The BCEC and Hotels: An Overview

Presentation toThe Convention Partnership

Presented by Milt Herbert, BCMCTom Hazinski, HVS Chicago

Rachel Roginsky, Pinnacle Advisory GroupPeter Phillippi, Piper Jaffray & Co.

Howard Davis, MCCAKairos Shen, BRA

April 26, 2010

2

Agenda

Relationship Between BCEC and Hotels Measuring the Benefits of an Additional BCEC

Headquarters Hotel Responding to the Hotel Challenge BRA Presentation

3

Relationship Between BCEC and Hotels

Milt Herbert, Executive Director Boston Convention Marketing Center

Rachel Roginsky, Pinnacle Advisory Group

4

Boston Convention Marketing CenterSales Process

Step 1: Identify Availability of Convention and Hotel Space Hynes or BCEC and Are Dates Available? Is Hotel Inventory Available?

Step 2: Business Review and Pricing Strategy Is Potential Business Good for Facility, Hotels and the City?

Step 3: Prepare Citywide Proposal Analyze Responses from Hotels; Assemble Hotel Package Convention Space Pricing Review

Step 4: Site Visit Client Visits, Reviews Convention Facilities and Key Hotels

Step 5: Close Business

5

Hotel Room SupplyWhat does the planner want? Committable room block near the convention center No or limited transportation exposure Minimal attendee commuting inconvenience HQ access for Board lodging and major F&B functions

Hynes Package Great package relative to Hynes capacity Walkable for most events No transportation expenses

BCEC Package Arguably the worst for a convention center of this magnitude Limited walkable inventory (1100 committable group rooms on peak) Generally requires transportation at 1500-2000 or more peak rooms Many who have used, will not return until hotel inventory improves

6

Example: RIMS

Risk & Insurance Management Society, Inc.

(RIMS)

April 21 – May 2, 2010

8,000 hotel rooms on peak

41,600 total hotel room nights

BCEC

7

RIMS 2010 Hotel Package

In order to build a hotel package with 8,000 rooms on peak, RIMS had to contract with all 33 hotels in our package. Of the 33 properties, only 3 hotels are within walking distance of the BCEC. The remaining hotel inventory is within 5 miles of the convention center and requires extensive transportation services.

Estimated Cost of Transportation for RIMS - $300,000

8

9

The final hotel package is a summary of each hotel’s proposed room block, guestroom rate, and concessions along with relevant information about each property. Hotels are sorted

based upon their location & potential shuttle routes.

10

Building a Competitive Hotel Package

American Academy of Dermatology

March 2016

7,000 rooms on peak/31,570 total room nights

28 HOTELS, 4 MILE RADIUS

Biotechnology Industry Organization June 2012

10,000 rooms on peak/41,200 total room nights43 HOTELS, 6 MILE RADIUS

Lions Club International

July 2015

6,000 rooms on peak/38,220 total room nights

29 HOTELS, 5 MILE RADIUS

American College of Surgeons

October 2018

7,500 rooms on peak/34,500 total room nights

35 HOTELS, 6 MILE RADIUS

11

Simultaneous Events at BCEC and Hynes Events Impact on Hotel Availability

Not enough hotel rooms to accommodate simultaneous events at the BCEC & Hynes. Example: Citywide BCEC convention with 6,000 rooms on peak

consumes all hotel inventory in the South Boston Waterfront, Downtown/Financial District, Back Bay and the Airport (American Public Health Association, November 2013)

American Trucking Association (Hynes) needs 1,575 rooms on peak (November 2013) – Not Available in the Back Bay

12

Not enough hotel rooms within walking distance of the BCEC

Lack of Hotel Inventory near BCEC results in lost business Starbucks: February – 6,000 rooms on peak/22,000

total rooms Public Library Association: March – 3,500 rooms on

peak/13,000 total rooms Subway: July – 2,200 rooms on peak/10,000 total

rooms Am. Society for Cell Biology: December – 3,000

rooms on peak/13,000 total rooms

13

Cost Impacts

Lack of hotels near BCEC results in significant transportation cost to our customers

Am Society for Therapeutic Radiology & Oncology

September 16-26, 2008

12,000 persons

34,200 total room nights

Shuttle cost: $750K

Am College of Rheumatology

November 5-11, 2007

14,000 persons

30,500 total room nights

Shuttle cost: $550K

International Association of Chiefs of Police

October 14-18, 2006

17,000 persons

28,900 total room nights

Shuttle cost: $506K

Heart Rhythm Society

May 17-20, 2006

14,000 persons

22,900 total room nights

Shuttle cost:  $214K

American Association of Orthodontists

May 1-5, 2009

20,000 persons

23,000 total room nights

Shuttle cost:  $245K

14

Limited Service Hotel Inventory

15

BCEC Lost Business Due to Lack of Limited Service Hotels

Students in Free EnterpriseMay 2011

1,400 rooms on peak/3,851 total room nights

American Society of Safety EngineersJune 2013

4,000 rooms on peak/19,585 total room nights

National Safety CouncilSeptember/October 2011 & 2013

6,500 rooms on peak/32,360 total room nights

EducauseNovember 2011 & 2014

3,900 rooms on peak/15,054 total room nights

National Association for the Education of Young ChildrenNovember 2015 & 2020

6,500 rooms on peak/27,040 total room nights

16

Development of Complementary Hotels

No limited-service hotels currently in the South Boston Waterfront District

BCEC expansion will serve as a catalyst to further development in the area

Demand currently exists for the development of complementary hotels in the South Boston Waterfront District

Pinnacle

1717

Comparable Cities Indianapolis, IN

$450 MM “Marriott Complex” U/C including 4 hotels attached to convention center developed and managed by White Lodging.

Hotels include 1,000 room JW (U/C), 297 room Courtyard (opened 2/10), 168 room Fairfield Inn and Suites (opened 2/10), and 156 room SpringHill Suites (opened 2/10).

Austin, TX 350,000 square foot convention center re-opened in 2002. 800-room HQ Hilton opened in 2003 with nearby 209-room Hampton Inn and

Suites in 2002, 254-room Hilton Garden Inn in 2006, 270-room Courtyard and 179-room Residence Inn in 2006.

Denver, CO 725,000 square foot convention center expansion opened in 2004. 1,100-room HQ Hilton opened in 2005 with nearby 221-room Hilton Garden Inn

in 2007, 403-room Embassy Suites (under construction), and Aloft and Best Western projects under consideration.

Pinnacle

18

Hotel Room Supply

There are benefits to all when there are additional hotel rooms in the city with or without a BCEC expansion More consistent group business for Waterfront & Back Bay Hotels More frequent BCEC & Hynes events thus fewer peaks/valleys More events result in additional compression dates, ADR, occupancy

and RevPAR growth Allows for additional Hynes events to occur simultaneously with BCEC

events Growth in F&B revenues for Waterfront & Back Bay Hotels with more

event activity Lessens risk of high room block attrition for Back Bay Hotels from

BCEC events More citywide and in-house opportunities for Airport, Downtown,

Cambridge and Suburban Hotels with increased activity at hotels surrounding the BCEC & Hynes

19

Measuring the Benefits of an Additional BCEC Headquarters Hotel

Tom Hazinski HVS Chicago

2020

Hotel Room Nights Generated by Convention Center Events (Fiscal Years 2007 through 2009)

0 100 200 300 400 500 600 700

FY 2007

FY 2008

FY 2009

Thousands

Hynes BCEC

2121

Basis for Estimate of Growth in Convention Events

Analysis of historical demand at BCEC & Hynes Event planner surveys Demand at comparable venues Detailed analysis of lost business

Reasons Amounts Potential recovery

22

Working Assumptions About Hotel

1,000 rooms 83,000 SF of meeting and banquet space Full-service and nationally branded Adjacent to Convention Center Restaurant, lounge, and recreational amenities Open in Fiscal Year 2015/16

22

23

Impact on BCEC Room Nights(estimated for a stabilized year)

BCEC currently losing business due to lack of proximate rooms High transportation costs

to Back Bay hotels Inconvenience to

attendees Competitors with better

proximate supply BCEC has capacity to

absorb new events even without expansion

0

100

200

300

400

500

600

Without Hotel With NewHeadquarters

Hotel

Th

ou

san

ds

23

Potential for over 140,000 new booked room nights

24

Impact on BCEC Room Nights(estimated for a stabilized year)

0

100

200

300

400

500

600

Without Hotel With NewHeadquarters

Hotel

Th

ou

san

ds

24

Potential for over 140,000 new booked room nights New room nights could be

generated by recovering lost business

HVS analyzed lost business records for events lost due to lack of hotel capacity

Not all lost business would be recovered

Estimated recovery of lost business constrained by availability of BCEC and schedule

25

Impact on Hynes Room Nights(estimated for a stabilized year)

BCEC city-wide events currently fill up Back Bay hotels

During BCEC event days, room blocks not available for Hynes events

Expanded hotel supply at BCEC will take pressure off of Back Bay and create availability of room blocks for Hynes

Hynes has potential to book new events

0

50

100

150

200

250

Without Hotel With NewHeadquarters

Hotel

Th

ou

san

ds

25

Potential for over 22,000 new booked room nights

26

How would a new headquarters hotel affect the Boston economy? New Visitor Spending

Overnight stays of BCEC and Hynes attendees Room night generated by the new hotel Day-trip visitors Exhibitor spending Event organizer spending

Related fiscal impact (revenue from hotel, sales and other taxes

Stimulate complementary development in the South Boston Waterfront District

26

27

Responding to the Hotel Challenge

Rachel Roginsky, Pinnacle Advisory GroupPeter Phillippi, Piper Jaffray & Co.

Howard Davis, MCCA

28

Lack of Private Sector Development

High Development Costs in Boston Land Costs Construction Costs

Significant Gap in Required ROI Lack of Capital for Hotel Development Illustrative Pro Forma (see next slides)

Pinnacle

29

Hypothetical Headquarters Hotel Pro Forma

Assumptions: 1,000 room Boston Hotel Stabilized occupancy – 75% with Typical Operating Costs 40% equity and 60% debt (1.5x debt service coverage requirement) $500,000/key Development Costs Owner requires 15%-20% Leveraged IRR Return

Pinnacle

30

1,000 Room Boston Hotel - Hypothetical Pro Forma

Total RevenueOperating CostsNet Operating IncomeFirst Mortgage Debt Service*Income After Debt ServiceReturn on Equity

* 0.9x Debt Service Coverage in Year 3

Year 3 (stabilized)

$ 94,900,000

$ 71,175,000

$ 23,725,000

$ 26,603,682( $ 2,878,682) (2.7 %)

Pinnacle

31

Lack of Available Capital Based on a recent national survey (2010), only 25% of

hotel lenders would consider new construction loans April ULI lodging meeting, 4 top hotel lenders said

“No” to new construction loans If available – terms are difficult:

40%– 50% equity Only recourse loans available Requires construction guarantees Sponsorship is critical

Lenders would prefer to deploy available capital for acquisitions

Pinnacle

32

Percent Change in US Hotel Supply

-0.5%

0.5%

1.5%

2.5%

3.5%

4.5%

5.5%

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

32 Sources: Smith Travel Research (1988 - 2009) and HVS (forecast 2011 -2012)

33

Total United StatesActive Development Pipeline - Rooms

March 2010 Pipeline has approximately 35.7% less rooms on the active list versus March 2009

15 of the Top 25 markets have more than a 50% decline in year over year rooms in construction

Pinnacle

Dec 2009 Dec 2008 Change

% Change

In Construction 97,302 185,119 (87,817) (47.4%)

“Planned” Pipeline 303,788 427,773 (123,985) (29.0%)

Planned Pipeline includes projects in final planning and planning phases.

34

Boston Pipeline

No new hotels in the active pipeline for Boston Aware of 5,000 rooms planned but none have

financing No new supply in South Boston Waterfront

District since the Renaissance in February of 2008

Pinnacle

35

CONVENTION CENTER HOTEL DEVELOPMENT

Historically, CCHQ Hotels have required public participation Early 1990’s recession and RTC workouts lowered hotel

values further below replacement cost exacerbating the need for public participation

Construction costs have continued to outpace full-service hotel economic values

As previously discussed, no private financing for large-scale hotel projects

Nationwide, only two full service, business-oriented hotels greater than 700 rooms have been developed without public support since 2000

 

3636

700+ ROOM DOWNTOWN HOTEL OPENINGS1997 TO 2008 (1)

Public Financing:(1) 1,100-Room Denver Hyatt (2005)(2) 800-Room Austin Hilton (2004)(3) 1,200-Room Houston Hilton (2003)(4) 1,100-Room St. Louis

Renaissance(2) (2003)(5) 800-Room Chicago Hyatt (1998)(6) 1,000-Room Phoenix Sheraton

(2008)(7) 757-Room Baltimore Hilton (2008)(8) 1,003-Room San Antonio Hyatt(2)

(2008)

Private Financing:(16) 863-Room Westin Times Sq.

(2002)(17) 802-Room NYC Hudson Hotel

(2000)

Public Support:(9) 966-Room Jacksonville Hyatt (2001)(10) 700-Room Charlotte Westin (2003)(11) 750-Room Baltimore Marriott (2001)(12) 717-Room Tampa Marriott(2002)(13) 793-Room Boston Westin (2006)(14) 1,200-Room San Diego Hilton (2008)(15) 1,001-Room Los Angeles JW

Marriott/Ritz-Carlton

(1)700+ Room Hotels Opened from 1997 to 2008 excluding Gaming or Resort Hotels. Source: Smith Travel Research(2) Privately owned but financed primarily with tax-exempt bonds.

(5)

(4)

(3)(2)

(1)

(4)

(9)

(10)

(16)(17)

(11)

(12)

(13)

(6)

(7)

(8)

(5)

(14)(15)

(14)(15)

3737

RECENT CONVENTION CENTER HOTEL DEVELOPMENT

Ten convention center headquarter hotels with 750 rooms or more have entered the U.S. market since 2003

(1) Privately owned but financed primarily with tax-exempt bonds.

City Hotel Room Count Hotel Opening

Financing

Structure

St. Louis(1) Renaissance 1,074 December 2003 Public

Houston Hilton 1,200 December 2003 Public

Austin Hilton 800 J anuary 2004 Public

Denver Hyatt 1,100 December 2005 Public

Boston Westin 793 J une 2006 Private

San Antonio(1) Grand Hyatt 1,000 Feburary 2008 Public

Baltimore Hilton 756 August 2008 Public

Phoenix Sheraton 1,000 October 2008 Public

San Diego Hilton 1,200 December 2008 Private

Dallas Omni 1,016 J anuary 2012 Public

Los Angeles Marriott 878 Feburary 2010 Private

3838

Recent Convention Center Hotel Developments

Operators 4 Hiltons – Houston, Austin,

Baltimore, San Diego 2 Hyatts – Denver, San

Antonio 2 Starwood Properties –

Boston, Phoenix 2 Marriott Properties – St.

Louis, Los Angeles

Financing Structures 7 publicly financed 3 privately financed

San Diego Boston Los Angeles

39

CONVENTION CENTER HOTELFINANCING

Public Entity Support Convention Center

Offer competitive rates (group business)

Room block commitment (reduced occupancy)

Larger meeting space requirement (more costly)

Amenities (food and beverage, etc.)

Competing Goals

Private Owner Maximize Profit

Maximize ADR and Occupancy

Facility optimization (keys, meeting space, amenities) – minimize development cost

Investor return requirements (20-25%)

40

CONVENTION CENTER HOTELFINANCING

Privately owned convention center hotels generally require public financial subsidies Economics do not support conventional financing terms Public subsidy / GAP financing increasing Financial benefits inure to owner / equity investor

Public ownership offers an alternative Control integration with convention center Access to lower cost capital / hurdle rate Financial benefits inure to government sponsor / owner

41

CONVENTION CENTER HOTEL FINANCING BASIC OPTIONS

PUBLIC/PRIVATE

PRIVATE OWNERSHIP

FIRST MORTGAGE

PRIVATE EQUITY / MEZZANINE DEBT

FIRST MORTGAGE

PRIVATE EQUITY / MEZZANINE DEBT

PUBLIC INVESTMENT

CONVENTIONAL 2-TIERED STRUCTURE

SENIOR LIEN BONDSSenior LienProject Revenues + Credit Support on all or portion of debt serviceInvestment Grade

JUNIOR LIEN BONDSMarket takes riskNon-rated

PUBLICLY OWNED - TAX-EXEMPT

2-TIERED STRUCTURE

SENIOR LIEN BONDSSenior LienProject Revenues only Low Investment Grade

JUNIOR LIEN BONDSBacked by high gradeRevenue source or credit backstop

SENIOR LIEN BONDSSenior LienProject Revenues + tax increment + Credit Enhancement on all or a portion of debt serviceInvestment Grade

SINGLE TIER STRUCTURE

CASH FLOW NOTES CASH FLOW NOTES CASH FLOW NOTES

42

Private/Public TransactionSimplified Organization Chart:

Lenders

Public EntityFinancial Support/Subsidy

Private Owner• Receives Cash Flows

•Receives Refinancing/Sale Proceeds

HotelOperator

Convention CenterAuthority

EquityInvestors

Management Agreement

Room Block Agreement

43

WASHINGTON DC CONVENTION CENTER HOTEL – PRIVATE

Project Description 1,167-room full service hotel managed by

Marriott (Marriott Marquis) Projected opening date: Estimated 2013 100,000 square feet of meeting space 400 car parking structure

Capital Structure (Private Portion) – Privately Owned $256 million in senior debt $75 million of investor equity

Public Contribution (Preliminary) Purchase of land (execute 99 year ground

lease with development team) - $100 million (Est.)

$208 million in contributions from various agencies and the District

$308 million total estimated public contribution

RFP Process• Proposals solicited – June 2001• Hotelier /Developer selected –

October 2002

44

Public TransactionSimplified Organization Chart:

BondHolders

Public Sponsor

Single-Purpose Non-ProfitCorporation

• Receives Cash Flow• Receives Refinancing/ Sales

Proceeds

HotelOperator

Convention Center Authority

Qualified Management Agreement

Room Block Agreement

45

DENVER CONVENTION CENTER HOTEL - PUBLIC

Project Description 1,100-room full service, first class hotel

managed by the Hyatt Hotel Corporation Opening date: December 2005 Adjacent to the convention center 300-seat full-service restaurant and lobby

lounge 60,000 net square feet of meeting space 600 space parking garage below the hotel

Capital Structure $354.8 million in “AAA” insured senior lien

current interest bonds issued at a TIC of 4.61% $10.0 million Letter of Credit from the hotel

operator

City Contribution The City’s contingent appropriation pledge was

equal to 45% of debt service on the bonds

46

DALLAS CONVENTION CENTER HOTEL - PUBLIC

Project Description 1,016-room full service hotel managed by

Omni Projected opening date: January 1, 2012 Full-service restaurant and lounge Immediately adjacent to the convention

center 80,000 square feet of meeting space 720 car parking structure

Capital Structure – Publicly Owned $74.4 million in tax-exempt hotel revenue

bonds $388.1 million of taxable hotel revenue “Build

America Bonds” $17.2 million in taxable bonds

Public Contribution 10 years of State tax abatements City backstop (subject to appropriation) for

100% of the total debt service

Three Potential Headquarters Hotel Sites

1 West

2 North

3 East

. Existing Westin Hotel

Proposed Expansion of Westin Hotel*

47

1. West Hotel Alternative

Existing Owner

US Postal Service

Connection to BCEC

Yes - direct pedestrian bridge

Design/Construction Challenges

Air rights construction over turnpike

Bridge connection to BCEC crosses Haul Road and railroad tracks

Urban Design

Strengthens/complements main entrance to BCEC

Fills “void” left by Big Dig

Site connects BCEC to “100 Acre” district to west

48

2. North Hotel Alternative

Existing Owner

Massport

Connection to BCEC

Yes – indirect pedestrian bridge over Summer Street and through Westin lobby

Design/Construction Challenges

Air rights construction over turnpike, railroad tracks, Haul Road and MBTA Silver Line

Urban Design

Strengthens/complements main entrance of BCEC

Creates pedestrian linkage from BCEC to Silver Line and Boston Harbor

Fills in “void” left by Big Dig

49

3. East Hotel Alternative

Existing Owner

Intercontinental Real Estate Corp

Connection to BCEC

Yes – but long pedestrian bridge over D Street located south of main BCEC Summer Street entrance

Design/Construction Challenges

No subsurface construction premiums

Narrow width of site constrains hotel design

Urban Design

Site is distant from the Summer Street address of the BCEC

Site does not reinforce linkages between BCEC and transit, Boston Harbor or Downtown Boston

50

51

Boston Redevelopment AuthorityKairos Shen, Director of Planning