Convention Center Headquarters Hotel and Expanded Conference Space - - PowerPoint PPT Presentation

Virginia Beach City Council December 6, 2011

Convention Center Headquarters Hotel and Expanded Conference Space Brief

Presentation Outline

• Introduction and Overview – Steve Herbert, Deputy City Manager

– Background on key events – Why we need a Convention Headquarters Hotel – Where it will be located – What kind of hotel product it will be – Why does the project need public support

• Benefits and Proposed Deal Structure – Patti Phillips, Director of Finance

– What are the potential benefits? – What are the components of the deal? – Is the proposed deal fair to the city? – What are the risks and how will we manage them? – Does it make business sense for the city?

• Recap and Perspective – Jim Ricketts, Director of Convention & Visitor Bureau
• Next Steps – Steve Herbert
• Introduction of Armada Hoffler – Steve Herbert

– Hyatt Hotels, and Crestline Management

2

Background

• June 2007 - City Council Resolution requests Virginia Beach Development Authority (VBDA) to pursue

Convention Center Headquarters Hotel development

• December 2007 - VBDA adopts PPEA procedures and begins process to receive proposals
• August 2008 – City hires HVS Convention, Sports Entertainment facilities consultants
• September 2008 – Selection Committee announces two finalists: Garfield Traub and Armada Hoffler from

total of four proposals received.

• October 2010 – Garfield Traub withdraws from further negotiations
• November 2010 – VBDA requests Armada Hoffler to review its original proposal and update to current

market conditions

• February 2011 – Armada Hoffler makes initial report to VBDA and prepares to move ahead into pre-

development work on cost shared basis

• March 2011 – Closed Session Update to City Council
• June 2011 – Armada Hoffler presents deal structure draft to VBDA/City staff
• July 2011 – Closed Session Brief to VBDA
• October 25, 2011 –Brief to City Council on Property Transfer
• November 1, 2011 - City Council transfers property to VBDA
• November 22, 2011 – City Council receives Closed Session brief.

3

Who We Were…

Who We Were…

Who We Are…

7

Goal 5 – Be a Competitive, First Class Resort for Residents, Businesses and Tourists

Objectives

• Become year-round destination
• Safe and more inviting environment for

families: 24 hours

• More variety of activities, including

more hosting of sporting events

• Optimize the potential of

Convention Center

• Increase residents’ understanding of the

value of tourism to the community, and their enjoyment of the resort Increase marketing the resort as a year-round destination Business Initiatives Cultural & Recreational Opportunities

• 17th Street Redevelopment
• Aquarium and Owls Creek

District Plan

• Aquarium Exhibits

Renovation

• Marine Animal Care Center

Economic Vitality

• Convention Center Hotel
• Dome Site
• Resort Area Parking Strategy
• Rudee Walk Phase I

Quality Physical Environment

• 19th Street Pedestrian

Connection

• Cape Henry Beach

Easements

• Form Based Zoning
• Sand/Beach Replenishment

Project Description

• Armada Hoffler design drawings
• 180’ building height (FAA clearance)
• 361 room 15 story tower (phase one)
• Site is 5.7 acres includes parking and streetscapes
• 82,648 sf of public space – including 18,741sf of meeting

rooms/ballroom

• Connector bridge to VBCC (215’ long/15’ wide)
• Architecture compatible with and enhances Convention Center

8

Project Description

• Hyatt Regency Flag –4 star property
• Hyatt unique to market
• National Reservation and marketing system
• 18 headquarters hotels nationally
• Crestline Management partners for operation and equity – great

local experience

9

10

11

Total 1st and 2nd Floor

• Hotel Services Unit 19,713sf
• Conference Center 82,648sf
• Total 102,361sf

12

79,447 sf. Conference Center 13,611 sf. Hotel Services Unit

2nd Floor Hotel Services Unit and Conference Center Space

Conference Center 3,201 sf. Hotel Services Unit 6,102 sf Total 9,303 sf

13

14

Lack of a headquarters hotel is the no. 1 reason we lose conventions and the business they bring to Virginia Beach

And No. 3 reason is lack of meeting space or dates

Short Listed and Lost

Lost Business Due to Lack of Headquarters Hotel

Since the building fully opened (2007-Present)

Conventions 77

• Est. Room nights

236,899

• Est. Direct spending

$55.1 million

15

What our customers are telling us

It will take a luxury to high level hotel, which is either connected to or immediately across the street, in order for us to seriously consider Virginia Beach as a destination”. – Kathy Smith, CMP, American Association of Neuromuscular & Electrodiagnostic Medicine 1,200 Delegates … the lack of a headquarters hotel is troublesome. – Dale Shuter, Electrical Apparatus Association 3,000 delegates

16

Virginia Beach is the ONLY member of our Competitive Set Without a Headquarters Hotel

17

City HQ Hotel Open FLAG # Rooms Savannah 1999 Westin 403 Myrtle Beach 2003 Sheraton 402 Charlotte 2003 Westin 700 Richmond 2004 Marriott 389 Louisville 2005 Marriott 616 Baltimore 2008 Hilton 757 Raleigh 2008 Marriott 400 Nashville 2012 Omni 800

Charlotte Raleigh Myrtle Beach

Public Ownership or Public Private Partnerships

Public Ownership

• a. Municipality issues tax-exempt debt for entire project
• b. Hotel revenues are pledged
• c. May require subordinate debt
• d. Often requires pledge of hotel taxes by City to help

retire debt

• e. Public contracts for hotel operations

18

Examples include:

Myrtle Beach – 2003 Houston San Antonio Chicago Phoenix – 2006 San Diego Denver

• St. Louis

Austin Baltimore – 2008

Public/Private Partnership

• a. Private ownership of hotel with public involvement
• b. Public involvement – “bridges the gap to financial

feasibility”

• c. Public subsidy – land, infrastructure, loans, etc.
• d. Leverages private investment – reduces city’s cost and

mitigates risk

• e. Without public investment and participation, this

hotel will not be built

19

Charlotte – 2002 Nashville – 2012 Philadelphia – 1995 Savannah – 2013 Raleigh – 2008 San Diego – 2008 San Antonio – 2008 Fort Worth - 2009

Examples include:

In cities across the U.S., Public Participation is Required

• In almost all U.S. markets, the cost to build full-service headquarters

hotel rooms is greater than the room rates the market will bear.

– Room block requirements by convention center at discounted prices years in advance – Cost of additional amenities (full service hotel) to be competitive – Difficult financing environment for unique product is the result

• Private developers can’t secure enough debt and equity to finance the

project.

• Headquarters Hotels are a different animal

– Most hotels profit from the leisure and business traveler: able to control rates fill in empty rooms; – Convention Hotels: discounted rates and block large number of rooms years in advance – HQ hotels subsist almost Solely on discounted convention business.

SO WHY DO IT? Why have all our competitors built and opened a Headquarters Hotel The benefits to a city outweigh the costs

20

• 21 -

Economic Impact Methodology - HVS

HVS Convention Center Demand Projections HVS HQ Hotel Room Nights Projections EXPACT Survey Data Overnight Stays Day Trips Organizers Exhibitors Induced Unaccommodated Visitor Spending by Category

IMPLAN • Direct Spending

• Indirect (business

spending)

• Induced (personal

spending)

• Job Estimates
• Fiscal Impacts

Due Diligence

22

• City staff reviewed and compared to City

model

• Compared to other headquarters hotel and

convention center projects

– Savannah – Raleigh

• Compared HVS projections to actual

– Raleigh – Dallas

• 96,000 new room nights annually
• 900 net new jobs
• 59 new events at the Convention

Center annually (18% increase)

• 86,480 new event attendees annually

(17% increase)

HVS Report Findings

23

A Headquarters Hotel in Virginia Beach

HVS Report Findings

24

• $88.7 million/year direct, indirect, and

induced spending

• $4.3 million/year in new, additional tax

revenues to the City in 2011 Dollars

• Note also that the State will receive

$2.4 million in 2011 Dollars

• Over the first 20 years, the project will

generate fiscal impacts to the City of

$111.7 million (present value of

$60.2 million.)

25

Annual Tax Revenues – City of Virginia Beach (for a stabilized year stated in 2011 dollars) As A Result of Having Headquarters Hotel

Tax Category Estimated Tax Revenue ($) Admissions 16,000 Restaurant & Meals 1,039,300 Hotel 1,074,400 Business License Tax 212,600 Property Taxes 691,200 Retail Sales 1,185,600 Business Property 93,100 Total $4,312,200

26

Total Tax Revenues - $111.7 million

Year 2011 Dollars Nominal Dollars 1 2,566,000 2,763,000 2 3,665,000 4,045,000 3 4,312,000 4,879,000 4 4,312,000 5,001,000 5 4,312,000 5,126,000 6 4,312,000 5,254,000 7 4,104,448 5,126,000 8 4,104,448 5,254,000 9 4,104,448 5,385,000 10 4,104,448 5,520,000 11 4,104,448 5,658,000 12 4,104,448 5,799,000 13 4,104,448 5,944,000 14 4,104,448 6,093,000 15 4,104,448 6,245,000 16 4,104,448 6,402,000 17 4,104,448 6,562,000 18 4,104,448 6,726,000 19 4,104,448 6,894,000 20 4,104,448 7,066,000

Total 111,742,000

• Revenue stream over

20 years of

• perations(debt

term)

Additional Impacts

• Benefits existing hotels

– Conventions will bring more attendees than the hotel can accommodate – spillover – Conventions will boost business in the shoulder season – Conventions will bring professional association delegates with higher spending levels

• may stay on before/after conventions – additional spending
• Maximize investment in Convention Center; make it fully

competitive

– Need has grown since our competition has changed – Now it is a necessity – Cannot afford to wait

• Interest rates
• Construction pricing

27

Council Policy for Evaluation of Public-Private Partnerships

Tier I Project Desirability

• 1. Achieves Council’s overall goals-diversify tax base
• 2. Provides jobs or target a sector or area important to future

growth

• 3. Provides synergy to attract other private development

Tier II Economic, Fiscal impacts

1. Fiscal, economic and/or social benefits 2. A fair return to partners 3. The project would not proceed at all, or would not proceed at the desired level of quality “but for” public sector involvement

28

BUSINESS TERMS

–New Convention Center Hotels are always either publicly owned or a public private partnership –Key issues are is this fair to both the City and the developer? –It makes business sense –Risks are managed

29

Public and Hotel Initial Capital Costs

Public Space Conference Space $34.7 Streetscapes 2.7 Conditioned Connector Bridge 5.3* Total Public 42.7* Hotel Space - Private 66.5 Total Project Costs *Paid for from recapture of state sales tax revenues, leaving $37.4 million to be paid by the VBDA $109.2

30

Millions $

Note: Developer responsible for any cost overrun.

Developer Financing of Hotel Space

(in millions $)

31

Developer Debt and Equity $47.4 Gap Financing:

• Mezzanine Loan from VBDA (22 yrs.)

13.8

• Hotel Services Unit-VBDA (32 yrs.)

5.3 19.1 Total Private

Note: There will be minimum equity

$66.5

Total Virginia Beach Development Authority Costs (in millions)

32

Initial Costs VBDA Conference Space $34.7 Streetscapes Connector Bridge 2.7 5.3 Subtotal 42.7 Mezzanine Loan 13.8 Hotel Services Unit - Lease 5.3 Subtotal $61.8 Mezzanine Loan – To be repaid (13.8) Hotel Services Unit Loan – To be repaid ( 5.3) Connector Bridge – State Funded (5.3) Net VBDA Initial Costs $37.4 Other Costs EDIP to be paid over 3 years

• $4.8 million Total

FFE/Management overhead contribution Land for parking ,conference space, hotel

• $450,000/year
• Condominium

Financial Components: Private

• Construct and Deliver Entire Project
• Repayment of $13.8M Mezzanine Loan from

Authority – 22 years or less

• Repayment of $5.3M cost of Hotel Services Unit

– lease over 32 years

• Operate Hotel
• Manage Conference Space
• Obtain Bank Loan and Equity Investors ($47.4M)

33

City Financial Capacity

• TIP FUND

– Has capacity to handle the conference center and hotel related debt service as well as other projects that generate revenues

• Debt Per Capita:

– Debt for both hotel and Dome projects are within the City’s debt capacity

34

Repayment Terms of $13.8M Mezzanine Loan

– Authority to be repaid principal plus interest – Annual payments 80%Net Operating Income

• f Hotel

– If sold, Authority to be repaid out of sale proceeds after repayment of primary developer loan – If not repaid sooner, all sums due after 22 years

35

Repayment for Cost of Hotel Services Unit: ($5.3 million)

– Authority to be repaid principal plus interest – Unit to be leased to Hotel Owner – Beginning in year 6, annual payment of $120K (escalated by 3% annually) – If sold, repayment from sale proceeds after bank, mezzanine loan debt and developer equity paid; if not settled at sale, debt rolls to new

• wner

– If not repaid sooner, all sums due after 32 years – After all sums paid, Hotel Owner to acquire title to Hotel Services Unit

36

Project Will Pay for Itself It Is A Revenue Generator

• Headquarters Hotels are demand generators
• Revenues to the City will exceed costs of

debt service and other annual payments

• Costs will be paid from the Tourism

Investment Program Fund (TIP)

• City General Fund will not bear costs of this

project

37

Recap of Inflows to City 20 Years

38

millions

Revenues: Fiscal Impacts (taxes) from project (HVS) $111.7 2-1/2% State Sales tax (HB2419) 11.8 Parking, other 7.5 Repayments: Developer payments on Mezzanine Loan 18.9 Rent on Hotel Services Unit 2.2 Total Inflows over first 20 years = estimated Annual Inflows to City $6.2m in first stabilized year $152.1

• Debt service on

– Conference Space and Bridge $58.4 – Mezzanine Loan to Developer 19.3 – Hotel Services Unit 7.3

• FFE/Management Overhead

contribution ($450,000) 9.0

• Total costs = $4.7 million/yr. plus EDIP
• Total costs over 20 years is $98.8 million

39

Annual Costs to be Paid from TIP Fund, Not General Fund

(in millions)

Revenues will exceed costs by $53.3 million

• Over 20 year period, total inflows of $152.1

million will exceed costs of $98.8 million by $53.3 million

• Once VBDA debt is paid, City will receive all

revenue of $7.2 million annually

• Both the City and the Schools will receive

benefits from this project

• The General Fund will not bear these costs

40

Recap of Funding – 20 Years

Why Do We Need This Hotel?

• We are losing ground (and business) among our competitors for conventions

and meeting business, particularly in the professional association sector. The playing field needs to be leveled.

• Supports City Council goal to “become a competitive, first class, year-round

destination for residents, business, and visitors.”

• Complies with the Resort Strategies Action (SGA) Plan adopted in 2007.
• Will provide “spillover” business (additional room nights and visitors) to

existing resort hotels, shops, and restaurants.

• Defer the need to add on additional conference and meetings space at the

Convention Center.

• It provides enormous economic impact to Virginia Beach

– 96,000 new room nights annually (20 Shriner Conventions) – 900 new jobs – 59 new events (18% increase) – 86,480 new attendees – $88.7 M in spending annually

• It more than pays for itself

41

Next Steps - Schedule

• VBDA Open Session Presentation and Vote – December 13
• City Council Receives Public Comment – December 13
• City Council Votes on Term Sheet – To Be Determined
• City Council/VBDA votes on Comprehensive Agreement – To Be Determined

42