Heavyweights hoist convention center hotel debate

Sunday, October 4, 2009 at 10:45pm
hotelrendering.jpg

You can see the frustration on Metro Finance Director Richard Riebeling’s face when the topic of the proposed convention center headquarters hotel comes up.

A financing plan for the $300 million, 1,000-room hotel hasn’t even been introduced yet, and already critics are calling the project a mistake.

Council members Emily Evans, Mike Jameson, Eric Crafton and Phil Claiborne made their skepticism pretty clear at a special update meeting held last week. Such hard-line pessimism comes despite the fact that Riebeling said the project’s financing team still was constructing how the Marriott Marquis, to be located south of the Country Music Hall of Fame and Museum, would be paid for.

“There’s been a lot of speculation to size and how the project is going to be financed,” Riebeling said during the meeting. “Those decisions have not been made. We’ve reached no decisions as to any thing about the hotel other than we know we need a hotel to make this project a successful one for the city.”

But the project’s critics believe it doesn’t take a final financing package to believe a publicly owned convention center headquarters hotel is a mistake. Evidence to support that notion can be found in places like St. Louis — a purported competitor of Nashville for convention center business — where the public hotel has gone into foreclosure.

In fact, one only has to look as close as Pennington Bend, where Gaylord’s Opryland Hotel is located. Gaylord, which answered a series of questions pertaining to the convention center hotel for this story, has put its proposed expansion project on hold, offering the following justification for that decision:

“Gaylord has postponed its plans to expand the Opryland Resort Hotel and Convention Center based on the current economy and downturn in meetings and conventions,” Gaylord Vice President for Corporate Communications Brian Abrahamson said. “The tourism industry has seen the largest decline in meetings and events since 2001 and it will be some time before we know if the demand levels will return to what they were prior to the economic downturn.”

At last week’s meeting, Crafton asked why Metro should build a $300 million hotel when the private sector was delaying its expansion. Doesn’t the private sector usually know what it’s doing when it comes to its own industry, the councilman asked Riebeling.

Crafton was told that the two projects are different entities. Facts provided by Marriott Vice President of Lodging Development Tim Marvin seem to support that argument to some degree. Private hotel investors typically require a 25 percent return on investment to make their projects work.

Hurting competition?

However, the recent experiences of Nashville’s sister cities certainly seem to validate the concerns, not only of Metro Council members, but of Music City’s own power players in the hotel industry.

Mark Bloom has worked in the municipal bond industry for 34 years and also is an investor in both in the Hilton Downtown and the Union Station Hotel. Bloom supports a new convention center unequivocally, but called the idea of a publicly owned 1,000-room hotel a mistake.

Such a hotel would become Nashville’s largest downtown hotel and, according to Bloom, would hurt competition across Davidson County.

“We need a convention center and we need a hotel to go with a convention center. But if it’s a public hotel, and I am a taxpayer in Davidson County, and if taxpayers are going to finance the hotel, then it should be built with the best possible chance for the hotel to make money, or to break even and then be sellable to private investors down the road,” Bloom said. “And I don’t think a 1,000-room hotel will give us that opportunity.”

At the other end of the spectrum from Bloom is Loews Vanderbilt Hotel CEO Tom Negri, a supporter of the convention center project, who gushed last week that the proposal is “fabulous.”

Negri stopped short of saying a 1,000-room publicly owned hotel was a good idea, but did reiterate that he was in favor of a convention center and a headquarters hotel.

He cautioned interested parties to wait for a financing plan to be presented before settling on opposing the project.

“I think it’s too early in this process to be critical,” Negri said. “Yes they’ve talked about a 1,000-room property. It may turn out to be a 650-room property. It may turn out to be 800 rooms. Marriott doesn’t want to build something that they can’t operate in a successful manner. It’s a partnership deal. No matter how this works out, someone’s name is going to be on this hotel.”

Front and center on the discussion as to the size of the hotel is Gaylord, which has been in ongoing talks with Mayor Karl Dean’s administration for weeks.

Two years ago, Metro approved a tourism development zone around Gaylord’s Opryland property, which allowed the company to collect up to $80 million in sales tax for expansion. With expansion plans on ice, Gaylord is caught sitting on the sidelines wondering how a new four-star hotel with public backing would affect its business.

Amid growing speculation pertaining to the specifics of the negotiations with Dean, Gaylord characterized those talks as “positive.” Abrahamson explained Gaylord’s stance on a public hotel.

“We are aware of the ongoing discussions between the city and potential contract hotel managers, including Marriott,” Abrahamson said. “What we can support is a hotel that is financed to a large extent by taxpayer dollars, providing it is not positioned to compete directly with other large Nashville hotels including Gaylord Opryland.”

What the recession has wrought

The recent precedent for convention center hotels is not glowing, but that is due in no small part to the last year’s historic recession. Baltimore’s convention center headquarters hotel lost a whopping $17 million after opening.

Dallas held a voter referendum on a public hotel, which passed by a narrow margin. The city then paid for its hotel with a moral obligation pledge, which puts taxpayers on the hook should a Baltimore- or St. Louis-style shortfall occur.

“…We are investors in a very competitive industry that has seen supply of new meeting space exceed demand every year since 2001,” Abrahamson said. “We’ve also experienced first-hand the adverse effects of a severe economic contraction on Nashville tourism twice in the past 10 years.

“As a stakeholder in the future of the city with knowledge of the convention industry we support the mayor’s interest in a strong downtown core and we acknowledge the existing Nashville convention center is outdated.”

Dean’s administration has said it will bring financing proposals for the convention center and hotel to Metro Council in November in advance of a December vote.

While Council members wait to find out what the ultimate risk will be to the taxpayers, another Nashville sister city, Portland, Ore., pulled the plug on its public hotel two weeks ago.

“We don't have enough money to go forward to the next phase,” Portland Mayor Sam Adams, a passionate supporter of the city’s public hotel, recently told The Oregonian. “I'm absolutely supportive of the decision to stop. It would have been unwise to move forward at this time.”

Supporters of a public hotel, like Negri, point to the Renaissance Hotel, a 700-room hotel attached to the current convention center. That project was paid off on time, but it was privately financed and taxpayers were never at risk.

And while supporters of the hotel project in Nashville are cautioning patience, national rating agency Standard & Poor’s is offering somber predictions on the near future of the tourism industry. According to the firm, hotel revenue per available will be down 15.5 percent this year, with another 4 percent decline on the way for next year.

“The first question to ask is ‘what is the risk?’ Not to the area hotels, but to the taxpayers,” said councilwoman Evans.

An answer to that question may come soon from the Dean administration, and it figures to be the deciding factor in whether Metro soon jumps into the hotel business.

19 Comments on this post:

By: idgaf on 10/5/09 at 5:07

We have no business building a hotel with taxpayer money. Let Marriot build their own. We shouldn't even be building the CC. I would rather build jails to put these crooked politicians in.

Lets reduce the size of the council while we are at it so they are more accountable.

By: sidneyames on 10/5/09 at 7:51

Idgaf, I agree with you 100% about the hotel. I don't agree about reducing the size of the council because the breakdown now has some council members with very large districts and that's a lot of work for one person.

Riebeling said the project’s financing team still was constructing how the Marriott Marquis, to be located south of the Country Music Hall of Fame and Museum, would be paid for.

Yeah Riebeling and the crew are "constructing" how to finally get taxpayers to pay for a "public" hotel. Once again, if you are in the business of regulating "business" (ie, the government), HOW CAN YOU COMPETE WITH THE SAME INDUSTRY FAIRLY? You can't. No government funded hotels. Look at the government hospital, Metro Gen. They are always SHORT OF FUNDS.

By: shinestx on 10/5/09 at 8:18

The whole project is a "Hail Mary" for a city the size of Nashville, but it is not unprecedented, a big risk. So the question is whether to go through with the hotel portion at all: I believe the "experts" who say that a convention center this size needs a 1000-room HQ hotel to achieve successful synergies. Given that Marriott appears to want its name (a Marquis, no less) on this building, what "skin" are they willing to put into it (should this hotel license be re-evaluated and awarded to another company?). I don't think that Gaylord is a good benchmark for Metro to follow... as it's a suburban property that already has 2000+ rooms (the CC would have less than 500 adjacent to it without this hotel)... and the required lead-time is at least 3 years. Who can predict what the economy will look like in 3 years (it sure as h3ll better be improved a lot!). Also, it's a safe bet that construction and financing costs will never be this low again. So with this combo of timing and shortage of capacity... I think the hotel should proceed but with a better financing package that minimizes (to zero!) the public's risk. Such is the case when any entity is introducing a completely new product. Find out who's willing to stick their necks out for a potential win in three years. If not Marriott, then perhaps someone else. With more money up front from the private sector, then the entity that takes such a risk can have first dibs on any shares sold or windfall from a successful hotel after the CC opens. C'mon Metro, you can be far more creative in this project... and Nashville is NOT St. Louis.

By: Kosh III on 10/5/09 at 9:05

Let the ConVis people build their own industry, not taxpayers.

As to Council size, the larger council give MORE accountability in many cases. I know my councillor personally, and I get a response to my emails within 24 hours, sometimes within minutes. It may just be a "thanks for your input" but at least I feel some response.

By: Floyd2 on 10/5/09 at 9:21

shinestx is correct. We have to think ahead. If we begin construction of this project now, it will go on line in 2013. That is exactly when the convention center business is expected to be hitting its stride again. We can't wait until then to begin construction.

Also, we haven't even broken ground on the project yet, and the CVB has already booked over 200,000 hotel room nights. Nashville is a destination city, and this project will put us in a great position to build on that reputation.

Finally, let's talk about jobs. This project will create 3,000 construction jobs over the next three years. Once open, it will create tens of thousands of jobs downtown. A report just came out that Nashville's construction industry has lost 5,000 jobs in the economic downturn. We can replace 60% of those with this project. Tourism is Nashville's second largest industry. We should support it by moving forward with this project.

By: sidneyames on 10/5/09 at 9:32

Also, we haven't even broken ground on the project yet, and the CVB has already booked over 200,000 hotel room nights.

Talk about putting the cart before the horse. I love all the psychics who predict what the world will be like in 2013. Heck, the government can barely manage the current day for crime, unemployment, unwed mothers bringing in mouths to feed, divorce tearing up families, school systems that are purported to be inadequate and much more. So how are they gonna tell us what 2013 will be like? That's a joke to me.

By: airvols on 10/5/09 at 9:43

I'm for the convention center to be built, as for the hotel; I believe there should be a partnership with the major brand to build the hotel, but the cities investment should be in the form of land. As for using examples of St. Louis and Baltimore I don't agree with the comparison. Nashville has much more to offer, frankly these two cities are boring for tourist. We need the convention center for Nashville. If Gaylord is concerned about the convention center hotel why don't they build the convention hotel and then everyone would be happy. NO GAYLORD DOES NOT WANT THE COMPETITION, BOTTOM LINE THEY WILL TAKE THE HANDOUTS (TAX RELIEF) FROM THE CITY ,BUT DON'T LET ANYONE COMPETE WITH US. Don't fall into the trap that Gaylord sets. This city deserves a better convention center, as for the hotel let the process run and see if the city can reduce the size and get more hotel investment.

By: MusicCity615 on 10/5/09 at 11:13

I agree with airvols, sidneyames, and floyd2, and shinestx.

What this article states is that the economy will be down for this year and next.... Ok, the convention center and hotel won't be open until 2013! Therefore construction prices will be as low as ever, and then the convention center and hotel will open when the economy has a great chance of being on the upswing!

We have over 200,000 room nights booked for a city that hasn't even been approved yet. Build when construction prices are low, open when the economy is on the upswing!!

By: Kosh III on 10/5/09 at 11:30

Finally, let's talk about jobs. This project will create 3,000 construction jobs over the next three years."

Great! Full employment for illegal aliens!

By: millenboy on 10/5/09 at 12:26

From the Sunday Tennessean "Metro brought in almost $24.7 million for the project in the 2009 fiscal year, which ended June 30. " from the tourism taxes.

"Annual debt payments on the convention center, meanwhile, are expected to peak around $45 million by the year 2020. "

"Convention center supporters also point out that two new revenue sources were approved to help fund the project, which are estimated to start generating more than $16 million annually by 2020, wouldn't be available until a new convention center and hotel would open, around 2013."

It looks like a $20 million dollar shortfall today and still a $ 4 million a year shortfall with the convention center and hotel in place after 2020.

I'm not an econimist but the math looks pretty simple, a big taxpayer unfunded burden. Albatross, Albatross, ....Albatross.

By: NotDaveCooley on 10/5/09 at 12:30

The hotel is “gonna be big, expensive and metro will have to ante up in some form or fashion.” Email from Mayor Dean’s Finance Director Rich Riebeling to David Fox of PR firm McNeely Pigott & Fox.

Sign the petition and let's stop this mess before we lose any more money on it.

http://bit.ly/jQbED
http://www.gopetition.com/online/31073.html

By: dnewton on 10/5/09 at 12:43

All you have to do is build solar cell or auto factory and then put a windmill on top of it. I am serious. Most cities get the state to throw in something for a convention center but I don't see the state doing anything even if they do get 7 cents on the dollar for all of that wonderful economic activity. That should be your first hint that the smart people down at the legislature don't want their name on this fiasco.

Even though state Industrial policy has been a failure in terms of industrial jobs since the mid Eighties, the state of Tennessee has done nothing but spend more and more plus encouraging counties to spend more and more of their money too. They even recently raised the wages of the Economic and Community Development department. Nothing the state has done since the Mid Eighties has reversed the decline in the number of industrial jobs in Tennessee.

Build this thing as the worlds largest vertical factory and as the industrial jobs dissapear, replace the floor space with motel rooms. Nobody seems to mind well intentioned dishonesty. The governor and Matt Kisber will fall all over themselves trying to write the biggest check.

By: nvestnbna on 10/5/09 at 1:23

Here is my concern. It doesn't appear the city will be able to finance this thing as they had promised with Hotel/Tourism revenue sourced bonds. The overall debt for the city will nearly if not more than double as a result of this single project. Is this really the best use of our resources, urban opportunities, human capital in Metro? A previous poster is right this is the "Hail Mary" of government projects and would you double the debt of your business, your household, on one special interest group / scheme? What has been the track record of the CVB in energizing downtown? Been down "No Commerce Street" lately, how about Metro's big projects?

The city has had to find additional funding for almost every big ticket project they've done, why is betting the farm even more troubling on this one? Well for one thing, there seems to be significant over capacity in the industry, of course every city in the country excludes themselves from the problems of the industry's decline, "because we're different" "we've got a brand". Tell that to the taxpayers in St. Louis, Baltimore, and I'm sure others.

Will the economy and this industry really recover in the next two to three years. With Washington spending out of control and getting ready to unload tremendous burdens on business and individuals over the next few years, I'm seeing tough times continuing for quite some time.

The argument today is whether this thing will even cover it's own expenses much less generate value for anyone other than the tourism industry. Hail Mary, Hail Mary, Hail Mary...... public education, taxes, water / sewer fees, quality of life downtown, fire and safety ...... the tourist will make it all right - yes, while I'm holding my breath, visions of loading docks on Broadway, Church Street Center, three dead sides on the current center dance through my head.

By: pandabear on 10/5/09 at 1:44

"What this article states is that the economy will be down for this year and next.... Ok, the convention center and hotel won't be open until 2013! Therefore construction prices will be as low as ever, and then the convention center and hotel will open when the economy has a great chance of being on the upswing!"

I get it. What you really want is to roll the dice with the Nashville taxpayers money.

Assume this, assume that, and the total is..........who cares, it's not my money !

Here's a couple thoughts:
It's generally accepted that this economy was largely caused by the sub prime resets.

In turn, this has caused the greatest recession since the Great Depression.

Are you aware that only 1/3 of these sub prime loans have reset
and that we still have 2/3 more to go ?

Couple that with the fact that convention centers nationally have been
losing money for more than a decade, and I ask you,
What merry go round are you still riding that makes you giddy enough
to talk about an "upswing".

Folks, these are the "cc plants" and "promoters" that make up the
small group that will benefit from the convention center.

The builders and land swindlers are the ones who will make out
like bandits at our expense.

The interest alone on the loans for the center and hotel will be over $600,000,000
in 10 years ! We and our children will be on the hook forever with this.
They were hoping to slip it by with no one noticing but that's not working
is it boys ?

Wake up !

By: producer2 on 10/5/09 at 3:05

From the second paragraph of today's article...

"A financing plan for the $300 million, 1,000-room hotel hasn’t even been introduced yet, and already critics are calling the project a mistake."

From other local hoteliers.....
“We need a convention center and we need a hotel to go with a convention center. But if it’s a public hotel, and I am a taxpayer in Davidson County, and if taxpayers are going to finance the hotel, then it should be built with the best possible chance for the hotel to make money, or to break even and then be sellable to private investors down the road,” Bloom said. “And I don’t think a 1,000-room hotel will give us that opportunity.”

“I think it’s too early in this process to be critical,” Negri said. “Yes they’ve talked about a 1,000-room property. It may turn out to be a 650-room property. It may turn out to be 800 rooms. Marriott doesn’t want to build something that they can’t operate in a successful manner. It’s a partnership deal. No matter how this works out, someone’s name is going to be on this hotel.”

And from Gaylord.....
“We are aware of the ongoing discussions between the city and potential contract hotel managers, including Marriott,” Abrahamson said. “What we can support is a hotel that is financed to a large extent by taxpayer dollars, providing it is not positioned to compete directly with other large Nashville hotels including Gaylord Opryland.”
“As a stakeholder in the future of the city with knowledge of the convention industry we support the mayor’s interest in a strong downtown core and we acknowledge the existing Nashville convention center is outdated.”

Maybe we should wait to see the package before we make these judgements. Even Gaylord is acknowledging a need for a new Convention Center but obviously they do not want a competing hotel.....

By: govskeptic on 10/5/09 at 3:29

I love the word "Partnership" being used in
the discussions. The profits will be split under some
type percentage arrangement. BUT, come heavy
losses or at worst total failure of this facility then
where's the "Partnership". Since the debt is in the
name of Nashville-Metropolitian Government the
operator and his Marque sign are gone to the next
city and the Davidson County taxpayers are left
holding 100% of the garbage bag!

We better listening to the advise of people who
actually invest money instead of the here today
gone tomorrow hired managers like Mr Negri. who
enjoys being the daring of the Chamber of Commerce!

By: producer2 on 10/5/09 at 3:43

Marriott and all major hotel chains manage hotels they do not develop them. They will have some financial risk in this project but not as much as the developer. The pro forma at a rate of 15% interest in the loan is not doable from a private perspective that is why 15 of the last 17 hotels of this size built in the last decade had some sort of public backing. The tax exempt bonds they get at 5% are the persuasive monetary backing.

By: MusicCity615 on 10/5/09 at 6:22

pandabear, please show facts.

By: dnewton on 10/6/09 at 12:58

This convention center is just another sub prime loan since the estimated income fails to cover the costs unless the government assures the difference.