By: Ed Watkins, Hotel News now
Published: March 2016
In recent years, a number of cities, counties and other public agencies have developed or acquired hotels, most often as a way to spur convention business to the particular market. Depending on how it is measured, the success of these properties has varied, sources said.
“It is certainly a case-by-case basis whether they make sense, so it’s important to understand the criteria by which you evaluate their success,” said Tom Hazinski, managing director of HVS Convention, Sports & Entertainment. “Following the 2008 (economic) crash, none of them went into bankruptcy or failed, so from that perspective they’ve all been successful. The financing is typically structured in a way that makes these hotels quite a bit more of a secure investment than a traditional debt-equity deal. From that perspective they are very solid investments.”
Measuring success gets a little murky when looking at the role of public-owned hotels in developing or retaining convention business for a market, he said.
“It’s much more difficult to measure, because one always has to compare it to a scenario in which the hotel wasn’t built. So it becomes a hypothetical comparison,” Hazinski said. “By and large, cities making investments in their convention centers need to maintain those assets so the alternative scenario (to not building a hotel) is losing out on convention business altogether.”
Two sides to the story
Hazinski cited Baltimore as an example of the two ways of measuring success of city-owned hotels. In 2006, the city of Baltimore issued $300 million in bonds to build the 757-room Hilton Baltimore, which opened two years later. According to Baltimore City Council President Bernard Young, the hotel has lost $70 million since opening, and last year he introduced legislation to explore sale of the property.
“While the city has had to use back-up sources of revenue to pay debt (on the hotel), the level of business at the convention center expanded dramatically since the Hilton was built,” Hazinski said.
In 2015, for example, the city was scheduled to host a record 29 citywide conventions. And according to STR, the parent company of Hotel News Now, occupancy and average daily rates for the city’s central business district improved steadily from 2010 through 2014, with decreases in both metrics in 2015.
The city of Phoenix faced a similar situation with the Sheraton Grand Phoenix, a 1,000-room, city-owned hotel that opened in September 2008 following the issuance of $350 million in municipal bonds. And while occupancy and rates have generally improved for the downtown Phoenix market since then, the hotel posted operating losses in 2012 and 2013 before rebounding with a profit in 2014, the last year in which performance figures are available.