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DRAFT FOR POLICY DISCUSSION ONLY. FINANCE. August 2010 Working Group Session. DRAFT FOR POLICY DISCUSSION ONLY. AGENDA. Introduction Pre-Development BCEC Projections vs. Actual Results Convention Center Fund Analysis Recent Convention Center HQ Hotels in Other Cities

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DRAFT FOR POLICY DISCUSSION ONLY

FINANCE

August 2010 Working Group Session


DRAFT FOR POLICY DISCUSSION ONLY

AGENDA

  • Introduction

  • Pre-Development BCEC Projections vs. Actual Results

  • Convention Center Fund Analysis

  • Recent Convention Center HQ Hotels in Other Cities

  • Current Environment for HQ Hotel Financing

  • Next Steps


DRAFT FOR POLICY DISCUSSION ONLY

BCEC BOOK OF BUSINESS:COMPARISON OF JOHNSON REPORT TO ACTUALSUpdated through FY2010


In March 1997, C.H. Johnson Consulting, Inc. completed a report on Market, Economic and Financial Analysis for the Boston Convention & Exhibition Center

2 Key Assumptions for Event Projections

Based on 3,800 new hotel rooms proximate to the BCEC

Based on an exhibit hall footprint of 600k GSF with undefined utilization factors

Created demand projections for different types of events:

Conventions and Tradeshows

Community, Social or Other Meetings

DRAFT FOR POLICY DISCUSSION ONLY

INITIAL FEASIBILITY STUDY


DRAFT FOR POLICY DISCUSSION ONLY report on Market, Economic and Financial Analysis for the Boston Convention & Exhibition Center

COMPARISON OF EVENT PROJECTIONS

  • While the Johnson report projects more convention & tradeshow events, the MCCA has booked fewer events of a much higher quality.

  • The MCCA has already reached stabilization, which Johnson projected would take 10 years to achieve.


Compares quality of the events in generating direct revenues to the MCCA

Johnson lists an exhibit hall utilization based on weighted occupied GSF

MCCA calculates exhibit hall utilization based on weighted occupied GSF

Johnson’s maximum exhibit hall utilization is 49% (2015), which the MCCA has surpassed since 2007.

DRAFT FOR POLICY DISCUSSION ONLY

EXHIBIT HALL UTILIZATION COMPARISON


Johnson’s report projections based on construction of new, proximate hotel rooms:

Assumed a minimum of 1,200 new rooms in order to achieve results in the first year

Assumed a minimum of 3,800 new rooms in order to achieve maximum results

Maximum number of projected room nights is 794,000 (2015)

With only 1,690 new, proximate hotel rooms, the MCCA is bumping up against the practical maximum number of rooms it can generate

DRAFT FOR POLICY DISCUSSION ONLY

ROOM NIGHT COMPARISON


Provide $695 million to fund capital costs of the new BCEC proximate hotel rooms:

Provide sufficient funding for marketing and promotion

Cover any anticipated operating deficits and capital reserve requirements

Allow for a sufficient flow of funds to allow for the eventual expansion of the BCEC

DRAFT FOR POLICY DISCUSSION ONLY

FINANCE OBJECTIVES


DRAFT FOR POLICY DISCUSSION ONLY proximate hotel rooms:

CONVENTION CENTER FUND REVENUES ANALYSIS


Room Occupancy Taxes proximate hotel rooms:(3)

  • Estimates provided in the BCEC Marketability Study submitted by the BRA & MCCA in Nov. 1998.

  • (2) Actuals provided from the Certificates Regarding Revenue Sufficiency.

  • (3) Includes the 5.7% room occupancy tax and the 2.75% convention center finance fee.

DRAFT FOR POLICY DISCUSSION ONLY

PROJECTED VERSUS ACTUAL COLLECTIONS(1)(2)


Vehicle/Parking Surcharge proximate hotel rooms:

  • Estimates provided in the BCEC Marketability Study submitted by the BRA & MCCA in Nov. 1998.

  • (2) Actuals provided from the Certificates Regarding Revenue Sufficiency.

DRAFT FOR POLICY DISCUSSION ONLY

PROJECTED VERSUS ACTUAL COLLECTIONS(1)(2)


Sales Taxes/Sightseeing Surcharge proximate hotel rooms:

  • Estimates provided in the BCEC Marketability Study submitted by the BRA & MCCA in Nov. 1998.

  • (2) Actuals provided from the Certificates Regarding Revenue Sufficiency.

DRAFT FOR POLICY DISCUSSION ONLY

PROJECTED VERSUS ACTUAL COLLECTIONS(1)(2)


Convention Center Fund Revenues proximate hotel rooms:

  • Estimates provided in the BCEC Marketability Study submitted by the BRA & MCCA in Nov. 1998.

  • (2) Actuals provided from the Certificates Regarding Revenue Sufficiency.

DRAFT FOR POLICY DISCUSSION ONLY

PROJECTED VERSUS ACTUAL COLLECTIONS(1)(2)


DRAFT FOR POLICY DISCUSSION ONLY proximate hotel rooms:

CONVENTION CENTER FUND REVENUE DISTRIBUTION


DRAFT FOR POLICY DISCUSSION ONLY proximate hotel rooms:

CONVENTION CENTER FUND REVENUES

PLEDGED RECEIPTS - CH 152 OF THE ACTS OF 1997

Room Occupancy Taxes

  • 2.75% Convention Center Financing Fee (Room Occupancy Tax)

    • All hotels in Boston, Cambridge, Springfield, and Worcester

  • 5.7% Room Occupancy Tax

    • All hotels within the BCEC Finance District

    • Hotels opened after July 1997 in Boston and Cambridge

    • Hotels opened after July 2000 in Springfield

  • 4% “Local Option” Room Occupancy Tax

    • Hotels opened after July 2000 within the Springfield Convention Center (SCC) Finance District


DRAFT FOR POLICY DISCUSSION ONLY proximate hotel rooms:

CONVENTION CENTER FUND REVENUES

PLEDGED RECEIPTS - CH 152 OF THE ACTS OF 1997

Other Taxes and Fees

  • 5% Retail Sales Tax

    • Any establishment opened after July 1997 within the BCEC Finance District

    • Hotels opened after July 1997 in Boston and Cambridge

    • Hotels opened after July 2000 within the SCC Finance District

    • Any establishment within the MassMutual Center

  • 5% Sightseeing Surcharge in Boston

  • $2 per day Parking Surcharge in any Convention Center Parking Facility

  • $9 per contract Vehicular Rental Surcharge in Boston


DRAFT FOR POLICY DISCUSSION ONLY proximate hotel rooms:

Boston & Cambridge


DRAFT FOR POLICY DISCUSSION ONLY proximate hotel rooms:

BCEC - Finance District


DRAFT FOR POLICY DISCUSSION ONLY proximate hotel rooms:

Greater Springfield Area


DRAFT FOR POLICY DISCUSSION ONLY proximate hotel rooms:

Springfield Convention Center Finance District


DRAFT FOR POLICY DISCUSSION ONLY proximate hotel rooms:

Worcester


DRAFT FOR POLICY DISCUSSION ONLY proximate hotel rooms:

PINNACLE ADVISORY CCF REVENUE PROJECTIONS VS. ACTUALS


DRAFT FOR POLICY DISCUSSION ONLY proximate hotel rooms:

Fiscal Year 2008 Projections and Actual


DRAFT FOR POLICY DISCUSSION ONLY proximate hotel rooms:

Fiscal Year 2009 Projections and Actual


DRAFT FOR POLICY DISCUSSION ONLY proximate hotel rooms:

Fiscal Year 2010 Projections and Actual


DRAFT FOR POLICY DISCUSSION ONLY proximate hotel rooms:

RECENT CONVENTION CENTER HEADQUARTERS HOTELSIN OTHER CITIES


DRAFT FOR POLICY DISCUSSION ONLY proximate hotel rooms:

Convention Center Hotel Development

  • Historically, CCHQ Hotels have required public participation

  • Construction costs have continued to outpace full-service hotel economic values exacerbating the need for financial subsidies

  • 1997 tax code changes facilitated the growth of publicly owned CCHQ projects

  • No availability of 100% private financing for large-scale hotel projects

  • Since 2003, no CCHQ project has entered the market without some form of public financial participation


DRAFT FOR POLICY DISCUSSION ONLY proximate hotel rooms:

Recent Convention Center Hotel Developments

  • Eleven convention center headquarter hotels with 750 rooms or more have entered the U.S. market or began construction since 2003

  • Operators

    • 4 Hilton Properties – Houston, Austin, Baltimore, San Diego

    • 2 Hyatt Properties – Denver, San Antonio

    • 2 Starwood Properties – Boston, Phoenix

    • 2 Marriott Properties – St. Louis, Los Angeles

    • Omni - Dallas

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


DRAFT FOR POLICY DISCUSSION ONLY proximate hotel rooms:

700+ Room Downtown Hotel Openings 2000 - 2008 (1)

(13)

(16)(17)

(5)

(5)

(1)

(7)

(11)

(4)

(4)

(15)

(10)

(14)

(6)

(9)

(8)

(2)

(3)

(12)

Public Financing:

(1) 1,100-Room Denver Hyatt (2005)

(2) 800-Room Austin Hilton (2004)

(3) 1,200-Room Houston Hilton (2003)

(4) 1,100-Room St. Louis Renaissance(2) (2003)

(5) 800-Room Chicago Hyatt (1998)

(6) 1,000-Room Phoenix Sheraton (2008)

(7) 757-Room Baltimore Hilton (2008)

(8) 1,003-Room San Antonio Hyatt(2) (2008)

Public Support:

(9) 966-Room Jacksonville Hyatt (2001)

(10) 700-Room Charlotte Westin (2003)

(11) 750-Room Baltimore Marriott (2001)

(12) 717-Room Tampa Marriott(2002)

(13) 793-Room Boston Westin (2006)

(14) 1,200-Room San Diego Hilton (2008)

(15) 1,001-Room Los Angeles JW Marriott/Ritz-Carlton

Private Financing:

(16) 863-Room Westin Times Sq. (2002)

(17) 802-Room NYC Hudson Hotel (2000)

(1)700+ Room Hotels Opened from 2000 to 2008 excluding Gaming or Resort Hotels. Source: Smith Travel Research

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


DRAFT FOR POLICY DISCUSSION ONLY proximate hotel rooms:

Convention Center Hotel Performance

  • 2009 – Worst performing hotel market since 1932

    • RevPar decline of 19.5% nationally

  • Bond rating downgrades due to downgrade of AAA bond insurers, not underlying project performance

    • Austin, Denver, Baltimore and Phoenix were originally issued with AAA rated bond insurance

  • Projects that reached stabilized operating levels prior to 2009 have performed well, relatively, during the market downturn

  • Generally speaking, publicly owned hotel projects have weathered the current downturn better than most hotels due to:

    • Lower cost of capital and subsequent debt service burden

    • Substantial reserve funds available to offset reduced operating performance levels


DRAFT FOR POLICY DISCUSSION ONLY proximate hotel rooms:

Convention Center Hotel Performance


Simplified Organization Chart: proximate hotel rooms:

Hotel

Operator

Public Entity

Fin. Support

Private

Owner

CVB

Room Block

Lenders

Equity

Investors

DRAFT FOR POLICY DISCUSSION ONLY

Public/Private Transaction –Simplified Organization Chart


DRAFT FOR POLICY DISCUSSION ONLY proximate hotel rooms:

Public/Private Transaction –Simplified Financing Structure

Typical Capital Structure

Simplified Flow of Funds:

First Mortgage Secured Debt

Hotel NOI

Public Support

(if applicable)

Mezzanine Debt

Public

Subsidy

Investor Equity

Senior Debt Service

Mezzanine Debt Service

Distribution to Equity


Simplified Organization Chart: proximate hotel rooms:

Hotel

Operator

Public

Sponsor

Non-Profit

Owner

CVB

Room Block

Bond

Holders

DRAFT FOR POLICY DISCUSSION ONLY

Public Transaction – Simplified Organization Chart


DRAFT FOR POLICY DISCUSSION ONLY proximate hotel rooms:

Public Transaction – Simplified Financing Structure

Typical Capital Structure

Simplified Flow of Funds:

Senior Hotel Revenue Bonds

Hotel NOI

Other Income

(if applicable)

Public

Support

Subordinate Revenue Bonds

Senior Debt Service

Cash Flow Notes (if applicable)

FF&E

Subordinate Bond Debt Service

Subordinate Mgmt. & FF&E Exp.

Additional

Reserves

Distribution

To Govt.


PRIVATE OWNERSHIP proximate hotel rooms:

PUBLICLY OWNED - TAX-EXEMPT

SINGLE TIER STRUCTURE

2-TIERED STRUCTURE

2-TIERED STRUCTURE

CONVENTIONAL

PUBLIC/PRIVATE

SENIOR LIEN BONDS

Senior Lien

Project Revenues + Credit Support on all or portion of debt service

Investment Grade

SENIOR LIEN BONDS

Senior Lien

Project Revenues only Low Investment Grade

FIRST MORTGAGE

FIRST MORTGAGE

SENIOR LIEN BONDS

Senior Lien

Project Revenues + tax increment + Credit Enhancement on all or a portion of debt service

Investment Grade

PRIVATE EQUITY / MEZZANINE DEBT

JUNIOR LIEN BONDS

Backed by high grade

Revenue source or credit backstop

PRIVATE EQUITY / MEZZANINE DEBT

PUBLIC INVESTMENT

JUNIOR LIEN BONDS

Market takes risk

Non-rated

CASH FLOW NOTES

CASH FLOW NOTES

CASH FLOW NOTES

DRAFT FOR POLICY DISCUSSION ONLY

Convention Center Hotel Financing Basic Options


DRAFT FOR POLICY DISCUSSION ONLY proximate hotel rooms:

CURRENT ENVIRONMENT FOR HEADQUARTERS HOTEL FINANCING


Capitalization Rates (1) proximate hotel rooms:

  • Significant decline in hotel values nationwide

  • Scarcity of new construction lending

  • Equity investors- primary focus on acquiring distressed properties

  • Decreasing LTC ratios

  • Increased level of public subsidy required

LTC Ratios (1)

(1) Source: PKF Hospitality Research

DRAFT FOR POLICY DISCUSSION ONLY

Current Environment – Private Financing


DRAFT FOR POLICY DISCUSSION ONLY proximate hotel rooms:

Current Environment – Public Financing

  • Historically low interest rates for high grade debt

  • Limited demand for project revenue debt

  • Increased credit spreads

  • Limited availability of credit enhancement

  • Increasing levels of municipal support required for publicly owned projects

  • Potential interest cost savings with Build America Bonds


DRAFT FOR POLICY DISCUSSION ONLY proximate hotel rooms:

Financing Considerations – Public Ownership

  • Strength of local hospitality market

  • Construction cost

  • Ratings and underwriting criteria

  • Proper allocation of risk among parties

  • Capital market conditions

  • Ability to provide credit support

  • Risk profile – Sensitivity analysis

  • Economic impact


DRAFT FOR POLICY DISCUSSION ONLY proximate hotel rooms:

Public Ownership – Typical Forms of Municipal Support

  • Contribution of site specific tax increment

  • Contribution of dedicated revenue stream from additional source(s)

  • Pledge of broader base revenue source

    • Sales or occupancy taxes

    • Surcharges or other special taxes

    • Contingent debt service guarantee

  • Funding of infrastructure or other development costs (i.e. parking)

  • Land contribution

  • Economic development payments

  • Tax increment contribution (Local or State taxes)

  • Multi-agency / Inter-governmental participation

  • Stand by guarantee of senior or subordinate series of bonds (multi-tiered financing)


  • DRAFT FOR POLICY DISCUSSION ONLY proximate hotel rooms:

    NEXT STEPS


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