The City’s proposed Downtown Conference Center Hotel (Hotel) suffers from the bloat – size-wise, cost-wise, and in the complexity of its ownership and financing.
Size: at 155,000 square feet the CCH complex is nearly the equivalent of a Walmart downtown (range 65,000sf to 260,000sf, average size 178,000 sf) bloated beyond the scale of the historic district
– ZHA Inc cited in the Design Collective, Seth Harry Associates East St Extension Phase I Area Plan March 2002 p23 called for 80 rooms, 59,000sf, similar to 70 room/5,000sf meeting space recommendation of Matt Seubert, a hotel financial analyst in letter to Frederick Co delegates Feb 2016
– the conference center has doubled from the consultant recommended 12,000 square feet to 24,000, ballrooms from 1 to 2
– cost has grown from $45m to $69m and full costing based on engineering drawings has yet to be done (Prelim Revised Budget – Sources and Uses Matrix, City, Feb 2016 vs Earl Robbins Jr Downtown Hotel & Conference Center May 2011.) NOTE: the $24m increase in cost is close to the amount now sought from government sources. Without the cost escalation the eventual development proposal by Plamondon would have made it close to self-financing by developer
– the ‘full service’ aspect of the hotel adding multiple in-house restaurants and bars, a spa, business center, gym, indoor pool etc to the hotel complex add greatly to the cost of the project while minimizing lodgers’ spending in the nearby downtown. Plus taxpayer underwritten facilities like these and the conference center represent unfair competition against businesses that are expected to finance themselves.
– the project valued by projected daily room rates and by capitalization of projected revenues is $36m, way short of the cost of at least $65m, suggesting waste of close about $30m
– proposed ground lease payments by the hotel at 0.5% of projected revenue is a small fraction of the industry standard 3% to 5%, representing another lifetime subsidy to the chosen developer
– repeated dishonest City assurances that taxpayers will not bear any of the cost or risk, refuted in black & white the enabling legislation HB1474/SB1038 will “require the City of Frederick to be solely responsible for all expenditures relating to the operation of the Downtown Frederick Conference Facility that may be incurred, including operating deficits.” (page 9, lines 8-11) Also at p8, lines 20 to 22 the bill provides that the City pledge the conference center as security for stadium authority’s bonds, so the City loses the property if it defaults.
– conference centers like this are a financial sinkhole. A study by CSL consultants of the troubled Lancaster PA conference center found that 14 out of 15 comparable facilities ran chronic operating losses while the other failed to cover debt service. They all need tax revenues to keep them open.
– such losses cannot be wished away by public private partnerships since investor owned business must earn a return on capital to stay in business, and regardless of any contract will plead imminent bankruptcy and threaten to shutter the facility if taxpayer ‘support’ is not provided.
– City claims that the project will generate $26 million of new spending, 280 new jobs and new tax revenues of $1.5 million annually are “absurd” according to Heywood Sanders of UT San Antonio Department of Public Administration and leading academic expert on conference center economics. These bloated claims imply new spending by lodgers of nearly $500/hotel-day and require that all the business comes from out of state. In fact spending and job creation and tax revenues will be far less because some will be at the expense of other hotels and other venues in the state. Legislative staff have recognized that extra tax cannot be relied on by specifying that $1.5 million will need to be appropriated annually from state general funds.
– the proposed site was in use for leather tanning for a century to the 1920s with large in-ground chemical vats for sterilizing hides with arsenic, chromium and other dangerous compounds and for the next 80 years for newspaper printing. Plus there were underground fuel tanks. Only limited sampling of the soils had been conducted so far, and much more work is needed to characterize likely hazardous materials contamination
– access to the site is awkward from the interstates involving five sets of traffic signals and two left turns on already crowded city streets (the better site right off East Street was passed over)
– bloated messy bureaucracy manages this – city staff, business groups, developer, consultants, county, state? all to build a hotel
– the push for state involvement comes before any review of the project by key City agencies, Historic Preservation Commission for compatibility with historic district, City Planning Commission for traffic issues, utilities, comprehensive plan
DISCLAIMER: The venue for the meeting does not promote or endorse the views of the program sponsors or presenters.
NOTE: This is the text of a flyer written by me that was handed out at an anti-hotel boondoggle public meeting held at the City Burr Arts Library. 2016-03-15