Public sector involvement in convention center hotel projects is common due to the high cost of development and lack of private capital for such investments and event planners expect the presence of a hotel adjacent to a convention center.
Consequently, proximate hotels are essential for many convention centers to remain competitive in the convention center industry. As most communities desire the economic impact of group events and the spending of the visitors they attract, many are providing public subsidies to projects that are not feasible on a purely private basis.
Public involvement in hotel development may be divided into two general categories:
- public/private partnerships, and
- public financings.
In a public/private partnership, the hotel is typically owned and developed by the private partner, and public involvement takes the form of a public subsidy or “bridging the gap” between the cost of constructing and financing a hotel project and the combination of equity and loans a private developer can secure for the project.
In the category of public financing, the sponsoring municipality issues taxable or tax-exempt debt to cover the cost of constructing and financing the hotel project, accessing the municipal bond market rather than conventional sources of hotel debt and equity.
The net operating revenues of the hotel are pledged as the first source of funds for the repayment of the bonds. A comparison of the two approaches to hotel financing is presented in the table below.
Trends
The figure below shows the frequency of publicly supported convention center hotels by year of opening date from 1959 to present to 2020. Three projects are currently under construction. HVS research found 44 hotel projects with 600 or more rooms that had substantial public-sector involvement in their financing.
The maturation of a highly competitive convention market has placed increasing pressure on cities to improve their appeal by adding hotel supply proximate to their convention venues. A change in tax law in 1996, which expanded the ability of governments to publicly finance hotels with municipal debt, also caused public sector investment in hotels to become more frequent.
Since 1959, the only hotel projects of 600 rooms or more outside of the gaming and resort industries that have been privately financed have occurred in New York City, Austin, and Seattle, where high occupancy and room rates can support development of a full-service hotel. All other developments have required some form of public support, either through public financing and ownership or a through a public/private partnership.
Share of Public Investment
The table below lists convention center hotel projects with more than 600 rooms that have received public sector support. This analysis covers the opening dates of hotels for the years 1959 through 2020.
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Research generously supported by the Greater Phoenix Convention and Visitors Bureau
