You can see the frustration on Metro Finance Director Richard Riebeling’s face when the topic of the proposed convention center headquarters hotel comes up.
A financing plan for the $300 million, 1,000-room hotel hasn’t even been introduced yet, and already critics are calling the project a mistake.
Council members Emily Evans, Mike Jameson, Eric Crafton and Phil Claiborne made their skepticism pretty clear at a special update meeting held last week. Such hard-line pessimism comes despite the fact that Riebeling said the project’s financing team still was constructing how the Marriott Marquis, to be located south of the Country Music Hall of Fame and Museum, would be paid for.
“There’s been a lot of speculation to size and how the project is going to be financed,” Riebeling said during the meeting. “Those decisions have not been made. We’ve reached no decisions as to any thing about the hotel other than we know we need a hotel to make this project a successful one for the city.”
But the project’s critics believe it doesn’t take a final financing package to believe a publicly owned convention center headquarters hotel is a mistake. Evidence to support that notion can be found in places like St. Louis — a purported competitor of Nashville for convention center business — where the public hotel has gone into foreclosure.
In fact, one only has to look as close as Pennington Bend, where Gaylord’s Opryland Hotel is located. Gaylord, which answered a series of questions pertaining to the convention center hotel for this story, has put its proposed expansion project on hold, offering the following justification for that decision:
“Gaylord has postponed its plans to expand the Opryland Resort Hotel and Convention Center based on the current economy and downturn in meetings and conventions,” Gaylord Vice President for Corporate Communications Brian Abrahamson said. “The tourism industry has seen the largest decline in meetings and events since 2001 and it will be some time before we know if the demand levels will return to what they were prior to the economic downturn.”
At last week’s meeting, Crafton asked why Metro should build a $300 million hotel when the private sector was delaying its expansion. Doesn’t the private sector usually know what it’s doing when it comes to its own industry, the councilman asked Riebeling.
Crafton was told that the two projects are different entities. Facts provided by Marriott Vice President of Lodging Development Tim Marvin seem to support that argument to some degree. Private hotel investors typically require a 25 percent return on investment to make their projects work.
However, the recent experiences of Nashville’s sister cities certainly seem to validate the concerns, not only of Metro Council members, but of Music City’s own power players in the hotel industry.
Mark Bloom has worked in the municipal bond industry for 34 years and also is an investor in both in the Hilton Downtown and the Union Station Hotel. Bloom supports a new convention center unequivocally, but called the idea of a publicly owned 1,000-room hotel a mistake.
Such a hotel would become Nashville’s largest downtown hotel and, according to Bloom, would hurt competition across Davidson County.
“We need a convention center and we need a hotel to go with a convention center. But if it’s a public hotel, and I am a taxpayer in Davidson County, and if taxpayers are going to finance the hotel, then it should be built with the best possible chance for the hotel to make money, or to break even and then be sellable to private investors down the road,” Bloom said. “And I don’t think a 1,000-room hotel will give us that opportunity.”
At the other end of the spectrum from Bloom is Loews Vanderbilt Hotel CEO Tom Negri, a supporter of the convention center project, who gushed last week that the proposal is “fabulous.”
Negri stopped short of saying a 1,000-room publicly owned hotel was a good idea, but did reiterate that he was in favor of a convention center and a headquarters hotel.
He cautioned interested parties to wait for a financing plan to be presented before settling on opposing the project.
“I think it’s too early in this process to be critical,” Negri said. “Yes they’ve talked about a 1,000-room property. It may turn out to be a 650-room property. It may turn out to be 800 rooms. Marriott doesn’t want to build something that they can’t operate in a successful manner. It’s a partnership deal. No matter how this works out, someone’s name is going to be on this hotel.”
Front and center on the discussion as to the size of the hotel is Gaylord, which has been in ongoing talks with Mayor Karl Dean’s administration for weeks.
Two years ago, Metro approved a tourism development zone around Gaylord’s Opryland property, which allowed the company to collect up to $80 million in sales tax for expansion. With expansion plans on ice, Gaylord is caught sitting on the sidelines wondering how a new four-star hotel with public backing would affect its business.
Amid growing speculation pertaining to the specifics of the negotiations with Dean, Gaylord characterized those talks as “positive.” Abrahamson explained Gaylord’s stance on a public hotel.
“We are aware of the ongoing discussions between the city and potential contract hotel managers, including Marriott,” Abrahamson said. “What we can support is a hotel that is financed to a large extent by taxpayer dollars, providing it is not positioned to compete directly with other large Nashville hotels including Gaylord Opryland.”
What the recession has wrought
The recent precedent for convention center hotels is not glowing, but that is due in no small part to the last year’s historic recession. Baltimore’s convention center headquarters hotel lost a whopping $17 million after opening.
Dallas held a voter referendum on a public hotel, which passed by a narrow margin. The city then paid for its hotel with a moral obligation pledge, which puts taxpayers on the hook should a Baltimore- or St. Louis-style shortfall occur.
“…We are investors in a very competitive industry that has seen supply of new meeting space exceed demand every year since 2001,” Abrahamson said. “We’ve also experienced first-hand the adverse effects of a severe economic contraction on Nashville tourism twice in the past 10 years.
“As a stakeholder in the future of the city with knowledge of the convention industry we support the mayor’s interest in a strong downtown core and we acknowledge the existing Nashville convention center is outdated.”
Dean’s administration has said it will bring financing proposals for the convention center and hotel to Metro Council in November in advance of a December vote.
While Council members wait to find out what the ultimate risk will be to the taxpayers, another Nashville sister city, Portland, Ore., pulled the plug on its public hotel two weeks ago.
“We don't have enough money to go forward to the next phase,” Portland Mayor Sam Adams, a passionate supporter of the city’s public hotel, recently told The Oregonian. “I'm absolutely supportive of the decision to stop. It would have been unwise to move forward at this time.”
Supporters of a public hotel, like Negri, point to the Renaissance Hotel, a 700-room hotel attached to the current convention center. That project was paid off on time, but it was privately financed and taxpayers were never at risk.
And while supporters of the hotel project in Nashville are cautioning patience, national rating agency Standard & Poor’s is offering somber predictions on the near future of the tourism industry. According to the firm, hotel revenue per available will be down 15.5 percent this year, with another 4 percent decline on the way for next year.
“The first question to ask is ‘what is the risk?’ Not to the area hotels, but to the taxpayers,” said councilwoman Evans.
An answer to that question may come soon from the Dean administration, and it figures to be the deciding factor in whether Metro soon jumps into the hotel business.