large public projects. He said the financing structure doesn’t rely on an extraordinary growth of revenues over time.

“The length of the debt is very standard to the industry,” Levy said. “This is not long-dated debt relative to what cities, counties and states traditionally need for all kinds of infrastructure.”

Wayne Placide of First Southwest Company, a firm that provides Metro financial counseling, said the convention center finance plan wouldn’t jeopardize Metro’s ‘AA’ credit rating.

“We feel comfortable that the financing that we’ve proposed in structure should allow this project to go forward,” Placide said. “It should be totally self-supporting.”

Advisors may attest to the plan’s soundness, but the absence of a hotel deal, which some view crucial to a convention center’s success, could emerge as a final hurdle for a project that has otherwise received overwhelming votes of approval from the Metro Council during its predevelopment stages.

But Council Budget and Finance Committee chairman Ronnie Steine said leaving a hotel out of the finance plan “makes a little bit of sense” when taking into account the administration’s commitment to explore all financing options before burdening the community with the price tag.

“If we don’t take advantage of the existing rates for construction now, we are really irresponsible as a Council,” Steine said. “If we’re going to do this we need to start because it’s never going to be cheaper.”

24 Comments on this post:

By: idgaf on 12/4/09 at 6:34

The Mayor pledged no General Obligation bonds so he should keep that pledge.

He couldn't deliver what was promised and thats OK as long as he dosn't try to put us on the hook for his folly.

We were right he was wrong so lets move on.

By: JeffF on 12/4/09 at 9:35

Remember when we were told that hoteliers were lined up to compete to do the hotel thing? Turns out that were lined up to compete for having a hotel built for them without risk associated with those pesky operating losses. They were lined up to get what Powers Management got with the arena deal, guaranteed management fees.

It would be interesting to see if the courts will view these as de facto General Obligation bonds. It has happened in some states, not been tested here. If they do then this will be withdrawn rather than risk real citizen input.

By: NewYorker1 on 12/4/09 at 9:55

Opry Land Hotel was about to do a $400 million dollar expansion, why don't they build the hotel next to the proposed Music City Center?

By: producer2 on 12/4/09 at 10:38

JeffF,
Again stretching the truth. Hotel chains were lined up to operate the anchor hotel. The package that Metro got is better than probably 90% of the deals out there for hotel management. Marriott is putting itself first in line for debt up to $30 million dollars. this may not sound like much to you but that is the maximum the hotel operator can make for a 10 year period , so in essence they are putting a decade worth of pay on the line to guarantee that the hotel will turn a profit. Since you seem to be so good at finding information, go find a hotel of this size that anchors a public convention center that has been totally built by a hotel chain.
While your at it why don't you explain that much loved line of yours as to how Convention Center don't meet expectations. As you can easily see by the feasibility plan, the numbers needed to pay for the facility are FAR lower than the projected revenue numbers of the facility. Could this be why it is so easy to say that they don't met projections. Could this explain why these facilities can still be viable and pay their debt service even if they don't do 100% of projections?
The Mayor is doing what he should and so far his piece by piece strategy is saving money on the cost both from a construction standpoint and better market rates on the bonds. The Build America bond alone is saving $5 million a year. The same cautious plan will prove to be wise with the hotel project as well. It will happen and hopefully there will be a private/public split on the costs. I hear there is already some talks going on in that direction.

By: JeffF on 12/4/09 at 11:09

You are speaking to early there Produce. If Nashville meets the consultant projections for new users we will be living in the first city in the U.S. to have done so. In a majority of cases the missing of projects is the reason given for more spending and construction. Will that be the case here. The projections are important because upwards of up to a billion dollars in tax money will be spent to pull in those promises. Those numbers are great if you meet projections. But those numbers are horrible if the real growth is like the rest of the cities. Do we want to spend a billion to see a 1-3% growth in attendance? Like it or not that is what happens in almost all cases.

You tell me Produce, are you happy spending a billion dollars of tax money to pull in an extra couple of percent even though the consultant says we CAN do 100% more? This hotel thing is following the playbook in other cities, your industry now has the "out" when the consultants expectations are far short. Your industry then gets another "out" after the hotel is built when another consultant says the new center is failing to meet promises because it was built too small to get 95% of the convention business. Then we get to see signs and tee-shirts and lapel stickers that say 'Preserve the Music City Brand" while trying to distance the meetings industry from buggy whips and coal fueled ocean liners.

I still laugh when public convention center opponents get labeled anti-progress when they question the ultimate in dying industries. I expect to see CVB employees riding to the ground breaking in horse drawn carriages purchased with the profits from the ultimate U.S. sweat shops (the hotel and motels).

By: taxed2much on 12/4/09 at 11:10

No entity, private or public, presently is willing to spend the money for a hotel contiguous to the government convention, center because doing so makes no economic sense. Building a convention center without the hotel is even more nonsensical.

taxed2much

By: tomw on 12/4/09 at 11:19

my question is this. The whole issue with the current convention center is size. The proposal being offered for the re-use of that space is to expant ot and use it for a medical mart, adding up to 12 stories to the existing structure.
Whats wrong with a retrofit for a convention center? is ther just a desire for "new"? I say use what's there and honor the spaces already in place.

By: producer2 on 12/4/09 at 11:23

First you continue to run around the question. the question was are the projections for revenue far higher than the projections for costs? If so than does missing projections but maintaining revenues higher than costs still make the project viable? Second you continue the opponents rant about "taxpayer money" when that is a very debatable claim. The MCC is slated to cost $585 million which is quite a bit less than the billion dollars you like to throw around as scare tactics. The rest is just some anti-downtown rant that we are all accustomed to. You did not even address the hotel issue you first brought up so I guess you have moved on to other propaganda. You didn't see the Medical Mart coming, that couldn't help your cause. Wait until the next shoe drops that you don't see coming....

By: producer2 on 12/4/09 at 11:29

tomw,
The simple answer to your question is the Medical Mart is not enlarging the trade show floor area. Many groups need more than the current 118,000 square feet that our center has. They want that space contiguous so the only logical thing to do was to build a new facility that will have a minimum of 350,000 square feet available for trade shows. The Medical Mart set up is very different than that of a traditional convention Center so that space works well for them. Most of their tower space will be taken up with "permanent" residents and not transient shows.

By: airvols on 12/4/09 at 11:39

Are you kidding me Emily Evans? “We’ve been told as recently as Sept. 29 that we had to have a hotel, so I presume we still have to have a hotel,” Evans said. “And if we don’t have a hotel, we probably shouldn’t be building a convention center.” You can't have it both ways, your either in this or not. You imply if you had the hotel you would be for the project. You have opposed this from the beginning. Stop flip flopping on the issue. This project needs to be build with our without a hotel. I agree with the prior post, if Opryland is opposing this, but wants tax incentivies to build a 400 million dollar expansion,either build downtown or shut up about the competition. It's so apparent what's going on here, it's a good thing the most people involved know how to navigate around the BS.

By: TharonChandler on 12/4/09 at 12:14

Well, how many times have ya seen it snow, in Houston? That's just the magical kind of thing God does when I'm around (should have gone to Miami). If this weather keeps going, like to Memphis, then you will have that wonderful 'slip-slidin away', that is 'Memphis Drivers'. Nashville can handle it, but Memphis, wheeew.

By: Kosh III on 12/4/09 at 12:30

"Many groups need more than the current 118,000 square feet that our center has. They want that space contiguous so the only logical thing to do was to build a new facility that will have a minimum of 350,000 square feet available for trade shows."

Why must it all be on one floor? Are they too fraking lazy to ride and elevator/escalator up a floor or two to the next 118M sq ft space?
And please don't tell me that a single exhibitor will occupy more than 118M sq ft.

By: producer2 on 12/4/09 at 12:41

yes and they don't have to because most centers have more size. that is the issue here....
If you were paying to have your booth at a tradeshow to drive business and the sponsoring organization came to you and said, Gee I know most of the big boys are on level 1 and that is where most of the people will be but we are going to put your booth on level 3, is that ok with you? What would your answer be?

By: MusicCity615 on 12/4/09 at 2:10

Thank you Karl Dean!! Build the Convention Center when construction costs are low! Build the Medical Mart!! Find a private/public partnership for the Hotel!!!

By: Kosh III on 12/4/09 at 2:21

My response might be to demand/expect that the show not have the exhibitors spread out in such a way as to have as even as possible a flow of traffic past all the exhibitors.

[sarcasm alert] Any inablility of visitors to waddle to an elevator would be their problem.

By: Kosh III on 12/4/09 at 2:32

uhhh, make that to have them spread out in an even traffic flow manner. sorry 'bout that. :(

By: producer2 on 12/4/09 at 2:49

yeah you are a good salesperson for attracting business. "Do it my way or don't come here!" That will work every time...lol

By: Kosh III on 12/4/09 at 3:12

Works for HCA and Blue Cross!

By: producer2 on 12/4/09 at 3:22

reaching....

By: tomw on 12/4/09 at 3:47

as far as allocation of space. the "Big Boys" can have the space they pay for on a first come (pay) first served basis. no favoritism of space allotment. you fill the halls as the the reservations come in. Come on. this is just rediculous. we now have two convention centers withing 10 miles of each other. we do not need a third.

By: idgaf on 12/4/09 at 7:30

NewYorker1 on 12/4/09 at 8:55
Opry Land Hotel was about to do a $400 million dollar expansion, why don't they build the hotel next to the proposed Music City Center?
*************************************

They cancelled that expansion because they realized it didn't make economic sense.

Yet Dizzy not using his money or being accountable is at flak speed ahead.

Bet he has a plum job lined up already.

By: producer2 on 12/4/09 at 9:18

tomw,
no disrespect but you don't get to tell paying customers how to conduct their business.

By: JeffF on 12/4/09 at 10:53

Some meetings need more space. The question remains though,is there a shortage of meeting facilities to accomodate these things. No there is actually more available space than there are such meetings. So Nashvile is pursuing a market already oversaturated in order to say the Music City is doing what other cities are doing. It is hard to say the Music City brand is different when the brand managers are doing what a few dozen other cities have done.

By: cashnthings on 12/7/09 at 7:41

NO NEW CONVENTION CENTER!!!!! Goldman Sachs are a bunch of liers they are the same people who were sell people on the housing buble while secretly they were betting on it to colapse and when it did they made a furtune.Are we going to trust them to be honest with us.Wake up.

http://www.mcclatchydc.com/227/story/77791.html

http://www.adn.com/front/story/995392.html

http://www.rollingstone.com/politics/story/29127316/the_great_american_bubble_machine/4