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
 Relationship Between BCEC and Hotels
 Measuring the Benefits of an Additional BCEC
Headquarters Hotel
 Responding to the Hotel Challenge
 BRA Presentation
2
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
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
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
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
 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
8
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 2012
10,000 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
10
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
 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
 Lack of hotels near BCEC results in significant transportation
cost to our customers
Am Society for Therapeutic Radiology &
Oncology
September 16-26, 2008
12,000 persons
34,200 total room nights
Shuttle cost: $750K
Am College of Rheumatology
November 5-11, 2007
14,000 persons
30,500 total room nights
Shuttle cost: $550K
International Association of Chiefs of Police
October 14-18, 2006
17,000 persons
28,900 total room nights
Shuttle cost: $506K
Heart Rhythm Society
May 17-20, 2006
14,000 persons
22,900 total room nights
Shuttle cost: $214K
American Association of Orthodontists
May 1-5, 2009
20,000 persons
23,000 total room nights
Shuttle cost: $245K
13
Limited Service Hotel Inventory
14
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
Pinnacle
Development of Complementary Hotels
 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
Pinnacle
Comparable Cities
 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
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
Measuring the Benefits of an Additional
BCEC Headquarters Hotel
Tom Hazinski
HVS Chicago
19
Hotel Room Nights Generated
by Convention Center Events
(Fiscal Years 2007 through 2009)
FY 2009
FY 2008
FY 2007
0
100
200
300
400
500
600
700
Thousands
Hynes
BCEC
20
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
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
Impact on BCEC Room Nights
(estimated for a stabilized year)
Potential for over 140,000 new
booked room nights
Thousands
 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
600
500
400
300
200
100
0
Without Hotel With New
Headquarters
Hotel
23
Impact on BCEC Room Nights
(estimated for a stabilized year)
Thousands
 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
Potential for over 140,000 new
booked room nights
600
500
400
300
200
100
0
Without Hotel With New
Headquarters
Hotel
24
Impact on Hynes Room Nights
(estimated for a stabilized year)
Potential for over 22,000 new
booked room nights
Thousands
 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
250
200
150
100
50
0
Without Hotel With New
Headquarters
Hotel
25
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
Responding to the Hotel
Challenge
Rachel Roginsky, Pinnacle Advisory Group
Peter Phillippi, Piper Jaffray & Co.
Howard Davis, MCCA
27
Pinnacle
Lack of Private Sector Development
 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
Pinnacle
Hypothetical Headquarters Hotel Pro Forma
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
Pinnacle
1,000 Room Boston Hotel - Hypothetical Pro Forma
Year 3 (stabilized)
Total Revenue
Operating Costs
Net Operating Income
First Mortgage Debt Service*
Income After Debt Service
Return on Equity
$ 94,900,000
$ 71,175,000
$ 23,725,000
$ 26,603,682
( $ 2,878,682)
(2.7 %)
* 0.9x Debt Service Coverage in
Year 3
30
Pinnacle
Lack of Available Capital
 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
5.5%
4.5%
3.5%
2.5%
1.5%
0.5%
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
-0.5%
Sources: Smith Travel Research (1988 - 2009) and HVS (forecast 2011 -2012)
32
Pinnacle
Total United States
Active Development Pipeline - Rooms
In Construction
“Planned” Pipeline
Dec 2009
Dec 2008
Change
%
Change
97,302
185,119
(87,817)
(47.4%)
303,788
427,773
(123,985)
(29.0%)
Planned Pipeline includes projects in final planning and planning phases.
 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
33
Pinnacle
Boston Pipeline
 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
 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 fullservice 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)
(13)
(16)(17)
(5)
(5)
(1)
(7)(11)
(4)
(4)
(15)
(15)
(14)
(14)
(10)
(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)
(2)
(4) 1,100-Room St. Louis Renaissance (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
(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.
Private Financing:
(16) 863-Room Westin Times Sq. (2002)
(17) 802-Room NYC Hudson Hotel (2000)
36
RECENT CONVENTION CENTER HOTEL
DEVELOPMENT
 Ten convention center headquarter hotels with 750 rooms or more
have entered the U.S. market since 2003
Financing
City
Hotel
Room Count
Hotel Opening
Structure
St. Louis (1)
Renaissance
1,074 December 2003
Public
Houston
Hilton
1,200 December 2003
Public
Austin
Hilton
800 January 2004
Public
Denver
Hyatt
1,100 December 2005
Public
Boston
Westin
San Antonio(1)
Grand Hyatt
Baltimore
Hilton
Phoenix
793 June 2006
Private
1,000 Feburary 2008
Public
756 August 2008
Public
Sheraton
1,000 October 2008
Public
San Diego
Hilton
1,200 December 2008
Dallas
Omni
1,016 January 2012
Los Angeles
Marriott
878 Feburary 2010
Private
Public
Private
(1) Privately owned but financed primarily with tax-exempt bonds.
37
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
CONVENTION CENTER HOTEL
FINANCING
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
FINANCING
 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
PRIVATE OWNERSHIP
CONVENTIONAL
FIRST MORTGAGE
PUBLIC/PRIVATE
FIRST MORTGAGE
PUBLICLY OWNED - TAX-EXEMPT
2-TIERED STRUCTURE
2-TIERED STRUCTURE
SINGLE TIER STRUCTURE
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
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
PRIVATE EQUITY /
MEZZANINE DEBT
PUBLIC
INVESTMENT
JUNIOR LIEN BONDS
Backed by high grade
Revenue source or
credit backstop
JUNIOR LIEN BONDS
Market takes risk
Non-rated
CASH FLOW NOTES
CASH FLOW NOTES
CASH FLOW NOTES
41
Private/Public Transaction
Simplified Organization Chart:
Hotel
Operator
Management Agreement
Private Owner
• Receives Cash Flows
•Receives Refinancing/Sale
Proceeds
Public Entity
Financial Support/Subsidy
Lenders
Room Block
Agreement
Convention Center
Authority
Equity
Investors
42
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
RFP Process
•
•
Proposals solicited – June 2001
Hotelier /Developer selected –
October 2002
 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
43
Public Transaction
Simplified Organization Chart:
Hotel
Operator
Qualified Management Agreement
Public
Sponsor
Single-Purpose Non-Profit
Corporation
• Receives Cash Flow
• Receives Refinancing/ Sales
Proceeds
Room Block
Agreement
Convention Center
Authority
Bond
Holders
44
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
 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
Three Potential Headquarters
Hotel Sites
1
West
2
North
3
East
.
*
Existing Westin Hotel
Proposed Expansion of Westin Hotel
47
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
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
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
Boston Redevelopment Authority
Kairos Shen, Director of Planning
51