Who is on the hook for Baltimore Convention Center hotel?

Daily Record, The (Baltimore), Jun 3, 2005 by Jen DeGregorio

Baltimore hoteliers are of different minds about the city's plan to build a publicly financed $305 million headquarters hotel for the Baltimore Convention Center. However, they agree on this: Not one of them is interested in paying for it.

But that's what they'll be called on to do, at least indirectly, if the proposed 750-room hotel fails to meet financial expectations. Not only do they run the risk of being forced to prop up their competitor, but hoteliers also maintain they stand to lose marketing support if the convention center hotel flounders.

We believe there may be some virtues in having the convention center hotel, said Rick Staub, managing director for the Tremont Plaza Hotel.

Staub largely agrees with the Baltimore officials' belief that a headquarters hotel will boost the city's convention business, helping it stave off losses to cities such as Washington, D.C., Boston and Philadelphia. But he's worried about how it will be executed.

Our concern is about the safety net for making the [convention center] hotel's ends meet. It's going to be the hotels already in the city paying for the convention center's [hotel] in the end.

How we got here

Looking to tap the growing tourism and convention market, the state and city invested $151 million in the mid-1990s to more than double the size of the Convention Center in downtown Baltimore. In April 1997, the 1.2 million-square-foot facility opened with the promise of luring previously unattainable conventions - and the millions of dollars conventioneers spend on hotel rooms, restaurants, transportation and everything else.

But the promise has not been fulfilled, a major reason being that the Convention Center lacks a neighboring headquarters hotel, according to city officials.

Last year, Baltimore lost out on 92 meetings that would have generated 160,531 hotel room nights because of hotel supply reasons, according to the city's tourism agency, the Baltimore Area Convention and Visitors Association (BACVA).

The absence of a headquarters hotel isn't for a lack of trying. The city's economic development arm, the Baltimore Development Corp. (BDC), has searched for a company to privately finance such a hotel for the last nine years. But the city got no takers, not even when public subsidies were offered.

M.J. Jay Brodie, the BDC's president, said Baltimore's experience is typical of other cities' failed pursuits of a privately financed hotel.

The economic reality is that there is a significant gap between the cost of building a headquarters hotel, with its necessary meeting spaces, food and beverage operations, etc., and the amount of debt and equity that can be raised from private-sector financing sources, Brodie wrote in a recent column for The Daily Record.

Consequently, the city has turned to public financing. But it's the details of the public-financing plan that have existing hoteliers worried they will be enlisted to pay for the convention center hotel.

Who's paying?

If the convention center hotel, which will be run by Hilton Hotels Corp., doesn't generate the revenue to pay the annual loan payment of roughly $16 million, there are emergency funds to cover the shortfall. Among them is the city's hotel occupancy tax.

Last year, the city's hotels paid $17.9 million in occupancy taxes. Sixty percent of the total goes to the city's general fund. The remaining 40 percent goes to Baltimore Area Convention and Visitors Association, for the purpose of marketing Baltimore hotels.

That money from existing hotels will be used to support a competitor is what has many in the industry upset.

It's not fair for the other hotels to be underwriting the note on this property, said Mary Jo McCulloch, president of the Maryland Hotel and Lodging Association. We don't believe that it should come out of the room tax which is paid for by all the other hotels.

But city officials say that hoteliers' fears are unfounded: BACVA's 40 percent cut of hotel taxes will not be touched. Only the 60 percent that goes into Baltimore's general fund is promised to pay any debt. And even those funds are a last resort, used only after money from a $10 million reserve fund and another $10 million in a so-called cash-trap fund fail to cover loan payments.

I think it is a misunderstanding of how the tax bond service will be funded, said Irene E. Van Sant, project analyst director with the Baltimore Development Corp.

Baltimore Mayor Martin O'Malley also maintains that BACVA - which supports the headquarters hotel - has nothing to fear.

In no case are funds for BACVA to be used for the convention center hotel, O'Malley said in a telephone interview.

BACVA's funding is mandated by a state law. In effect, the city could not touch BACVA's 40 percent cut of the hotel taxes if it tried, O'Malley said.

But that law sunsets July 1, 2007, a fact hoteliers feel leaves their funding open to be tapped for the hotel.

If they are truly counting on the money coming from the hotel occupancy tax, then the money that supports BACVA becomes questionable, McCulloch said, adding that the hotel association is lobbying to get the law extended.