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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.

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the bcec and hotels an overview presentation to the convention partnership

The BCEC and Hotels: An OverviewPresentation toThe 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
Agenda
  • Relationship Between BCEC and Hotels
  • Measuring the Benefits of an Additional BCEC Headquarters Hotel
  • Responding to the Hotel Challenge
  • BRA Presentation

2

slide3

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
Boston Convention Marketing CenterSales 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
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
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
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

slide9

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 201210,000 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

Building a Competitive Hotel Package

10

simultaneous events at bcec and hynes events impact on hotel availability
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
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
Cost Impacts
  • Lack of hotels near BCEC results in significant transportation cost to our customers

13

bcec lost business due to lack of limited service hotels
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

development of complementary hotels
Development of Complementary Hotels

Pinnacle

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

comparable cities
Comparable Cities

Pinnacle

  • 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

17

hotel room supply18
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

hotel room nights generated by convention center events fiscal years 2007 through 2009
Hotel Room Nights Generated by Convention Center Events (Fiscal Years 2007 through 2009)

20

20

basis for estimate of growth in convention events
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

21

working assumptions about hotel
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

22

impact on bcec room nights estimated for a stabilized year
Impact on BCEC Room Nights(estimated for a stabilized year)

BCEC currently losing business due to lack of proximate rooms

High transportation costs to Back Bay hotels

Inconvenience to attendees

Competitors with better proximate supply

BCEC has capacity to absorb new events even without expansion

Potential for over 140,000 new booked room nights

23

23

impact on bcec room nights estimated for a stabilized year24
Impact on BCEC Room Nights(estimated for a stabilized year)

Potential for over 140,000 new booked room nights

  • New room nights could be generated by recovering lost business
  • HVS analyzed lost business records for events lost due to lack of hotel capacity
  • Not all lost business would be recovered
  • Estimated recovery of lost business constrained by availability of BCEC and schedule

24

24

impact on hynes room nights estimated for a stabilized year
Impact on Hynes Room Nights(estimated for a stabilized year)

BCEC city-wide events currently fill up Back Bay hotels

During BCEC event days, room blocks not available for Hynes events

Expanded hotel supply at BCEC will take pressure off of Back Bay and create availability of room blocks for Hynes

Hynes has potential to book new events

Potential for over 22,000 new booked room nights

25

25

how would a new headquarters hotel affect the boston economy
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

26

slide27

Responding to the Hotel Challenge

Rachel Roginsky, Pinnacle Advisory Group

Peter Phillippi, Piper Jaffray & Co.

Howard Davis, MCCA

27

lack of private sector development
Lack of Private Sector Development

Pinnacle

  • 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

hypothetical headquarters hotel pro forma
Hypothetical Headquarters Hotel Pro Forma

Pinnacle

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

1 000 room boston hotel hypothetical pro forma
Total Revenue

Operating Costs

Net Operating Income

First Mortgage Debt Service*

Income After Debt Service

Return on Equity

* 0.9x Debt Service Coverage in Year 3

Year 3 (stabilized)

$ 94,900,000

$ 71,175,000

$ 23,725,000

$ 26,603,682

( $ 2,878,682)

(2.7 %)

Pinnacle

1,000 Room Boston Hotel - Hypothetical Pro Forma

30

lack of available capital
Lack of Available Capital

Pinnacle

  • 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
Percent Change in US Hotel Supply

Sources: Smith Travel Research (1988 - 2009) and HVS (forecast 2011 -2012)

32

32

total united states active development pipeline rooms

Pinnacle

Total United StatesActive Development Pipeline - Rooms
  • 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

Planned Pipeline includes projects in final planning and planning phases.

33

boston pipeline
Boston Pipeline

Pinnacle

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
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
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:

(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)

36

36

(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.

recent convention center hotel development
RECENT CONVENTION CENTER HOTEL DEVELOPMENT

Ten convention center headquarter hotels with 750 rooms or more have entered the U.S. market since 2003

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

37

37

recent convention center hotel developments
Recent Convention Center Hotel Developments

Operators

4 Hiltons – Houston, Austin, Baltimore, San Diego

2 Hyatts – Denver, San Antonio

2 Starwood Properties – Boston, Phoenix

2 Marriott Properties – St. Louis, Los Angeles

Financing Structures

7 publicly financed

3 privately financed

San Diego

Boston

Los Angeles

38

38

convention center hotel financing
CONVENTION CENTER HOTELFINANCING

Competing Goals

Private Owner Maximize Profit

  • Maximize ADR and Occupancy
  • Facility optimization (keys, meeting space, amenities) – minimize development cost
  • Investor return requirements (20-25%)

Public Entity Support Convention Center

  • Offer competitive rates (group business)
  • Room block commitment (reduced occupancy)
  • Larger meeting space requirement (more costly)
  • Amenities (food and beverage, etc.)

39

convention center hotel financing40
CONVENTION CENTER HOTELFINANCING
  • 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
CONVENTION CENTER HOTEL FINANCING BASIC OPTIONS

PRIVATE OWNERSHIP

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

41

private public transaction
Private/Public Transaction

Simplified Organization Chart:

Hotel

Operator

Management Agreement

Public Entity

Financial Support/Subsidy

  • Private Owner
  • Receives Cash Flows
  • Receives Refinancing/Sale
  • Proceeds

Convention Center

Authority

Room Block Agreement

Lenders

Equity

Investors

42

washington dc convention center hotel private
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

Public Contribution (Preliminary)

Purchase of land (execute 99 year ground lease with development team) - $100 million (Est.)

$208 million in contributions from various agencies and the District

$308 million total estimated public contribution

  • RFP Process
    • Proposals solicited – June 2001
    • Hotelier /Developer selected – October 2002

43

public transaction
Public Transaction

Simplified Organization Chart:

Hotel

Operator

Qualified Management Agreement

Convention Center

Authority

Public

Sponsor

  • Single-Purpose Non-Profit
  • Corporation
  • Receives Cash Flow
  • Receives Refinancing/ Sales
  • Proceeds

Room Block Agreement

Bond

Holders

44

denver convention center hotel public
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
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

slide47

Three Potential Headquarters

  • Hotel Sites
  • West
  • North
  • East

. Existing Westin Hotel

*

Proposed Expansion of Westin Hotel

47

slide48

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

slide49

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

slide50

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

slide51

Boston Redevelopment Authority

Kairos Shen, Director of Planning

51