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.”