How high will budget rise for proposed hotel at Portland Convention

On Tuesday, developers of the proposed publicly-owned Westin hotel at the Convention Center presented a final budget estimate to the Metro council, citing skyrocketing construction costs and an expanded scope of work for a $59 million cost increase over previous estimates.

The question is, has the cost estimate topped out or is the sky the limit?

Developer Garfield Traub Ashforth and contractor Turner Construction Co. blame a 20-percent increase in construction costs over two years for half of the cost increase from the $168 million estimate made in 2006. But in calculating the new $247 million price tag, the project team assumed construction inflation would slow to 5 percent per year until construction is complete in 2012.

"By the end of 2009 we expect construction costs will hold down," said Dan Kavanaugh, vice president and general manager of Turner Construction in Portland. Fuel and scrap metal prices continue to climb, he said, but the market is slowing and labor costs are reduced, which will help to balance rising material costs.

The problem is that the estimate assumes the prices of oil, steel, concrete, copper and other commodities will eventually level out.

"If current trends were to extend themselves, that estimate would be wildly low," said Tim Duy, an economics professor at the University of Oregon. "The issue is that many economists and policymakers expect commodity prices would decrease as the U.S. and global economy slowed. And that's not an entirely crazy story except it hasn't happened that way. ... I would be wary of the potential for cost overruns given the current trends."

Given the current uncertainty in the market, a 5-percent inflation estimate could be considered the middle of the road, however, said Duy. A huge correction in the global commodity prices would drastically lower prices, while a 5-percent estimate is optimistic if prices continue on current trends due to increasing demand, he said.

"These aren't (the project's) final design or costs, but detailed estimates," said Mike Jordan, COO of Metro. "Earlier numbers didn't include specific site considerations or two more years of construction inflation."

Last November, Metro allocated $600,000 to Garfield Traub Ashforth to further study the feasibility of a publicly-owned and privately-operated headquarters hotel at the Convention Center. Since then, the developer has worked with hotel owner Starwood Hotels and Resorts, Turner Construction and architecture firm Zimmer Gunsul Frasca to hone the design and produce a detailed construction cost estimate.

On Tuesday, the project team released its final budget estimate and timeline for the proposed Convention Center Hotel. The estimate for a 550,000-square-foot facility came in at $247 million, including a $224.7 million project-development cost and $22 million in additional costs that weren't included in the 2006 estimate. Construction would begin in 2010 with a grand opening set for 2012.

Construction costs have increased more than 20 percent in the two years the project was delayed, contributing an additional $30 million to the price tag, said Turner's Kavanaugh. The project size has also increased by 60,000 square feet, adding another $30 million to project costs, he said.

The preliminary budget includes an $11.8 million construction contingency, as well as building permits, owner costs, tenant improvements marketing, and a working capital reserve, which weren't included in the 2006 estimate.

"The building is now further designed at this stage than any other building I've worked on," said Stephen Moffett, president of the hospitality division of Garfield Traub Development.Unanticipated challenges in the design mean the design leaves little room for value engineering, Larry Bruton, a partner at ZGF, said.

"To reduce it further would mean the elimination of program components," said Bruton.

Early designs assumed a flat project site, but in reality the blocks are on a slope, said Bruton. To meet Metro's requirement of activating the surrounding streets, designers were challenged to keep retail space at street level even as the site slopes, he said.

The design also includes a super block proposal, which calls for closing Pacific Street to traffic and combining the two blocks bordered by Northeast Holladay Street, Martin Luther King Jr. Boulevard, Oregon Street and Grand Avenue. The designation requires an additional 4,000 square feet of public space that wasn't anticipated in the original design, said Bruton.

The initial 597-room development would go up on the north block, with function space on the south block. Development plans also include an eventual expansion to 800 rooms with a tower extension on the south block.

Metro council will now consider funding options for the hotel and meeting center planned for a two-block property across the street from the Oregon Convention Center. The council will take two weeks to review the proposal and then hold its next meeting on the project on July 16.

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