Oregon Convention Center Headquarters Hotel
Transcript of Oregon Convention Center Headquarters Hotel
Oregon Convention Center Headquarters Hotel
Metro Council & MERC CommissionJoint Work Session
9/06/07
Agenda
• Introduction• Consultants’ Key Findings• Alternatives Analysis• Financial Analysis• Staff Recommendation• Questions and Discussion
Background
• The mission of the OCC is to maximize economic benefit for the region.
• National conventions provide the greatest economic impact for the OCC and the region.
• In recent years, demand for national conventions at the OCC has leveled off.
• Metro Council has asked MERC to look at alternatives to address this situation.
Alternatives
• Status quo with increased subsidy for operations
• Change the OCC Mission: regional meeting center
• Enhanced Incentives: i.e. shuttle service, free rent, etc.
• Privately owned, small scale headquarters hotel with public subsidy
• Publicly-owned, privately operated, 600-room headquarters hotel
ProcessWhere are we now?
• MERC/Metro Work Session: 9/6• MERC Recommendation: 9/12• Metro Public Hearing: 9/20• Council Decision: 9/27
Consultants
• KPMG – Susan Sieger
• Strategic Advisory Group (SAG)– Tony Peterman
• HVS Market Study– Tom Hazinski
• ECONorthwest– Abe Farkas
• Piper Jaffray– Peter Phillippi
7
Economic and Fiscal Impacts Estimates Oregon Convention Center CY 2006 Operations
Proposed New Headquarters Hotel
Presentation - September 2007ADVISORY
8
Background
• KPMG conducts an annual economic and fiscal impacts analysis forthe OCC based on historical event data and budget figures provided by management
This presentation summarizes CY 2006 estimates
• KPMG was also retained to estimate the economic and fiscal impacts associated with construction and operations of the proposed 600-room headquarters hotel based on information provided by PKF and HVS International as well as historical OCC operations
9
Methodology
Estimate Direct Spending
DelegatesExhibitors
AssociationsHotel Guests
Budgetary Spending
Estimate Spending Amounts By
Type of Activity
Apply Multipliers Provided by Minnesota
IMPLAN Group to Estimate Indirect &
Induced ImpactsThrough Multiplier
Effect
Estimate TotalEconomic Benefits
Generated from Operations
SpendingEmployment
Earnings
Estimate Fiscal Benefits Generated From Operations
Personal Income TaxCorporate Excise and Income Tax
Transient Lodging TaxMotor Vehicle Rental Tax
Allocate Direct Spending into
Industry CategoriesThat Serve as Basis for
Multiplier Analysis
10
Total spending generated from OCC operations in CY 2006 was estimated to be 32% lower than in CY 2005
$0.0
$100.0
$200.0
$300.0
$400.0
$500.0
$600.0
2004 2005 2006
Direct Spending Indirect/Induced Spending
(in m
illio
ns)
Summary of Estimated Spending Generated from OCC Operations
$420.9
$551.6
$373.8
11
OCC event activity is increasingly becoming more local in nature drawing fewer attendees from outside the region
• The number of public shows and meetings has increased each of the last two years
• These events do not typically generate significant economic impact to the region
54
9358
87105
262
148122
305
7389
366
0
50
100
150
200
250
300
350
400
Public Shows Food & Beverage Events Conventions/Tradeshows
Meetings
200420052006
Source: OCC
Comparison of the Number of Events at the OCC
316,
141
559,
670
385,
266
688,
086
404,
413
71,5
40
74,4
69
70,2
51
90,7
06
302,
734
72,8
98
92,5
41
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
Public Shows Food & BeverageEvents
Conventions/Tradeshows
Meetings
200420052006
Comparison of Total Attendee Days at the OCC
Source: OCC
12
The decrease in total spending between CY 2005 and CY 2006 is primarily attributable to the decline in total attendee days (29%)
• Certain categories of attendees generate more spending at area hotels, restaurants, retail and other business establishments (e.g. overnight, those attending regional/national/international events)
• The same attendee days can be segregated into multiple categories
• As shown below, several categories associated with higher spending per day were down in CY 2006
Conventions/
TradeshowsAttendee
Days
41%
All EventsHigh Impact (Overnight)Attendee
Days
47%
All EventsRegional/National/
InternationalAttendee
Days
52%
Decrease in Total Spending from OCC Operations
32%
13
Estimated total employment generated from CY 2006 OCC operations decreased in each county to the lowest level in six
years
700
4,700
800900 1,100
500
3,600
600
6,300
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Clackamas County Multnomah County Washington County
2004
2005
2006
Summary of Estimated Total Employment by County
14
Estimated fiscal impacts generated from CY 2006 OCC operations decreased by approximately 41% to the lowest level in six years
• Decreased fiscal impacts are primarily attributable to the decline in convention/tradeshow attendees and related spending during CY 2006
$15.9
$21.8
$12.8
$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
2004 2005 2006
(inm
illio
ns)
Summary of Estimated Fiscal Impacts (Counties & State Combined)
15
According to independent research conducted by SAG, PKF and HVS, certain factors are contributing to the decline of the OCC’s
convention and tradeshow business
• Portland’s lack of a headquarters hotel
• Competition from other cities
• The relatively small room block available near the OCC
• The high occupancy rates at Portland hotels
• The distance to convention-quality hotels
16
POVA records indicate that last year alone, Portland lost 52 future OCC bookings due to the lack of a headquarters hotel
and/or limited hotel package
Source: SAG
Convention Center Destination
Attached or Adjacent
Within 2 Blocks
Within 4 Blocks
Within 6 Blocks Total
San Francisco 1,908 2,249 1,951 2,685 8,793 Denver 1,321 1,007 3,329 420 6,077 San Diego 4,179 1,213 350 301 6,043 Salt Lake City 896 1,050 3,086 393 5,425 Anaheim 2,882 1,883 490 0 5,255 Seattle 1,430 2,137 0 1,035 4,602 Austin 800 1203 977 189 3,169 Phoenix 712 1,651 0 0 2,363 San Jose 1,270 891 0 100 2,261 Long Beach 895 460 609 0 1,964 PORTLAND 174 0 678 239 1,091
Approximate Hotel Rooms at OCC Competitors
• Lost groups represent approximately 250,000 room nights
• Represent significant lost potential economic and fiscal impact to the community
17
Drivers of hotel economic/fiscal impact study
• OCC management asked KPMG to use these historical estimates as well as figures provided by their hotel consultants to estimate the following:
Economic/fiscal impacts associated with net (loss)/gain of OCC-related business
Economic/fiscal impacts associated with non-OCC related business at the proposed property (e.g. independent business travel, leisure, in-house group)
Cumulative State fiscal benefits from OCC operations since 2000
18
Presence of the proposed new headquarters hotel impacts future convention/tradeshow business at the OCC
Without the proposed headquarters hotel
• PKF and HVS research indicates a potential loss of six (6) conventions/tradeshows at the OCC annually
• Economic loss to the region is estimated to be approximately $40.8 million annually
• Fiscal (tax) loss to the region and State combined is estimated to be approximately $1.9 million annually
With the proposed headquarters hotel
• HVS research indicates a potential gain of eight (8) conventions/tradeshows at the OCC annually
• Incremental economic benefits to the region are estimated to be approximately $54.5 million annually
• Incremental fiscal (tax) benefits to the region and State combined are estimated to be approximately $2.5 million annually
19
There are regional economic benefits associated with the proposed new hotel’s non-OCC related business
Notes: Indirect/inducted spending results from the circulation of the initial spending through the Tri-County economy and is captured by the multipliers.FTE denotes full-time equivalents.
Economic Benefits: First Year (2011)Stabilized Year
(2014)Direct Spending $33,101,000 $37,043,000Indirect/Induced Spending $24,181,000 $27,056,000Total Spending $57,282,000 $64,099,000
Total Employment (Number of FTE jobs) 730 820Total Earnings $22,598,000 $25,276,000
Estimated Net Economic Benefits to the Tri-County Metropolitan Region From Operations of a Proposed New Headquarters Hotel - Non-OCC Related Business
600 Room HQ Hotel
20
There are fiscal benefits associated with the proposed new hotel’s non-OCC related business
Summary of Estimated Net Annual Fiscal ImpactsGenerated From Operations of a Proposed New
Headquarters Hotel Non-OCC Related Business
First Year (2011) Stabilized Year (2014)
State of OregonPersonal Income Tax $670,000 $749,000Corporate Excise and Income Tax $98,000 $116,000Transient Lodging Tax $90,000 $102,000Total $858,000 $967,000
Multnomah CountyTransient Lodgings Tax $1,128,000 $1,331,000Motor Vehicle Rental Tax $350,000 $387,000Business Income Tax $19,000 $21,000Total $1,497,000 $1,739,000
Total Tax Benefits $2,355,000 $2,706,000
Non-OCC Related HQ Hotel Operations
21
Cumulative State fiscal benefits from OCC operations since 2000 are estimated to be $47.0 million in constant dollars
Summary of Estimated Fiscal Benefits Realized by the State of OregonFrom On-Going OCC Operations (2000 – 2006)
$6.1 $6.0 $6.3
$7.8
$8.8
$5.5
$6.5
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
2000 2001 2002 2003 2004 2005 2006
Notes: In 2004, the State instituted a transient lodging tax of 1% on all hotel night stays statewide.All figures are shown in constant dollars for that particular year.
22
Summary of key findings
• OCC event activity during calendar year 2006 supports the independent research findings that the lack of a headquarters hotel is negatively impacting the facility’s ability to attract certain groups associated with relatively higher spending and, consequently, the economic and fiscal impacts to the region are similarly impacted
• Although there may be some shifts in business among properties, the existing hotel market in Portland is not expected to be negatively impacted, after the first stabilized year of operation, by the proposed property’s operation based on independent studies conducted by HVS, PKF and SAG
• The State of Oregon stands to benefit significantly from the continued marketability of the OCC to regional, national and internationalconventions/tradeshows
• Conversely, the State’s tax collections could be negatively impacted by the continued erosion of these groups due to the lack of a headquarters hotel in Portland.
S T R A T E G I C A D V I S O R Y G R O U P L L C
2007 HQ Hotel Update Study:
Oral Presentation for Metro/MERC
PORTLAND OREGONVISITORS ASSOCIATION
PORTLAND OREGONVISITORS ASSOCIATION
September 6, 2007
Convention & Hotel Industries:Are they healthy?
Convention & Hotel Industries:Are they healthy?
-10%
-5%
0%
5%
10%
15%
20%
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Demand: Net Square Feet
Supply: Venue Exhibit Space
Convention Industry Growth
Year-to-Year Growth Rate: 1986 to 2005
Source: Tradeshow Week Custom Research; US Dept. of Commerce.
-10%
-5%
0%
5%
10%
15%
20%
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Demand: Net Square Feet
GDP (Chained 2000$)
Convention Industry Growth
Year-to-Year Growth Rate: 1986 to 2005
Source: Tradeshow Week Custom Research; US Dept. of Commerce.
Health of the Hotel IndustryADR and Room Demand Pct Change:12 Month Moving Average 1989 to 2006
Total US Hotel Market
Source: Smith Travel Research
Portland Hotel Market
67.2%65.7%
61.6% 61.9% 62.3%
68.1%
73.3%74.6%
$108 $107
$104
$100 $100 $101
$108
$116
50%
60%
70%
80%
90%
1999 2000 2001 2002 2003 2004 2005 2006$80
$90
$100
$110
$120
Occupancy Average Room Rate
[Portland Central City including Lloyd District]
Source: Smith Travel Research
Lost Business Report:Why does Portland continue to lose?
Lost Business Report:Why does Portland continue to lose?
Projected Use: “As-Is”“Assuming that OCC completes its expansion in April 2003, and given the hotel package that currently exists, and understanding that your HQ hotel would be one of these existing hotels,
how likely would you be to host your event in Portland?”
0%9%
29%
53%
10% 12%
21%
46%
10% 12%0%
20%
40%
60%
80%
100%
Definitely No Highly Unlikley Might Highly Likely Definitely Yes
2002 Survey
2007 Survey
Expanded OCC/Function Space was only part of the solution
Reasons for Lost Business
0
50,000
100,000
150,000
200,000
250,000
300,000
Needed Larger Facility Cost/Rate Issues HQ Hotel Issues Date Availability
1999 2000 2001 2002
2003 2004 2005 2006
Total Room Nights Lost
Source: POVA
Destination Selection Criteria:What is important to event planners?
Destination Selection Criteria:What is important to event planners?
Destination Factors
23%
14%
48%
48%
39%
21%
13%
11%
7%
4%
5%
18%
16%
27%
36%
16%
16%
32%
30%
20%
5%
9%
14%
38%
64%
68%
59%
64%
75%
4%
25%
4%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Nearby Retail Shopping
Nearby Entertainment
Type of Chain Available
Nearby Restaurants & Bars
Overflow Hotel Rooms
Adjacent HQ Hotel
Distance from Hotels to Center
Overall Cost & Affordability
Clean & Safe Streets
1 2 3 4 5LOW………...………Relative Importance……………..…….HIGH
“On a scale from 1 to 5, how important do you consider the following factors?”
Source: S.A.G.
Destination Factors
11.0%
16.0%
25.0%
46.0%
48.0%
73.0%
73.0%
73.0%
88.0%
89.0%
84.0%
75.0%
54.0%
52.0%
27.0%
27.0%
27.0%
12.0%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Nearby Retail Shopping
Nearby Entertainment
Type of Chain Available
Clean & Safe Streets
Nearby Restaurants & Bars
Distance from Hotels to Center
Overflow (Non-HQ) Hotel Rooms
Adjacent HQ Hotel
Overall Cost & Affordability
Yes No
“Can this factor alone have the potential to be a “Deal Breaker”?”
Source: S.A.G.
Portland v. Comp Set:What do comps have that we do not?
Portland v. Comp Set:What do comps have that we do not?
Portland v. Comps: Hotel Rooms
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
PORTLAND LongBeach
San Jose Phoenix Austin Seattle Anaheim Salt LakeCity
San Diego Denver SanFrancisco
Within 6 Blocks
Within 4 Blocks
Within 2 Blocks
Attached or Adjacent
Total Hotel Rooms within Walking Distance of Center
Source: Individual hotels, CVB’s. Includes financed properties.
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
PORTLAND LongBeach
Salt LakeCity
Austin San Jose Denver Phoenix Seattle SanFrancisco
Anaheim San Diego
Within 2 Blocks
Attached or Adjacent
Total Hotel Rooms within Walking Distance of Center
Source: Individual hotels, CVB’s. Includes financed properties.
Portland v. Comps: Hotel Rooms
Meeting Planner Survey:Would a HQ make a difference in Portland?
Meeting Planner Survey:Would a HQ make a difference in Portland?
“What is the minimal number of blockable rooms that a New Adjacent HQ Hotel would need to offer in order for you to characterize your expected future usage of the OCC as ‘Highly Likely or ‘Definitely Yes’ ?”
Would They Come with HQ?21
% 23% 27
% 31%
40%
46%
52%
62% 65
%
75%
75% 79
% 81%
81%
81%
81%
81% 85
%
15%
0%
20%
40%
60%
80%
100%
200 300 400 500 600 700 800 900 1000 1100 1200 1300 1400 1500 1600 1700 1800
2002 Survey 2007 Survey
Potential Target Market Penetration by HQ Hotel Size
Source: SAG - Meeting Planner Survey 2002, 2007
Will come to Portland
As-is
Likely willnever come to
Portland
Summary RecommendationsSummary Recommendations
RecommendationsPortland should continue offering financial incentive packages when cost-effective to appropriate events – 68% of all high-impact industry events receive financial incentives– Trend mitigates effectiveness; Back to fundamentals
• Function Space - Hotel Package - Destination Appeal
Portland and other industry stakeholders should make best efforts towards realizing the development of a new convention HQ hotel adjacent to OCC– Continue to coordinate public transportation; facilitate uniform/common
room block; and develop Lloyd District area (fundamentals)
HQ hotel should be as large as the market-wide occupancy levels in Portland allow– Market-wide occupancy levels should stabilize at no less than 65%
HQ hotel should be as large as the cost-effective use of public resources permit
Two Major Questions:a. Why 65%?
b. Will HQ impact the Portland Market?
Two Major Questions:a. Why 65%?
b. Will HQ impact the Portland Market?
35%
45%
55%
65%
75%
85%
95%
Occupancy
U.S. Full-Service Hotel Performance
Monthly Occupancy: Jan-1987 to Jun-2007
Source: Smith Travel Research
‘87 ‘88 ‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07
Trendline
$45
$55
$65
$75
$85
$95
$105
$115
2000 2001 2002 2003 2004 2005 Sept 2006 YTD
Austin SacramentoIndianapolis Myrtle BeachVancouver WA St. LouisHouston LouisvilleCharlotte Portland Central CityUS Full Service
HQ Hotel Impact on its MarketRevPAR
HQ Opens
Source: Smith Travel Research
Presentation Metro Council and
Metropolitan Exposition Recreation Commission
Proposed Westin Convention Center HotelSeptember 6, 2007
Presentation to Metropolitan Exposition Recreation Commission
Average Rate and OccupancyPrimary and Secondary Competitors
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Source : Smith Tra ve l Re se a rch
Occ
upan
cy (a
vera
ged
over
tren
d pe
riod)
$90
$95
$100
$105
$110
$115
$120
Roo
m R
ate
(ave
rage
d ov
er tr
end
perio
d)
Are a wide Occupa ncy
Are a wide Ave ra ge Ra te
Presentation to Metropolitan Exposition Recreation Commission
Performance of Competition
2004 2005 2006
Primary CompetitorsOccupancy 67.5% 71.7% 72.3%
Average Rate $104.98 $109.69 $118.08REVPAR $70.90 $78.67 $85.34
Secondary CompetitorsOccupancy 70.2% 74.3% 75.8%
Average Rate $105.08 $114.03 $122.93REVPAR $73.80 $80.54 $87.77
Presentation to Metropolitan Exposition Recreation Commission
Estimated Segmentation
20% 20%
60%
CommercialMeeting and Group
Leisure
Estimated market segmentationof the subject propertyat stabilization (2014)
Presentation to Metropolitan Exposition Recreation Commission
Market Penetration by Segment
0
20
40
60
80100
120
140
160
180
2011 2012 2013 2014
Commercial Meeting and Group Leisure
Presentation to Metropolitan Exposition Recreation Commission
Occupancy Estimates
61% 65% 69% 71%68% 70% 71% 73%
2011 2012 2013 2014
Subject Occupancy Market Occupancy
Presentation to Metropolitan Exposition Recreation Commission
Five Year Proforma
2011 2012 2013 2014 2015
Occupancy 61% 65% 69% 71% 71%Average Daily Rate $136.06 $143.11 $152.30 $161.76 $166.61
RevPAR $83.00 $93.02 $105.09 $114.85 $118.30
Projection of Financial Opearations ($ millions)
Revenue 31,055 35,113 39,843 42,804 44,075 % Growth 13.1% 13.5% 7.4% 3.0%
Contribution 16,026 19,037 22,628 24,915 25,662 % of Revenue 51.6% 54.2% 56.8% 58.2% 58.2%
Undistributed Expenses 8,122 8,752 9,339 9,837 10,132 % of Revenue 26.0% 25.0% 23.4% 23.0% 23.0%
House Profit 7,904 10,285 13,289 15,077 15,531 % of Revenue 25.6% 29.2% 33.4% 35.2% 35.2%
Management Fee 1,025 1,159 1,315 1,413 1,454 % of Revenue 3.3% 3.3% 3.3% 3.3% 3.3%
Fixed Expenses 997 1,089 1,594 2,123 2,186 % of Revenue 3.2% 3.1% 4.0% 5.0% 5.0%
NET INCOME 5,883 8,037 10,381 11,542 11,890 % of Revenue 19.1% 22.8% 26.1% 26.9% 26.9%
Presentation to Metropolitan Exposition Recreation Commission
Forecast of Market Occupancy
73% 74% 73% 71% 71% 68% 70% 71% 73%
2006 2007 2008 2009 2010 2011 2012 2013 2014Subject Occupancy Market Occupancy
Presentation to Metropolitan Exposition Recreation Commission
Average Daily Rate Projections
$0$20$40$60$80
$100$120$140$160$180$200
Base Yea
r20
0720
0820
0920
1020
1120
1220
1320
1420
1520
16
Market-wide Subject Hotel
Presentation to Metropolitan Exposition Recreation Commission
Forecast of Market RevPar
$0
$20
$40
$60
$80
$100
$120
$140
2006 2007 2008 2009 2010 2011 2012 2013 2014
Presentation to Metropolitan Exposition Recreation Commission
Induced Room Nights
Oregon Convention Center Groups 60,000In-House Group 27,600Leisure 2,300Loss without the addition of the Hotel* 25,000Total 114,900*Source: PKF
Presentation to Metropolitan Exposition Recreation Commission
Room Night Demand Forecast
0
150
300
450
600
750
900
1,050
1,200
1,350
1,500
2007 2008 2009 2010 2011 2012 2013 2014
Thou
sand
s
Base Demand Induced Demand
Presentation to Metropolitan Exposition Recreation Commission
Percent Change in Room Night Demand
0%
1%
2%
3%
4%
5%
6%
7%
8%
2008 2009 2010 2011 2012 2013 2014
Without Proposed Hotel With Proposed Hotel
Headquarters Hotel
Alternatives AnalysisPrepared by ECONorthwest
Overview of alternatives
• Publicly-owned, privately-operated 600 room hotel
• Privately-owned 400 room hotel• Enhanced incentives• Change the OCC mission• Status quo with increased subsidy
Evaluation criteria
• Impact to convention center• Impact to neighborhood• Impact to region• Impact to hospitality industry• Impact to Metro• Financial feasibility
Data sources
• HVS analysis of hotel market and proformas• KPMG estimates of economic impact of HQ
Hotel and the OCC• SAG survey of selection criteria for national
convention planners• PKF study of hotel market and HQ hotel
impacts• Previous PDC studies regarding a 400 room
hotel and other options• Interviews regarding IGAs and VDTF
600-Room publicly funded headquarters hotel
• Revenue Impacts:– 20% of OCC’s lost potential business could be
recovered with a 600-room HQH (HVS)– 8 new high impact national conventions/yr– $940,000/yr additional OCC operating revenue
• HQH would be catalyst for economic development and redevelopment– 820 permanent jobs in Lloyd district/ $25 million in
additional wages to area– $54 million in net new area economic activity– 2 block intensive development is positive impact for
surrounding area
600-Room Continued
• No major impacts to hospitality industry at stabilization
• Development of the hotel would create a public asset owned by Metro– If hotel is unable to service debt, Metro
would be responsible for supporting bonds
• VDF funds may need to increase to accommodate incentives to additional conventions
400-room privately funded/ publicly subsidized HQH
• Minimal impact on new national conventions– 300 room block would only increase OCC penetration
of the national convention market from 21% to 27%– Room block of any size may not be possible with
private hotel– Hotel would need to acquire new site - PDC would not
donate its land
• Minimal impact on area economic development– 400-room hotel would create fewer jobs– Does not induce new room nights into the market,
but “divides the pie.”
400-Room Continued• PDC RFP for private hotel showed
minimum public subsidy of $35 million– Variations in amenities and facilities only increased
needed subsidies– New Market Tax Credits infeasible for closing gap
• Starwood/Westin hotel showed need for $56 million in public money
• Public money to private HQH may put Metro general fund at risk– Metro funds in subordinate position - operating
revenues would not be available to repay bonds
Enhanced Incentives • OCC currently offers incentives including
free space and transportation subsidy– Additional incentives may be possible, but marginal
benefit is unclear– Enhanced incentives could have positive effect– 13% of meeting planners cited low incentives at OCC
as contributing to rejection of venue
• 68% of all high impact events nationwide are offered incentives– 90% of all comparable entities have dedicated
incentive funds– Incentives such as free rent and transportation
subsidy are an expectation
Incentives Continued
• Evidence suggests POVA has never lost a convention only because of incentives– VDF funds have never been insufficient to provide
required incentives
• Incentives already increasing at industry rate– Further increases in VDF funds may affect funds
available to other VFTA programs
• Incentives are an important part of an overall package, but cannot replace the demand for a headquarters hotel and large room block
Change the OCC Mission
• Change would shift focus from national conventions to local events and trade shows
• 2006-07: small meetings and public shows made up 58% of all OCC events
• Revenue from local events much lower– Local events generate $15K on average– Conventions generate $118K on average
• Spending from local attendees much lower– Local attendees spend $28/day– National attendees spend $298/day
Change the Mission Continued
• Shifting to a local/regional focus would decrease OCC revenues and economic impact
• Room night demand to surrounding hotels would decrease– 20% of existing Portland hotel group business is OCC
related
• Hotel occupancy tax revenue would likely decrease while OCC operating gaps increase
Status Quo with Increased Funding
• 22% of national meeting planners would consider OCC based on current incentives/ accommodations package
• OCC faces increasing future operating deficit under status quo
• Projected loss of 6 conventions/yr would cause negative impacts to economy ($40.8 million/yr) and hospitality industry (25,000 room nights)
Status Quo Continued
• Increasing operating deficit would inhibit OCC’s ability to fund reserves for renewal and replacement– Additional public money may be necessary
for capital improvement
• Current IGA could be modified to allow VTFA money to cover operating deficit
Page 72
Financial Analysis
Metro & MERC Joint Work Session9/06/07
Presented by Piper Jaffray
Page 73
Financial Analysis Discussion
Public versus private financing
Projected revenues and expenses
Facility and construction cost estimates
Current market conditions
Project timing
Financing alternatives
Capitalization plan for planning purposes
Page 74
Stand Alone Financing
With the exception of 2012, HVS projected net income alone is sufficient to cover debt service
However, the projected net income alone is insufficient to implement a financing and insulate Metro from project risk
Fiscal Year Ending 2011 2012 2013 2014 2020 2025 2030 2040
Hotel NOI 6,688 8,929 11,771 13,454 16,070 18,629 21,597 28,179 Net Debt Service 5,153 10,307 10,307 12,637 13,280 13,856 14,466 15,788 FF&E Reserve 621 702 1,195 1,712 2,041 2,366 2,743 3,686
Coverage - 0.81 1.02 0.94 1.05 1.15 1.25 1.45
Coverage (Hotel Revenues Only)
0.700.800.901.001.101.201.301.401.501.60
2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038
Page 75
Potential Financial Resources
Hotel specific TLT taxes and additional room surcharge
Development team contribution
Restructuring of existing VDI debt service
Financial support from the State
Explore additional funding as necessary
Page 76
Legal Structure
Proceeds
Design-Builder
Developer
Metro
Hotelier Asset Manager
Trustee
Underwriter
Investors
Metro or Public BenefitNon-Profit Corporation
ProceedsBonds
Bonds
IndentureArticles of Incorporation
Bond PurchaseAgreement
Asset ManagementAgreement
Hotel ManagementAgreement
Design-BuildAgreement
Design-Build Agreement
Master DevelopmentAgreement
Convention Center HQ Hotel
Gtd. Maximum Price
Page 77
Flow of Funds
Site SpecificTLT Hotel NOI
Available Revenue Fund
Other DedicatedFunding Sources
Taxes and Insurance
Administrative Expenses
Senior Debt Service Account
Senior FF&E Account
Deferred Bond Ins. Prem.
Subordinate Lien D/ S Account
Subordinate Mgmt. Fee
GovernmentBond RedemptionFund
Hotel Operator Gntee. Loan Rpmt.
Other Debt Service Support
Subordinate FF&E Reserve
Super subordinate Mgmt. Fee
Cash Trap Fund
Page 78
Financing Analysis – General Assumptions
Current market rates and sensitivity
Private investment of $15 million
PDC contribution of land and $4 million
Project budget of $168.6 million
Additional financial resources
– Annual contribution of site specific TLT and surcharge
– VDI debt restructuring
– Additional contributions
Limited backstop by Metro
Page 79
Base Case - Sources and Uses of Funds ($000)
Sources of FundsBond Proceeds 215,819$ Development Team Contribution 15,000 Interest Earnings on Project Construction Fund 9,209 PDC Contribution 4,000 TOTAL SOURCES OF FUNDS 244,029$
Uses of FundsDeposit to Project Construction Fund 168,654$ Owners Contingency 8,408 Pre-opening expenses 4,500 Deposit to Capitalized Interest (CIF) Fund 28,505 Deposit to Debt Service Reserve Fund (DSRF) 14,683 Operating Reserve 12,500 Costs of Issuance 5,280 Construction Period Expense 1,500 TOTAL USES OF FUNDS 244,029$
Metro & MERC Staff Recommendation
Staff Recommendation• Developing a 600-room publicly owned, privately
operated headquarters hotel adjacent to the Oregon Convention Center will generate the greatest benefits to the OCC and to the region.
• Identify additional resources and partners to minimize risk to Metro, and complete the financing plan
• Increasing the existing incentives package provided to prospective conventions would also be necessary for increasing national conventions at the OCC
• The OCC must continue to receive an adequate level of public funding for marketing and operations.
• Adequately funds debt service, risk scenarios, capitalized bond interest, bond insurance, and sinking fund requirements
• Provides necessary funding to offer enhanced incentives to prospective national conventions
• Provides adequate level of funding for OCC capital and operations
• Protects Metro’s general fund and existing programs from undue risk
Elements of a Successful Financing Plan
Project is Contingent Upon:• Completed financing plan
• Metro entering into a satisfactory development agreement with the Project developer, Garfield Traub-Ashforth Pacific and previously selected Project team;
• Garfield Traub-Ashforth Pacific delivering a Project guaranteed maximum price that is in line with the financing plan developed;
• Metro entering into any necessary Intergovernmental Agreements with the City of Portland, PDC, Multnomah County, and other parties to implement a proposed financing plan;
• Final Recommendation on March 31, 2008
Questions & Discussion