4 26 2010BCECHotels by YJeelj8

VIEWS: 9 PAGES: 51

									     The BCEC and Hotels:
              An Overview
           Presentation to
The Convention Partnership
               Presented by Milt Herbert, BCMC
                    Tom Hazinski, HVS Chicago
       Rachel Roginsky, Pinnacle Advisory Group
               Peter Phillippi, Piper Jaffray & Co.
                            Howard Davis, MCCA
                                 Kairos Shen, BRA

                                    April 26, 2010
Agenda
 Relationship Between BCEC and Hotels
 Measuring the Benefits of an Additional BCEC
  Headquarters Hotel
 Responding to the Hotel Challenge
 BRA Presentation




                                                 2
Relationship Between BCEC and
             Hotels
    Milt Herbert, Executive Director
  Boston Convention Marketing Center
Rachel Roginsky, Pinnacle Advisory Group



                                           3
Boston Convention Marketing Center
Sales Process
 Step 1: Identify Availability of Convention and Hotel Space
        Hynes or BCEC and Are Dates Available?
        Is Hotel Inventory Available?

 Step 2: Business Review and Pricing Strategy
        Is Potential Business Good for Facility, Hotels and the City?

 Step 3: Prepare Citywide Proposal
        Analyze Responses from Hotels; Assemble Hotel Package
        Convention Space Pricing Review

 Step 4: Site Visit
        Client Visits, Reviews Convention Facilities and Key Hotels

 Step 5: Close Business




                                                                         4
Hotel Room Supply
What does the planner want?
 Committable room block near the convention center
 No or limited transportation exposure
 Minimal attendee commuting inconvenience
 HQ access for Board lodging and major F&B functions

Hynes Package
 Great package relative to Hynes capacity
 Walkable for most events
 No transportation expenses

BCEC Package
 Arguably the worst for a convention center of this magnitude
 Limited walkable inventory (1100 committable group rooms on peak)
 Generally requires transportation at 1500-2000 or more peak rooms
 Many who have used, will not return until hotel inventory improves



                                                                       5
Example: RIMS

  Risk & Insurance Management Society, Inc.
                     (RIMS)
             April 21 – May 2, 2010
           8,000 hotel rooms on peak
         41,600 total hotel room nights
                      BCEC




                                              6
RIMS 2010 Hotel Package
 In order to build a hotel package with 8,000 rooms on
  peak, RIMS had to contract with all 33 hotels in our
  package. Of the 33 properties, only 3 hotels are
  within walking distance of the BCEC. The remaining
  hotel inventory is within 5 miles of the convention
  center and requires extensive transportation
  services.

 Estimated Cost of Transportation for RIMS - $300,000



                                                          7
8
The final hotel package is a summary of each hotel’s proposed room block, guestroom rate,
 and concessions along with relevant information about each property. Hotels are sorted
                    based upon their location & potential shuttle routes.
                                                                                       9
Building a Competitive Hotel Package
                American Academy of Dermatology
                           March 2016
           7,000 rooms on peak/31,570 total room nights
                    28 HOTELS, 4 MILE RADIUS

               Biotechnology Industry Organization
                             June 2012
            10,000 rooms on peak/41,200 total room nights
                   43 HOTELS, 6 MILE RADIUS

                      Lions Club International
                             July 2015
           6,000 rooms on peak/38,220 total room nights
                    29 HOTELS, 5 MILE RADIUS

                   American College of Surgeons
                          October 2018
           7,500 rooms on peak/34,500 total room nights
                    35 HOTELS, 6 MILE RADIUS




                                                            10
Simultaneous Events at BCEC and Hynes Events
Impact on Hotel Availability

 Not enough hotel rooms to accommodate
  simultaneous events at the BCEC & Hynes.
  Example:
   Citywide BCEC convention with 6,000 rooms on peak
    consumes all hotel inventory in the South Boston
    Waterfront, Downtown/Financial District, Back Bay
    and the Airport (American Public Health Association,
    November 2013)
   American Trucking Association (Hynes) needs 1,575
    rooms on peak (November 2013) – Not Available in
    the Back Bay

                                                           11
Not enough hotel rooms within walking
distance of the BCEC

 Lack of Hotel Inventory near BCEC results in
  lost business
   Starbucks: February – 6,000 rooms on peak/22,000
    total rooms
   Public Library Association: March – 3,500 rooms on
    peak/13,000 total rooms
   Subway: July – 2,200 rooms on peak/10,000 total
    rooms
   Am. Society for Cell Biology: December – 3,000
    rooms on peak/13,000 total rooms


                                                         12
Cost Impacts
 Lack of hotels near BCEC results in significant transportation
  cost to our customers
     Am Society for Therapeutic Radiology &             Am College of Rheumatology
                    Oncology                               November 5-11, 2007
             September 16-26, 2008                            14,000 persons
                 12,000 persons                           30,500 total room nights
            34,200 total room nights                        Shuttle cost: $550K
              Shuttle cost: $750K


    International Association of Chiefs of Police          Heart Rhythm Society
                 October 14-18, 2006                          May 17-20, 2006
                   17,000 persons                              14,000 persons
               28,900 total room nights                    22,900 total room nights
                Shuttle cost: $506K                         Shuttle cost: $214K

                                                    American Association of Orthodontists
                                                               May 1-5, 2009
                                                               20,000 persons
                                                           23,000 total room nights
                                                            Shuttle cost: $245K
                                                                                            13
Limited Service Hotel Inventory




                                  14
BCEC Lost Business Due to Lack of
Limited Service Hotels
                     Students in Free Enterprise
                              May 2011
              1,400 rooms on peak/3,851 total room nights

                 American Society of Safety Engineers
                              June 2013
              4,000 rooms on peak/19,585 total room nights

                       National Safety Council
                    September/October 2011 & 2013
              6,500 rooms on peak/32,360 total room nights

                              Educause
                        November 2011 & 2014
              3,900 rooms on peak/15,054 total room nights

       National Association for the Education of Young Children
                        November 2015 & 2020
              6,500 rooms on peak/27,040 total room nights



                                                                  15
                                              Pinnacle



Development of Complementary Hotels

 No limited-service hotels currently in the South
  Boston Waterfront District
 BCEC expansion will serve as a catalyst to
  further development in the area
 Demand currently exists for the development of
  complementary hotels in the South Boston
  Waterfront District



                                                         16
                                                                           Pinnacle



Comparable Cities
 Indianapolis, IN
     $450 MM “Marriott Complex” U/C including 4 hotels attached to convention
      center developed and managed by White Lodging.
     Hotels include 1,000 room JW (U/C), 297 room Courtyard (opened 2/10), 168
      room Fairfield Inn and Suites (opened 2/10), and 156 room SpringHill Suites
      (opened 2/10).
 Austin, TX
     350,000 square foot convention center re-opened in 2002.
     800-room HQ Hilton opened in 2003 with nearby 209-room Hampton Inn and
      Suites in 2002, 254-room Hilton Garden Inn in 2006, 270-room Courtyard and
      179-room Residence Inn in 2006.
 Denver, CO
     725,000 square foot convention center expansion opened in 2004.
     1,100-room HQ Hilton opened in 2005 with nearby 221-room Hilton Garden Inn
      in 2007, 403-room Embassy Suites (under construction), and Aloft and Best
      Western projects under consideration.




                                                                                      17
Hotel Room Supply

 There are benefits to all when there are additional hotel rooms in the
  city with or without a BCEC expansion
     More consistent group business for Waterfront & Back Bay Hotels
     More frequent BCEC & Hynes events thus fewer peaks/valleys
     More events result in additional compression dates, ADR, occupancy
      and RevPAR growth
     Allows for additional Hynes events to occur simultaneously with BCEC
      events
     Growth in F&B revenues for Waterfront & Back Bay Hotels with more
      event activity
     Lessens risk of high room block attrition for Back Bay Hotels from
      BCEC events
     More citywide and in-house opportunities for Airport, Downtown,
      Cambridge and Suburban Hotels with increased activity at hotels
      surrounding the BCEC & Hynes

                                                                             18
Measuring the Benefits of an Additional
     BCEC Headquarters Hotel

             Tom Hazinski
             HVS Chicago




                                          19
Hotel Room Nights Generated
by Convention Center Events
(Fiscal Years 2007 through 2009)


    FY 2009


    FY 2008


    FY 2007


              0   100   200     300   400    500   600    700
                                                   Thousands

                              Hynes   BCEC


                                                                20
Basis for Estimate
of Growth in Convention Events
 Analysis of historical demand at BCEC & Hynes
 Event planner surveys
 Demand at comparable venues
 Detailed analysis of lost business
   Reasons
   Amounts
   Potential recovery



                                                  21
Working Assumptions About Hotel

 1,000 rooms
 83,000 SF of meeting and banquet space
 Full-service and nationally branded
 Adjacent to Convention Center
 Restaurant, lounge, and recreational amenities
 Open in Fiscal Year 2015/16




                                                   22
Impact on BCEC Room Nights
(estimated for a stabilized year)
                                                      Potential for over 140,000 new
 BCEC currently losing                                   booked room nights
  business due to lack of




                                    Thousands
  proximate rooms                               600
    High transportation costs                  500
     to Back Bay hotels
                                                400
    Inconvenience to
     attendees                                  300
    Competitors with better                    200
     proximate supply
                                                100
 BCEC has capacity to
  absorb new events even                         0
  without expansion                                   Without Hotel With New
                                                                  Headquarters
                                                                     Hotel
                                                                                       23
Impact on BCEC Room Nights
(estimated for a stabilized year)
                                                      Potential for over 140,000 new
                                                          booked room nights
 New room nights could be




                                    Thousands
  generated by recovering                       600
  lost business
                                                500
 HVS analyzed lost business
  records for events lost due                   400
  to lack of hotel capacity                     300
 Not all lost business would                   200
  be recovered
                                                100
 Estimated recovery of lost
  business constrained by                        0
  availability of BCEC and                            Without Hotel With New
  schedule                                                        Headquarters
                                                                     Hotel
                                                                                       24
Impact on Hynes Room Nights
(estimated for a stabilized year)

 BCEC city-wide events                           Potential for over 22,000 new
                                                      booked room nights
  currently fill up Back Bay




                                    Thousands
  hotels                                        250
 During BCEC event days,
                                                200
  room blocks not available
  for Hynes events                              150
 Expanded hotel supply at
  BCEC will take pressure off                   100
  of Back Bay and create
                                                50
  availability of room blocks
  for Hynes                                      0
 Hynes has potential to book                         Without Hotel With New
  new events                                                      Headquarters
                                                                     Hotel
                                                                                  25
How would a new headquarters hotel
affect the Boston economy?
 New Visitor Spending
   Overnight stays of BCEC and Hynes attendees
   Room night generated by the new hotel
   Day-trip visitors
   Exhibitor spending
   Event organizer spending
 Related fiscal impact (revenue from hotel, sales
  and other taxes
 Stimulate complementary development in the
  South Boston Waterfront District
                                                     26
     Responding to the Hotel
          Challenge
Rachel Roginsky, Pinnacle Advisory Group
   Peter Phillippi, Piper Jaffray & Co.
         Howard Davis, MCCA




                                           27
                                             Pinnacle



Lack of Private Sector Development

 High Development Costs in Boston
   Land Costs
   Construction Costs
 Significant Gap in Required ROI
 Lack of Capital for Hotel Development
 Illustrative Pro Forma (see next slides)




                                                        28
                                                              Pinnacle



Hypothetical Headquarters Hotel Pro Forma


Assumptions:
   1,000 room Boston Hotel
   Stabilized occupancy – 75% with Typical Operating Costs
   40% equity and 60% debt (1.5x debt service coverage requirement)
   $500,000/key Development Costs
   Owner requires 15%-20% Leveraged IRR Return




                                                                         29
                                                          Pinnacle



1,000 Room Boston Hotel - Hypothetical Pro Forma


                                    Year 3 (stabilized)

Total Revenue                       $ 94,900,000
Operating Costs                     $ 71,175,000
Net Operating Income
                                    $ 23,725,000
First Mortgage Debt Service*
                                    $ 26,603,682
Income After Debt Service
                                    ( $ 2,878,682)
Return on Equity                    (2.7 %)


* 0.9x Debt Service Coverage in
  Year 3


                                                                     30
                                                  Pinnacle



Lack of Available Capital
 Based on a recent national survey (2010), only 25%
  of hotel lenders would consider new construction
  loans
 April ULI lodging meeting, 4 top hotel lenders said
  “No” to new construction loans
 If available – terms are difficult:
    40%– 50% equity
    Only recourse loans available
    Requires construction guarantees
    Sponsorship is critical
 Lenders would prefer to deploy available capital for
  acquisitions
                                                             31
Percent Change in US Hotel Supply

    5.5%


    4.5%


    3.5%


    2.5%


    1.5%


    0.5%


   -0.5%
           1988
                  1989
                         1990
                                1991
                                       1992
                                              1993
                                                     1994
                                                            1995
                                                                   1996
                                                                          1997
                                                                                 1998
                                                                                        1999
                                                                                               2000
                                                                                                      2001
                                                                                                             2002
                                                                                                                    2003
                                                                                                                           2004
                                                                                                                                  2005
                                                                                                                                         2006
                                                                                                                                                2007
                                                                                                                                                       2008
                                                                                                                                                              2009
                                                                                                                                                                     2010
                                                                                                                                                                            2011
                                                                                                                                                                                   2012
 Sources: Smith Travel Research (1988 - 2009) and HVS (forecast 2011 -2012)
                                                                                                                                                                                          32
                                                                                                       Pinnacle

Total United States
Active Development Pipeline - Rooms
                                                                                               %
                                         Dec 2009               Dec 2008          Change     Change


 In Construction                           97,302                185,119         (87,817)    (47.4%)

 “Planned” Pipeline                      303,788                427,773          (123,985)   (29.0%)
     Planned Pipeline includes projects in final planning and planning phases.



   March 2010 Pipeline has approximately 35.7% less rooms on the
    active list versus March 2009

   15 of the Top 25 markets have more than a 50% decline in year over
    year rooms in construction


                                                                                                                  33
                                             Pinnacle
Boston Pipeline
 No new hotels in the active pipeline for Boston
 Aware of 5,000 rooms planned but none have
  financing
 No new supply in South Boston Waterfront
  District since the Renaissance in February of
  2008




                                                        34
CONVENTION CENTER HOTEL
DEVELOPMENT
  Historically, CCHQ Hotels have required public
   participation
  Early 1990’s recession and RTC workouts lowered
   hotel values further below replacement cost
   exacerbating the need for public participation
  Construction costs have continued to outpace full-
   service hotel economic values
  As previously discussed, no private financing for
   large-scale hotel projects
  Nationwide, only two full service, business-oriented
   hotels greater than 700 rooms have been developed
   without public support since 2000

                                                          35
700+ ROOM DOWNTOWN HOTEL OPENINGS1997 TO 2008 (1)




                                                                                                                                                                     (13)

                                                                                                                                                            (16)(17)
                                                                                                                                 (5)
                                                                                                                               (5)
                                                                                       (1)                                                               (7)(11)
                                                                                                                        (4)
                                                                                                                         (4)

                                      (15)
                                        (15)                                                                                                  (10)
                                         (14)
                                        (14)
                                                               (6)


                                                                                                                                              (9)
                                                                                                      (8) (2) (3)

                                                                                                                                       (12)



Public Financing:                                                          Public Support:                                                      Private Financing:
(1) 1,100-Room Denver Hyatt (2005)                                         (9) 966-Room Jacksonville Hyatt (2001)                               (16) 863-Room Westin Times Sq. (2002)
(2) 800-Room Austin Hilton (2004)                                          (10) 700-Room Charlotte Westin (2003)                                (17) 802-Room NYC Hudson Hotel (2000)
(3) 1,200-Room Houston Hilton (2003)                                       (11) 750-Room Baltimore Marriott (2001)
(4) 1,100-Room St. Louis Renaissance(2) (2003)                             (12) 717-Room Tampa Marriott(2002)
(5) 800-Room Chicago Hyatt (1998)                                          (13) 793-Room Boston Westin (2006)
(6) 1,000-Room Phoenix Sheraton (2008)                                     (14) 1,200-Room San Diego Hilton (2008)
(7) 757-Room Baltimore Hilton (2008)                                       (15) 1,001-Room Los Angeles JW Marriott/Ritz-Carlton
(8) 1,003-Room San Antonio Hyatt(2) (2008)

        (1)700+ Room Hotels Opened from 1997 to 2008 excluding Gaming or Resort Hotels. Source: Smith Travel Research
        (2) Privately owned but financed primarily with tax-exempt bonds.
                                                                                                                                                                                        36
RECENT CONVENTION CENTER HOTEL
DEVELOPMENT

 Ten convention center headquarter hotels with 750 rooms or more
  have entered the U.S. market since 2003
                                                                              Financing
                   City          Hotel      Room Count      Hotel Opening     Structure
          St. Louis (1)    Renaissance            1,074 December 2003          Public
          Houston          Hilton                 1,200 December 2003          Public
          Austin           Hilton                   800 January 2004           Public
          Denver           Hyatt                  1,100 December 2005          Public
          Boston           Westin                   793 June 2006              Private
          San Antonio(1)   Grand Hyatt            1,000 Feburary 2008          Public
          Baltimore        Hilton                   756 August 2008            Public
          Phoenix          Sheraton               1,000 October 2008           Public
          San Diego        Hilton                 1,200 December 2008          Private
          Dallas           Omni                   1,016 January 2012           Public
          Los Angeles      Marriott                 878 Feburary 2010          Private

          (1) Privately owned but financed primarily with tax-exempt bonds.


                                                                                          37
Recent Convention Center Hotel
Developments

 Operators                         Financing Structures
    4 Hiltons – Houston, Austin,      7 publicly financed
     Baltimore, San Diego              3 privately financed
    2 Hyatts – Denver, San                San Diego
     Antonio                               Boston
    2 Starwood Properties –               Los Angeles
     Boston, Phoenix
    2 Marriott Properties – St.
     Louis, Los Angeles




                                                               38
CONVENTION CENTER HOTEL
FINANCING

                                                   Competing Goals

Private Owner        Maximize Profit                         Public Entity      Support Convention Center
     Maximize ADR and Occupancy                              Offer competitive rates (group business)
 Facility optimization (keys, meeting space, amenities) –    Room block commitment (reduced occupancy)
  minimize development cost
                                                              Larger meeting space requirement (more costly)
 Investor return requirements (20-25%)
                                                              Amenities (food and beverage, etc.)




                                                                                                                39
CONVENTION CENTER HOTEL
FINANCING

 Privately owned convention center hotels generally
  require public financial subsidies
    Economics do not support conventional financing terms
    Public subsidy / GAP financing increasing
    Financial benefits inure to owner / equity investor


 Public ownership offers an alternative
    Control integration with convention center
    Access to lower cost capital / hurdle rate
    Financial benefits inure to government sponsor / owner


                                                              40
CONVENTION CENTER HOTEL FINANCING
BASIC OPTIONS
         PRIVATE OWNERSHIP                                    PUBLICLY OWNED - TAX-EXEMPT

    CONVENTIONAL      PUBLIC/PRIVATE     2-TIERED STRUCTURE          2-TIERED STRUCTURE    SINGLE TIER STRUCTURE



                                        SENIOR LIEN BONDS          SENIOR LIEN BONDS       SENIOR LIEN BONDS
                                        Senior Lien                Senior Lien             Senior Lien
  FIRST MORTGAGE     FIRST MORTGAGE     Project Revenues +         Project Revenues only   Project Revenues + tax
                                        Credit Support on all or   Low Investment Grade    increment + Credit
                                        portion of debt service                            Enhancement on all or
                                        Investment Grade                                   a portion of debt
                                                                                           service
                                                                                           Investment Grade


                     PRIVATE EQUITY /                              JUNIOR LIEN BONDS
                     MEZZANINE DEBT                                Backed by high grade
                                                                   Revenue source or
                                                                   credit backstop
  PRIVATE EQUITY /        PUBLIC
                                        JUNIOR LIEN BONDS
  MEZZANINE DEBT       INVESTMENT
                                        Market takes risk
                                        Non-rated




                                        CASH FLOW NOTES            CASH FLOW NOTES         CASH FLOW NOTES




                                                                                                              41
Private/Public Transaction
Simplified Organization Chart:

                                                   Hotel
                                                  Operator



                                                       Management Agreement



                                              Private Owner              Room Block
         Public Entity                     • Receives Cash Flows         Agreement    Convention Center
   Financial Support/Subsidy             •Receives Refinancing/Sale                       Authority
                                                 Proceeds




                                                                        Equity
                               Lenders
                                                                      Investors




                                                                                                          42
WASHINGTON DC CONVENTION CENTER HOTEL – PRIVATE

                                          Project Description
                                           1,167-room full service hotel managed by
                                            Marriott (Marriott Marquis)
                                           Projected opening date: Estimated 2013
                                           100,000 square feet of meeting space
                                           400 car parking structure
                                          Capital Structure (Private Portion) –
                                           Privately Owned
                                           $256 million in senior debt
                                           $75 million of investor equity
  RFP Process                             Public Contribution (Preliminary)
   •   Proposals solicited – June 2001     Purchase of land (execute 99 year ground
   •   Hotelier /Developer selected –       lease with development team) - $100 million
       October 2002                         (Est.)
                                           $208 million in contributions from various
                                            agencies and the District
                                           $308 million total estimated public
                                            contribution



                                                                                       43
Public Transaction
Simplified Organization Chart:



                                            Hotel
                                           Operator



                                                Qualified Management Agreement


                                 Single-Purpose Non-Profit         Room Block
                                                                   Agreement
          Public                        Corporation                              Convention Center
         Sponsor                     • Receives Cash Flow                            Authority
                                 • Receives Refinancing/ Sales
                                           Proceeds




                                            Bond
                                           Holders




                                                                                                     44
DENVER CONVENTION CENTER HOTEL - PUBLIC

                       Project Description
                        1,100-room full service, first class hotel
                         managed by the Hyatt Hotel Corporation
                        Opening date: December 2005
                        Adjacent to the convention center
                        300-seat full-service restaurant and lobby
                         lounge
                        60,000 net square feet of meeting space
                        600 space parking garage below the hotel


                        Capital Structure
                        $354.8 million in “AAA” insured senior lien
                         current interest bonds issued at a TIC of
                         4.61%
                        $10.0 million Letter of Credit from the hotel
                         operator


                       City Contribution
                        The City’s contingent appropriation pledge
                         was equal to 45% of debt service on the
                         bonds                                           45
DALLAS CONVENTION CENTER HOTEL - PUBLIC

                          Project Description
                           1,016-room full service hotel managed by
                            Omni
                           Projected opening date: January 1, 2012
                           Full-service restaurant and lounge
                           Immediately adjacent to the convention
                            center
                           80,000 square feet of meeting space
                           720 car parking structure
                          Capital Structure – Publicly Owned
                           $74.4 million in tax-exempt hotel revenue
                            bonds
                           $388.1 million of taxable hotel revenue “Build
                            America Bonds”
                           $17.2 million in taxable bonds
                          Public Contribution
                           10 years of State tax abatements
                           City backstop (subject to appropriation) for
                            100% of the total debt service

                                                                           46
Three Potential Headquarters
Hotel Sites
1   West
2   North
3   East


.   Existing Westin Hotel

*   Proposed Expansion of Westin Hotel




                                     47
1. West Hotel Alternative
Existing Owner
 US Postal Service
Connection to BCEC
 Yes - direct pedestrian bridge
Design/Construction Challenges
 Air rights construction over turnpike
 Bridge connection to BCEC crosses Haul
  Road and railroad tracks
Urban Design
 Strengthens/complements main entrance to
  BCEC
 Fills “void” left by Big Dig
 Site connects BCEC to “100 Acre” district to
  west



                                            48
2. North Hotel Alternative
Existing Owner
 Massport
Connection to BCEC
 Yes – indirect pedestrian bridge over
  Summer Street and through Westin lobby
Design/Construction Challenges
 Air rights construction over turnpike,
 railroad tracks, Haul Road and MBTA
 Silver Line
Urban Design
 Strengthens/complements main entrance
  of BCEC
 Creates pedestrian linkage from BCEC to
  Silver Line and Boston Harbor
 Fills in “void” left by Big Dig


                                            49
3. East Hotel Alternative
Existing Owner
 Intercontinental Real Estate Corp
Connection to BCEC
 Yes – but long pedestrian bridge over D
  Street located south of main BCEC Summer
  Street entrance
Design/Construction Challenges
 No subsurface construction premiums
 Narrow width of site constrains hotel design
Urban Design
 Site is distant from the Summer Street
  address of the BCEC
 Site does not reinforce linkages between
  BCEC and transit, Boston Harbor or
  Downtown Boston


                                             50
Boston Redevelopment Authority
   Kairos Shen, Director of Planning




                                       51

								
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