Financing tops talks at convention center hotel update

Tuesday, September 29, 2009 at 7:41pm

Will Metro be caught footing the bill if a proposed convention center hotel ever has a revenue shortfall that doesn’t match the debt service of a $300 million project?

Even after a special update meeting on Tuesday about the proposed convention center hotel project, that question has yet to be answered.

The most recent city to finance a public convention center headquarters hotel was Dallas, which just over a month ago finalized a package to include a moral-obligation pledge from the city in order to backstop its $300 million project.

That means if the revenues created to fund the hotel don’t match the debt service, the taxpayers will make up the difference. Dallas voters approved the project in a special referendum this year, but here in Nashville no such ballot measure is expected to take place. That’s because Mayor Karl Dean’s administration has promised not to use property taxes to fund the proposed $600 million convention center or its attached $300 million headquarters hotel.

Metro Council received an update on the status of the headquarters hotel project at a joint meeting of Metro's Budget and Finance and Convention Center, Tourism and Public Facilities committees. No details on the financing — including a potential moral-obligation pledge like Dallas used — were discussed.

Metro Finance Director Richard Riebeling promised to hold more special meetings to keep Council abreast on convention center-related developments, but offered no specifics on how the hotel might be financed.

“There’s been a lot of speculation to size and how the project is going to be financed,” Riebeling said. “Those decisions have not been made. We’ve reached no decisions as to anything about the hotel other than we know we need a hotel to make this project a successful one for the city.”

The Metro Development and Housing Agency board has approved Marriott to manage the proposed 1,000-room hotel and use its top-line Marquis brand. But the Dean administration has not committed publicly to a 1,000-room hotel, and it's possible the size could be reduced before a financing plan is presented to Council.

Council members conceded the need for a headquarters hotel, should the convention center project be approved, but questioned some of the data provided by representatives from the Dean administration, Marriott and the project’s underwriter Goldman Sachs.

Statistics provided to Council showed RevPar numbers (occupancy times room rates) spiked once a convention center hotel was built in cities like Austin, Columbus, Indianapolis and Denver. But those statistics stopped in 2006, well before last year’s recession kicked in and business travel took a downturn.

District 23 Councilwoman Emily Evans called for updated numbers to help Council better understand the impact of headquarters hotels in other cities.

A timeline offered by the administration showed financing packages for both projects would be presented before the end of the year.

25 Comments on this post:

By: idgaf on 9/29/09 at 9:13

Why are they continouosly spending money when the financing isn't in place and we didn't vote on it?

Is their no lawyers in this town tat will represent we the taxpayers pro-bono?

You should be able to collect fees from the court . A cease and desist order should be a slam dunk. Just the publicity and good will should be worth it.

By: NotDaveCooley on 9/29/09 at 10:23

Great meeting today, I wonder how much all the consultants in the front of the room and in the audience cost the taxpayers?

idgaf, we should look into a referendum against this depending on the final finance package. There is enough anger out there to collect the signatures. In the meantime, sign the petition:

http://www.gopetition.com/online/31073.html
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By: producer2 on 9/30/09 at 6:59

Actually it was a great meeting and if you were to tell the truth NotDaveCooley, both you and the City Paper would do a bit more unbiased reporting on what was presented. Actually believe it or not, The Tennessean did a pretty good job of detailing the issues confronting the City in trying to get financing either public or private for this venture. You should take a look idgaf, and NDC.
Did you also notice how certain Council members were trying at every turn to discredit the info being given? For example when shown a graph chart of how Convention Center hotels had fared once the ramp up of the facility was complete and for the following 2 years, they asked to see figures for 2008 and 2009 for the same hotels to see if they stayed on an upward course. Wow revelation, we are in an economic downturn (actually were in one, it seems to be correcting itself) so what info do they expect to get. Another example... when shown a chart indicating the number of committable hotel rooms within a 1 mile area of the convention center, the chart shows that Nashville is behind it's competitive set of cities by at least 1000 rooms. The reply from Councilman Crafton was "this will only move us up equal to these other cities and won't make us more competitive" like having more rooms in total numbers is the secret equation. This just blows my mind how some who are the loudest opponents have no clue on the subject matter. The only thing that really matters is what the final numbers show and whether or not the funding mechanisms are able to generate enough funds to pay for them. Some are already trying to discredit the vetting firm before the process has even begun. Sad

By: govskeptic on 9/30/09 at 7:47

Apparently the only info given was that there is going to be
a billion dollars spent! We're not going to let little 'ole Dallas
and the 20 million+ people of the State of Texas
out spend our 600,000 population city.

They may have more oil, people, and cattle, but hell we've got "Tootsie's" and the subsidized Hall of Fame and Opera Center!

By: NewYorker1 on 9/30/09 at 7:53

My question is this. I'm a single guy with one income. I'm own a home in Green Hills, which I pay over $10K per year in property taxes. I have no children using resources in the public school system, etc. How is this convention center going to benefit me if they increase my property taxes to help pay for this? If someone can provide that answer for me, then maybe I'll support this project.

By: producer2 on 9/30/09 at 8:08

NewYorker1

Here are a couple... In order for any City or State, especially one without the benefit of a State Income tax, to continue to operate they need ways to grow economically. Last year the tourism industry in Nashville, which is the second largest industry in the city no matter how others try and spin it, brought in 4 billion dollars. Over 2 decades ago the city fathers found that positioning Nashville as a destination for meetings and conventions had teeth and began with what was known then as Fultons Folly, building a Downtown Convention Center and connecting hotel (Renaissance). Along with Gaylord, 20 plus years later this position has worked out quite well and both the Convention Center and Renaissance have made lots of money for the City and citizens of Nashville. What once was considered folly is now a known entity and was fully paid for as described by the HOT tax. Now all of this is not wives tales, it is audited money.

How does this help you? Because that source of revenue is a contributing factor in keeping your tax base low. IF you have spent any time or have knowledge of costs lets say.... in NY, then you realize just how low your taxes are. If you pay over 10k per year for your house in GH then A. I want to be your friend because that is one nice house and B. That would cost you well over 35k for the same thing in NY.

The final part of this equation is this... we all know the City has to grow somehow and with these projects there is a very real chance that it can be financed without a drag on the taxpayer. How many projects can give you that opportunity?

Now sit back and watch how many folks come on here without any true facts and try and disclaim what I just wrote.

By: ohplease on 9/30/09 at 8:18

I for one am glad that 'the certain Council members" producer2 paints as negative are asking these questions about the info. I'd like to know what happened after 2006. The downturn didn't start that year. And what happens during future downturns? Do the taxpayers step up then? We were told that the arena and the stadium would pay for themselves. That hasn't been true. The Convention Center may be a great investment for the city, but we need to know what our responsibilities will be if tourists and convention visitors don't provide enough revenue. Only then can we expect intelligent decisions about it. I hope that the cheerleaders for the project and our political leaders will be honest about the worst case scenarios, too, because we need to be prepared for those.

By: producer2 on 9/30/09 at 8:58

ohplease a couple of things if you don't mind.

Do you have facts that say the stadium is costing taxpayers more money than they originally agreed to pay (remember that this was put to a vote and passed) and are you aware that the HOT tax pays the vast majority of the Sommet operating costs and not the General Fund?

I also agree that we all need to see what the final financing package holds, but if you are waiting to see some sort of guarantee that there is no liability at all you can quit holding your breath. I am not sure that exists in any scenario. I think the better question would be, what is the upside and what other opportunities exist that have an opportunity to be fully funded without taxpayer commitment of some sort.

By: airvols on 9/30/09 at 9:58

Time to build this thing and stop trying to throw up roadblocks at every turn. A petition is a waste of time and the same people have petitioned on everything from the NFL to free air. As for the Dallas statement get your straight. There are close to 6 million people in Tennesse and 1.6 million in the Nashville MSA.

By: Floyd2 on 9/30/09 at 10:05

A few questions for NotDaveCooley, since she obviously works for Gaylord. How often does Emily Evans meet with your leadership? Everyone knows her marching orders are coming from Gaylord. How much is Gaylord paying its lobbyist, J.B. Loring, to head up its shadow organization, "Nashville's Priorities"? How much does Gaylord pay its own personal council member, Carter Todd?

Finally, is Gaylord paying all of these expenses out of the $80 million the taxpayers of Nashville gave it?

By: Magnum on 9/30/09 at 10:45

Producer, of the $4B brought in from tourism, how much of that is directly attributable to the convention business. Also, I assume you are referring to $4B in sales...not tax. How much will the financing costs and operating costs on this project be each year? We have all of these detailed issues being argued, and I can't even answer these simple questions.

By: producer2 on 9/30/09 at 12:33

You are correct, the tax implications are around $100 million per year. Currently I believe the figure for meetings and conventions is 1Billion (gross) and the reason we are even having this conversation is because the feeling is (and has been for a decade) that there could be much more. This is highlighted by fact that without a building, approval for a building, or anything else, The CVB has been able to put 277,000 room nights on the books. The bigger story is this... the groups already contracted avg. 6500 per group. currently because of the size of the facility the groups avg. 2900. that is quite a difference and allows Nashville to actually compete for and acquire enough new business to add to that tourism total.

By: pandabear on 9/30/09 at 1:01

"Metro Finance Director Richard Riebeling promised to hold more special meetings to keep Council abreast on convention center-related developments, but offered no specifics on how the hotel might be financed."

...and they never will "offer" specifics, until it's too late to back out.

That's Deano's whole strategy.

By: NotDaveCooley on 9/30/09 at 1:10

Comparing Fulton's Folly is apples to oranges. At the time, we didn't have a true convention center, and today we do.

To producer2: how will we support the Sommet Center and replace the other services the current HOT goes towards? I believe Mayor Dean said “Now, we’re gonna have to find other sources or make other decisions about some of the things that were receiving [hotel/motel tax] money, I’ll grant you that….we’ve been fortunate that we’ve been able to use this money….for other purposes that what it was originally designed for.” So just because the HOT tax wasn't intended for this purpose, we are currently using it as such. So remove that tax revenue from one pot and put in the MCC money pit, and we still have an empty pot that will need to be filled, and we'll have a tougher time refilling it due to our decreased credit rating thanks to MCC.

And stepping back for a minute...sure, you could argue a new convention center is an investment in Nashville the CITY (the value of that investment is what we are arguing currently). But, is a sparkly new Convention Center really an investment in Nashville, and our PEOPLE? Sure it's beneficial to the developers who own property near there, the city planners and economic/finance guru's who want to leave their mark before moving onto the next bigger city, construction crews who will get a payday building it, Marriott who will manage it, and all the flacks out there promoting it, lobbying for it, etc. But does it really increase the quality of life for the average Nashville resident? I would argue we should be spending our time, tax dollars, and study-dollars on things that will increase the value of every day citizens living in Nashville, not the ones that come in for a few days a week and eat at the Hard Rock (sorry, Hard Rock). What about incentives for developing an outdoor concert venue or amphitheater? What are we to do about the fairgrounds? What about developing the waterfront, the thermal site, or the PSC metals site? Why not create a designated retail center? Why not put some money into Donelson, Antioch, or North Nashville?

And to Floyd2, point your Gaylord questions at Nashville Priorities. I'm not taking a dime from anyone, and I simply don't support it.

http://www.gopetition.com/online/31073.html
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By: JeffF on 9/30/09 at 1:12

"Last year the tourism industry in Nashville, which is the second largest industry in the city no matter how others try and spin it, brought in 4 billion dollars."

In order to have the "tourism industry" account for $4 billion dollars, one would have to count money earned by all restaurants and bars as well as a sizable number of retail stores. There is zero backup for a statement that tourism is the number two industry in Nashville. One would have to exclude healthcare, higher education, manufacturing, retail, foodservice, service, and government as industries to put tourism even close to number 2.

Further, it is even more absurd to stake tourism on a convention center since a minute fraction of tourists to Nashville are here on convention business. Experts can say that an absurd number like 60% are here because they or a relative once visited a convention, but that is just more unsubstantiated guess work for glossy brochures (like the 30,000 new job figure that gets thrown out with 0 chance of accuracy).

I am laughing at Producers statement that $1 billion of the $4 billion in total tourism are from convention attendees. Conveniently it is also left out that the average of the current building is far below the capacity of the place. There have been a lot of meetings that have exceeded even the average of the bookings for the palace. Plus it does appear that the convention industry are laying eggs and putting them in a basket they do not have yet. Have they quit selling the paid-for building in order to add those numbers to Saddam's last presidential palace? I would love to see the sales figures for the current facility in the same time period.

I would also love to see the Gaylord facility capacity and attendance. There have been a lot of meetings of that size out there. It is beginning to look like the taxpayer is being asked to fund a facility that already exists.

By: pandabear on 9/30/09 at 1:14

Convention centers have been losing money nationwide for
over a decade.

EG> Convention Centers lose money

The premise of the whole argument is false.

Convention Centers lose money.

EG> Taxpayers pay for the center AND the hotel.

Out of 600,000 people, maybe 300,000 are the actual working taxpayer.
At a cost of $1,000,000,000 this comes to $3,333 per working taxpayer.
With the inevitable overruns that always come with new construction,
this would conservatively come to $1.5 Billion,
or $6,000 per working taxpayer in Nashville.

The last thing they want is a vote on this. The biggest project in
Nashville history, and they don't want a vote on it.

Karl Deano knows that we would never vote for it, so he's trying
to sneak it through.

Wake up !

By: NewYorker1 on 9/30/09 at 1:21

If my taxes go up one dime because of this thing, I'm personally slapping the crap out of everybody that agreed to build it.

By: JeffF on 9/30/09 at 1:23

I should also mention that the financing plan has once again slipped back. It was fall, spring, summer, fall again, and now December. It looks like those presales are in danger of being moved to the current facilities. Unless of course the plan is to rush this through without the opportunity for questioning and information gathering. Unless the mayor can find a way to miraculously turn catfish in cash the revenue streams are not going to cover debt maintenance anytime soon and this will become an election issue he was trying to avoid.

Portland, OR killed off their boondoggle finally rather than let it overturn their government. San Diego is close to the same point. Judging by Dean's abhorrence to letting the people have a say in this he may have to do the same before the election cycle next year. The market is no where close to buying bonds for a project incapable of paying its bills. That poor market judgment will not be around again for a long time. Maybe he will try to get a law passed making it impossible for voters to disagree with him in a non-election year?

By: JeffF on 9/30/09 at 1:30

Panda the interest alone will be at least $650,000,000.00 over the life of the bonds. Plus since these things are guaranteed to lose money and because the revenue stream will have to go entirely to debt service (if there were only that much), they will have to build in a buffer into the debt amount to cover the losses for a period of 3-5 years. That buffer will raise the borrowing amount and thus the annual debt service , money they already are short of with the dedicated revenue streams.

Baltimore projects to exhaust their buffer well before their hotel now projects to stop losing money due to a change in projections and larger than expected operating losses. These are the same reasons the St Louis hotel was auctioned on the courthouse steps, something the mayors of Dallas and Nashville promises would never be allowed to happen here (hmmmmm, I wonder how they can keep from having revenue bonds be moved into default?)

By: NewYorker1 on 9/30/09 at 1:41

Why doesn't the city just add a $5.00 tax to everybody's electric bill every month to help finance the convention center and hotel.

By: pandabear on 9/30/09 at 1:56

Thanks Jeff.

These guys really are pirates.

By: producer2 on 9/30/09 at 2:09

SeeNewYorker1, I told you they would come with no proof and they didn't let me down.

NotDaveColey -"Comparing Fulton's Folly is apples to oranges. At the time, we didn't have a true convention center, and today we do."
Thanks for proving my point, it does work even if you have to have a little faith!

"I’ll grant you that….we’ve been fortunate that we’ve been able to use this money….for other purposes that what it was originally designed for."
Again thanks for proving my point!

"I would argue we should be spending our time, tax dollars, and study-dollars on things that will increase the value of every day citizens living in Nashville, not the ones that come in for a few days a week and eat at the Hard Rock (sorry, Hard Rock)"

Ok name another way to potentially have your entire project paid for by the people using the facilities? ........................ I'm waiting.........

JeffF...(didn't want to leave you out)

"I should also mention that the financing plan has once again slipped back. It was fall, spring, summer, fall again, and now December."

Actually you said it would never happen, that the interest rates would be too high. Are you changing your tune?

"Conveniently it is also left out that the average of the current building is far below the capacity of the place."
Again thanks for making the point. It is not left out, it is the sole reason a new center needs to be built. There are very few show that travel of the size that fit into the small building. Actually the number is around 20% of the total groups available. That is exactly why the avg. of the groups booked for the new building is over twice as large as the current ones in the facility. Imagine the possibilities....others have.

NewYorker1 your property taxes will probably rise as they have almost every 6 years or so but it will have nothing to do with the MCC. As promised IN WRITING by the current administration, property taxes are off the table for any funding of this facility. It is a shame all my esteemed friends on this and other sites can't actually wait until they see the prospectus before they make up their minds that this project is not viable. I think they would find otherwise but like so many other emotional issues they have already made up their minds (and they wonder why there is no vote)

By: dnewton on 10/2/09 at 1:03

If a $300 million dollar project was financed at 5% for 30 years it would have an annual payment of $19,515,430.52. If you spread that over 1000 rooms that would mean that the average room would have to produce $19,515 in tax money every year or if there are 365.25 days in a year $53.43 per day even if no one stayed in them. Part of that $53.43 could come from other tourist activities but t seems like the legislature demands that at least half of the sales tax yield end up in the schools.
I seriously doubt hat there is $4 Billion dollars a year in tourist activity since the last time I looked at the numbers provided from the Bureau of Economic Analysis, it was way below that. Part of the problem could be that the $4 billion is the entire Metro area. Only the fraction of the $4 billion that Metro can tax has any substantial power to offset the payments for the motel.
Lets say that it is $4 billion right now. The new motel has to make new tax money to be a viable project. If it just takes business away from the existing stock of motels, there is no increment of new money to pay off the new debt.. It is just the same pile of future income coming to a different cash drawer.
If the motel tax is 6%, then the room rates have to be $890.50 per night plus the recent $2.50 per night tax. If anyone ought to gather to themselves a moral obligation it should be those who sold this goofball plan in the first place. AIG wouldn't insure this mess against failure in their best days. I am assuming 100% occupancy just to prevent someone from telling me how these rooms are going to be rented by convention goers who want to go to the new super sized convention center. Breaking even with 100% occupancy is not a good business plan unless you can get my president to make sure the olympics are coming to town that year.

By: producer2 on 10/2/09 at 6:55

Actually dnewton I was talking about the MCC with the low interest bonds. For the hotel there are other avenues available. Over a decade ago the IRS made an allowance for tax exempt bonds for Convention Center Hotels. This has been used in several cases recently as part of the financing package. Actually Nashville help put together the package years ago for the Renaissance Hotel which included a series of bonds issues. Since that time the City has reaped the benefit each time the hotel has been sold. They still own the land and the hotel owns the air rights. It has worked out quite nicely as it has all over the country. But no one wants to hear those stories do they?

By: dnewton on 10/2/09 at 10:49

If anything works out nicely, you don't have to use government money to support it. I am sure Lowes would work out nicely if the government would help the bottom line. We could say that a tax on hardware facilitates the construction industry and then point to all of the jobs associated with building construction as a justification.

Building an oversupply of motel rooms, cars, houses or any other product simply distorts the economy. I think they call that a bubble and the last time I looked bubbles are bad. The market punishes over production by making the product or service harder to sell at the break-even price. That punishment is real and relentless even if the cost is socialized. Economic laws still work in a Soviet economy.

If there was an under building of motel rooms problem, the private sector would be glad to take care of that. There actually could be and undersupply but, for some reason, it is not worth it for the private sector to take up arms against the sea of troubles to fix it.

There is an ethical problem here that is rarely approached. What government service is threatened by a miscalculation? The government should facilitate the business of all sectors of the economy, not just the tourist sector. The government should be facilitating health, safety and property rights for all not just one sector of the economy. If the government is so sure that there is not going to be any blowback on this project, it should formulate a plan to transfer money from the budgets of all of its various functions to cover losses.

Lets say that the motel business is $4 billion, which it probably isn't. But lets say that it is. To get sales taxes in the amount of $19 million every year, the total of goods and services has to increase by $760 million to get new money to pay for a new motel if you figure the money comes from the local sales tax at 2.5 cents. If it comes from a 6% room tax it would have to generate an additional $316 million dollars. If the money came from half sales and half motel taxes, the increase in the tourist business would have to be 13% so that new debt could be paid with new money. I seriously doubt that a 1000 room motel can goose the tourist industry by 13%. This does not even approach the problem of making the convention center pay for itself.

People don't like paying taxes, especially when they don't use the service. Paying for something you don't use under color of the law is tax slavery.