The item in yesterday’s Willamette Week about the proposed convention center hotel roused me from my somnolent satisfaction with our local government. As reported by WW, and also in the Oregonian last week, the City of Portland would have to offer a subsidy of about $79 million to a developer in order to get a developer to build a "headquarters hotel" near the Oregon Convention Center. The total cost of the project is estimated at $150 million, which would produce 600 hotel rooms and 39,000 square feet of meeting space. For comparison, the convention center claims to have "more than a million square feet to offer," but its brochure for planners itemizes, by my count, a more modest 495,728 square feet of meeting space. Also for comparison, the Hilton Hotel and the Hilton annex (which Hilton calls the "Executive Tower") downtown together have 782 hotel rooms and 40,000 square feet of meeting space according to Hilton’s USA website, or 66,000 according to Hilton’s UK website. (Either way, it’s a lot of meeting space for a hotel.)
This poses some interesting questions. The first is why the City would consider subsidizing a hotel developer to build more meeting space, if the meeting space at the Convention Center isn’t being used to capacity. The second is why a 600-room hotel would cost $150 million to build. Let’s use the Hilton annex for comparison. The Hilton annex on Taylor Street is now a two-unit condominium, with the hotel being one unit and the retail and parking areas the other. The two units together have a real market value, according to the assessor, of about $45 million and the land (5/8 of a downtown block) is worth about $6 to $7 million. The Executive Tower has 455 hotel rooms (or "keys," as they say in the hotel biz). It was built in 2002. Let’s say that construction costs have gone up 40% since then. Today it should be possible to build the Executive Tower with the parking and retail spaces for about $65 million. Mark this up by 33% to account for going from 455 rooms to 600 rooms, and the cost goes to $88 million.
How does the cost get from $88 million to $150 million? I don’t know, and I’m curious to find out. Unless I’m missing something, a $79 million subsidy should pay for pretty much all of the hotel itself.
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Perhaps it is like the building (aircraft hanger, repair facility, whatever) where the Oregon Investment Council got snookered? Something about cash flow for operations and expectations that the private party would put up their own cash, but obtained it only by way of the exaggerated purchase price above their own construction cost. It is the same MO. Therefore . . . it must structured by the same advocate. One guess.
Ron, you might be right. A further comparison: not too long ago I was offered the chance to invest in an upper-end airport hotel to be constructed (not here), at a cost of $150,000 per key including all hard and soft costs, and the cost of the land. My friend the Hotel Expert told me that the cost seemed high; he had just built an airport hotel for $79,000 per key. The typical airport hotel doesn’t have the facilities of a convention hotel, and is often a notch or two below a convention hotel, but still: we ought to be able to get a respectable convention hotel of 600 keys for $150,000 per key ($90 million), plus $12 million for the meeting space (60,000 square feet at $200/SF), or a total cost of about $102 million.