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Who will pay for HQ hotel?

BACKSTORY: Sides debate worth, funding of a facility near convention center
by: L.E. BASKOW, An expansion of the Oregon Convention Center was completed in 2003 and Portland Oregon Visitors Association officials say the expanded facility would get more use with a nearby convention-focused hotel. The site for the proposed hotel has the yellow boundary.

East Bank Saloon co-owner Connie Hunt always knows when a big event is being held at the Oregon Convention Center.

Even though the center is more than a dozen blocks from the restaurant Hunt and her husband, Robert 'Pudgy' Hunt, own at 727 S.E. Grand Ave., lunchtime business always doubles when a convention is in town.

'I can tell the minute I walk in the door,' she said.

For that reason, Hunt supports the construction of a 600-room headquarters hotel on two blocks across the street from the center, which is located at 777 N.E. Martin Luther King Jr. Blvd.

Her position is shared by a coalition of regional business owners and area residents, including some who are not actively involved in the tourism industry. They believe such a hotel would attract more than a dozen new conventions to Portland a year, contributing more than $100 million annually to the regional economy.

Metro, the regional government that owns the center, currently is considering building such a publicly owned hotel on that site. It could cost $160 million or more - including the donation of the two blocks that were purchased several years ago by the Portland Development Commission for almost $12 million.

Regional Hilton Hotel executive Brad Hutton also believes a hotel should be built across from the center. But Hutton - joined by a coalition of other regional hotel owners and operators - favors a smaller hotel built and owned by a private developer. They worry that if the publicly owned hotel does not succeed, area taxpayers will be forced to bail it out.

'We believe that something in the way of a hotel next to the convention center needs to happen, but we are concerned about the size and scope of what is being asked for, in terms of the current headquarters hotel proposal,' Hutton said.

Hutton and the others are not completely against the public subsidizing the project. They believe the PDC might still need to donate the land and pay for some road improvements for it to happen. The PDC has set aside $3.7 million in next year's budget that could be spent on the project.

'Given the market, the support could include favorable terms on the land and some assistance with the infrastructure improvements that will be required,' he said.

Public contribution debated

The two sides are battling before Metro with dueling studies on the benefits and shortcomings of other headquarters hotels in the country. But some of the region's residents are opposed to any amount of public money going into such a project.

The Cascade Policy Institute, a free-enterprise think tank based in the Tigard area, argues that tax money should not be spent on projects that compete against private businesses. The CPI also believes all regional taxpayers could be on the hook if the project fails to pay for itself.

'There should be no public subsidy in the hotel. If it's worth doing, the private sector should do it. As a taxpayer, I don't want my money going down in flames in a bad investment,' CPI director John Charles said.

The public already has invested more than $200 million in the construction of the center - $90 million for the first phase that opened in 1989 and $116 million for the expansion that opened in 2003.

The public funds include $65 million in bonds backed by property taxes and $111 million in bonds backed by hotel, motel and rental-car taxes. Paid mostly by visitors from outside the region, hotel, motel and rental car taxes also are supplementing the operation and marketing of the center to the tune of more than $5 million a year.

The Metro Council formally voted to consider the project Feb. 8. It appropriated $250,000 to the Metropolitan Exposition Recreation Commission, the multijurisdictional agency that operates the center, to study how much a 600-room hotel would cost and how to finance it.

'We are very skeptical about whether such a project will pencil out, but we are willing to take a serious look at it,' said Metro Councilor Rod Park, who was assigned to oversee the research.

According to Park, if the council decides against the hotel project, it still must do something about the center's finances. Without new revenue, the operating budget deficit is projected to grow from about $300,000 last year to approximately $1.5 million by 2014.

'We're not going to allow that to happen,' Park said.

The council hopes to make a final decision on the hotel by the end of the year.

Center built with lottery, bonds

The Oregon Convention Center is not a traditional infrastructure project like a road, a bridge or even a public office building. The center was built as an economic development project, a facility designed to attract new people to the metropolitan area - people who boost the economy by spending money at area businesses.

State voters made economic development a government priority in November 1984 when they overwhelmingly passed a constitutional amendment to create the Oregon Lottery with its profits earmarked 'to create jobs and further economic development.'

Voters in Multnomah, Clackamas and Washington counties approved a $65 million bond sale to fund the center two years later. The Oregon Lottery contributed $15 million to the project, with the balance coming from bonds and a Local Improvement District in the area.

Tricounty voters defeated a bond measure to expand the center in November 1998.

Former Mayor Vera Katz subsequently persuaded Metro and Multnomah County officials to support a 12.5 percent hotel, motel and rental-vehicle tax to support the expansion and a number of other projects, including paying for bonds issued in 2001 to support remodeling the Portland Center for the Performing Arts and PGE Park.

'The center is a loss leader. It was never intended to pay for itself. It was always meant to bring people into the area who would spend money here,' said Brian McCartin, executive vice president of sales and marketing for the Portland Oregon Visitors Association.

Not your average hotel

The arguments in support of the bond measure in the November 1998 Voters Pamphlet were, in fact, silent on the issue of the center's operating deficit. But a May 2006 study commissioned by MERC found that the center has generated more than $6 billion in convention-related spending in the region since 1990, including $185 million in state and local tax revenues.

The study, conducted by the KPMG financial management firm, found the center contributed more than $500 million to the regional economy in 2005 alone, the most recent year for which figures are available.

Although Hutton accepts these figures, Charles suggests they were inflated because the study was financed by the center's operators.

But POVA argues the center would contribute even more to the regional economy if a headquarters hotel is built across the street. According to POVA officials, the center could attract up to 17 more conventions a year with such a hotel - increasing the number from 36 in 2005 to 53 by 2014.

A headquarters hotel is not a conventional hotel. Within the tourism industry, the term denotes a hotel with special features that allow it to be used in conjunction with large meetings, including additional suites, extra meeting rooms that can be configured to accommodate different-size gatherings, and more than one restaurant and lounge.

The idea is that when a convention books the center, the organization's leadership and exhibitors will be based at the hotel, filling the suites and using the meeting rooms for executive sessions.

POVA also believes that in order for the headquarters hotel to work in Portland, it must include at least 600 rooms so that a 500-room block can be reserved by convention organizers. The rest of the conventiongoers - who can number in the thousands - will be booked at other hotels in and around downtown and the Lloyd District.

PDC bought the blocks

The PDC originally thought that a privately owned hotel could be built with limited public subsidies - primarily the donation of the land and $4 million in urban renewal funds - on two blocks it owns across the street from the center.

The agency bought the blocks between 2001 and 2005 for more than $11.8 million. Two of the properties were acquired through condemnation. With the court setting the prices, the PDC paid more than $6.6 million for them.

The third piece was bought from real estate developer Barry Menashe for more than $5.2 million after the PDC threatened to condemn the property. Today, Menashe is still bitter about what he views as a forced sale.

'They took my property and treated me badly,' Menashe said.

After buying the property, the PDC got so far as selecting a development team for the project. It selected the Ashforth Pacific development company and Garfield-Traub Development of Dallas to build a Westin Hotel on the site.

But after the team was chosen, new cost estimates suggested that a much larger public subsidy would be required. When the gap grew to more than $87 million in July 2006, the City Council decided that a privately owned hotel was not feasible. In response, Metro agreed to consider building a publicly owned hotel on the site.

The debate involves more than the future of the two PDC-owned blocks, however. After voters approved the Convention Center bond sale in 1986, the council created the Oregon Convention Center Urban Renewal Area three years later.

A master plan approved by the PDC calls for the creation of a 'bright lights' district with new housing, restaurants and entertainment facilities. Although the PDC currently is negotiating with some area property owners on future projects, much of the work is stalled until the hotel question is settled.

POVA, PBA express support

Many regional business owners favor continued study of a publicly financed headquarters hotel, including some who are not directly involved in the tourism industry.

When Metro considered the issue Feb. 8, testimony and letters in support of the project came from POVA, the nonprofit organization that represents 1,100 tourism-related businesses and helps book most of the conventions at the center; the Portland Business Alliance, the advocacy organization that represents many downtown businesses; and the Oregon Association of Minority Entrepreneurs, who represents minority-owned business in the region.

'In order to maximize investment in the Oregon Convention Center, a headquarters hotel must be constructed. This will help prevent the loss of future business to Portland, benefiting the community at large and the economy in the long-term,' PBA President and Chief Executive Officer Sandra McDonough wrote.

Project supporters also included many businesses owners and neighbors in the Lloyd District, the retail and residential area located east of the center between the Willamette River and Northeast 16th Avenue, and between Northeast Broadway and Interstate 84.

'The need for, and the commitment to, a Convention Center Hotel have been in place in this community for at least 20 years,' wrote Clinton Shultz, chairman of the Lloyd District Community Association, which represents both area businesses and residents.

Those supporting the construction of a smaller hotel include existing hotel owners and operators throughout the region, including the Tri-County Lodging Association, which has gone on record supporting a 400-room hotel with minimal public subsidy.

Others favoring the smaller, privately owned hotel include the regional Hilton Hotel executive Brad Hutton and members of the Aspen Group, which owns the Governor Hotel, Hotel deLuxe and the Portland Paramount Hotel.

Other cities give examples

More than two dozen cities already have such hotels near their convention centers. From 1991 to 2003, most were privately owned and publicly subsidized. Since then, the trend has been for publicly owned hotels. Over the past four years, publicly owned headquarters hotels with 600 or more rooms have opened in Austin, Texas; Denver; Houston; Omaha, Neb.; and Myrtle Beach, S.C.

The two sides disagree over how many of these cities are comparable to Portland and how well their hotels have performed.

Both sides agree that the hotels in Omaha and Myrtle Beach have not lived up to expectations. But the PDC notes that the Omaha hotel has only 450 rooms, not the 600 it considers necessary for success. The PDC also responds that Myrtle Beach is a seasonal beach resort, unlike Portland.

Of the other hotels, PDC figures show that total hotel bookings in Austin, Denver and Houston increased in the years after their headquarters hotels opened.

'Although bookings at other hotels tend to drop the first year the new headquarters hotels open, they increase in all following years,' said PDC development manager Fred Wearn.

The other side argues that - contrary to early promises - few new conventions have been booked into either Austin or Houston. And they say it is too early to tell whether Denver's hotel is a success because it only opened in December 2005.

'Supporters of headquarters hotels have consistently overstated their potential,' said Portland attorney Tim Ramis, who has been hired by Hutton and some of the other opponents of the public-ownership plan to represent them.

According to Hutton, the mixed results mean Metro should have a Plan B that includes building a smaller hotel near the center with less public support and helping other Portland hotels upgrade hundreds of existing rooms to create the large block of high-end rooms that meeting planners say are necessary to attract more conventions.

'We think that's a reasonable approach at this time,' Hutton said.

The CPI's Charles is opposed to spending any more public money in support of the center, however.

'There's never going to be an end to it. First it was build the Oregon Convention Center, then it was expand the center, now it's build a hotel, next it will be something else. What they should do is let the market decide what to do there,' Charles said.

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Chronology of key OCC events

• November 1984 - State voters create the Oregon Lottery to invest in economic development.

• January 1985 - Bud Clark calls for the construction of the Oregon Convention Center during his first major speech as mayor.

• November 1986 - Voters approve $65 million in property-tax supported bonds to build the center. The Oregon Lottery contributes $15 million and a Local Improvement District contributes $5 million.

• May 1989 - Oregon Convention Center Urban Renewal Area created by the City Council to encourage redevelopment in the area.

• 1990 - OCC opens; Headquarters Hotel Advisory Committee recommends building large hotel near OCC.

• November 1998 - Voters defeat a bond measure to expand the OCC; Mayor Vera Katz persuades regional officials to enact a 12.5 percent hotel, motel and motor vehicle tax to fund the OCC expansion, support its operations and pay off existing bonds used to remodel the Portland Center for the Performing Arts and Civic Stadium (now PGE Park)

• January 2001 - The Portland Development Commission buys the former Sizzler restaurant property across Northeast Martin Luther King Jr. Boulevard through condemnation for $2.35 million.

• June 2002 - The PDC buys the Convention Inn property on MLK Boulevard for $5.25 million after threatening condemnation.

• September 2005 - The PDC buys the former Fox 49 property on MLK through condemnation for $4.25 million.

• 2003 - OCC expansion completed.

• July 2003 - PDC board approves Headquarters Hotel Implementation Strategy for building privately owned hotel with public subsidies.

• October 2005 - PDC board approves Ashford Pacific/Garfield Traub development team to build and operate Westin Hotel on two blocks acquired earlier.

• May 2006 - PDC approves Vision Plan for the OCC Urban Renewal Area.

• July 2006 - The City Council decides against pursuing a privately owned hotel after the public subsidy grows to almost $88 million.

• February 2007 - Metro Council unanimously votes to consider building a publicly owned headquarters hotel and appropriates $250,000 to the Metropolitan Exposition Recreation Commission for further study.

- Jim Redden