City’s latest ‘one pager’ on hotel project compared — CRITICAL ANALYSIS

The City’s official stance on the hotel project is expressed in a so-called One Pager (actually 2 pages) headed Downtown Frederick Hotel and Conference Center, Project Overview. Three versions have been published and we’ll label them:

v1 February 2016,

v2 September 2016

v3 March 2017

The three versions are similar in being formatted for color printing double-sided on a single 8×11 sheet. Graphically similar the latest version  is distinguished by the use of the City Department of Economic Development’s mostly green THRIVE FREDERICK logo in the left top corner of p1.
Important are both what stays the same and what changes.In v3 the DHCC is purpose is to be “an anchor and economic catalyst,” much the same as v1 and v2’s characterization of it as “a critical catalytic economic development project and top priority for Frederick’s major employers etc.” Catalytics are a process of chemistry not economics… but the idea is that this project is essential to enabling many others, an argument that is simply asserted rather than argued, and for which  there is no evidence. As for the downtown hotel being a “top priority” for major employers that is hyperbole. If it were indeed a ‘top priority’ they would get together and fund it themselves. Given their unwillingness to spend a penny it is more in the nature of a nice-to-have-local-facility for them. They’d like it to be there so long as the costs and risks are borne by others.

Nothing new in this section.

Specifications for the hotel are unchanged: 207 room full service hotel, 14,000sf rentable meeting space (24,000sf total.)

Plamondon the chosen developer is “to develop, own, and operate the facility.” No suggestion there that the meeting space (‘conference center’) is anything more than a part of the hotel owner’s business.

Under a heading “Return on Investment” we get a list of frequently cited “impacts’ from a 2012 consultant report: $25.8m in spending annually, $1.5m/yr extra state taxes, 280 jobs, $9m/yr payroll, $745k/yr in City and County property taxes. That’s unchanged, as are the problems (1) that they are very iffy, an d (2) that they are gross numbers when what’s relevant for real economic development is the net effect. New hotel rooms and meeting space are not attracting visitors from outer space. They are attracting people who most likely would have lodged at another hotel in the area or used other meeting rooms. There are lots of offsets in the real world.

A new “return on investment” listed in v3 is that the DHCC will be a “Catalyst for over $100 million in follow-on development on Frederick’s east side.” This is a new pitch, prompted perhaps by work on a new City plan for East Street Corridor. The draft plan however gives only passing mention to the DHCC.

http://www.cityoffrederick.com/DocumentCenter/View/6872

It is a fantastic claim that $100m of projects are just waiting on the hotel. What projects are these? What list of projects comes to $100m? What basis is there for the claim that any project, let alone $100m of projects depend on the hotel? The claim is plucked from thin air.

On page 2 each of the one-pagers turns to costs and financing. v1 and v2 emphasized collaboration with the Maryland Stadium Authority and attributed to that agency estimates it has never made. “Maryland Stadium Authority financing” was envisaged as the major state agency assistance. v3 is purged of all references to the MSA since in the interim it dumped the Frederick project.

All versions of the One-Pager say that the City has entered into a “partnership” not only with developer PHP but with the state and the county. Actually there is only a contract of kinds (an MOU) with the developer. It is a loose kind of collaboration, certainly nothing like a business partnership in which the partners all share in the management and in any profits. v1 said: “The City has entered into a Public Private Partnership with PHP — the Developer, State, and County to fund the multi-million project.” That claimed too much, implying some agreement on sharing of costs, revenues etc while nobody but the City and the developer have signed anything along those lines.  v2 and v3 downgraded the arrangement to a “partnership” lower case ‘p’.

‘No operational subsidies’

All three versions insist that there will be “no ongoing public subsidies for operations” (v1 and v2) or “There will be no operational subsidies from the Government.” (v3) This is a baseless claim. The hotel is conspicuously City-sponsored with county and state support. It wouldn’t exist without Government actions. The city specified the hotel. The city chose the site. The city selected the developer. The city will own the land, and lease the land back to the developer on favorable terms. With such a history of deep involvement in establishing the hotel the City cannot disclaim all responsibility for the financial results, and the hotel operator will have a strong political case for public “financial support” if it is losing money, especially the conference center. The hotel operators can hold out the necessity to close parts of the hotel or all of the hotel in the absence off “support.” They can cite City sponsorship and repeated declarations of its public benefits of the hotel in support of the subsidies to keep it open.

v1 said that “…the facility will be privately owned, operated, and maintained.”

v2 said: “The hotel will be privately owned and operated…The ownership format for the conference center continues to be discussed.”   Evolving!

v3 says: “The Developer may own the Conference Center secured by a public leasehold interest, depending on the final financing structure.”

This seems refer to ownership of the physical fabric, the bricks and mortar, and steel and glass. But the key issue is business ownership. Who owns the business side of the Conference Center? The City cannot own the Conference Center business without managing it and accepting responsibility for losses.  Yet the developer’s winning proposal an d the MOU between the City and the developer both envisage the conference center and the hotel as being operated as an integrated business, and a private business.

Time Line and Next Steps

v1 listed:

— “approval by the General Assembly of MSA Bill” an apparent reference to a bill written in 2016 by County Delegate Carol Krimm in consultation with MSA making state money conditional on MSA approval, which was not forthcoming

— Maryland Historical Trust Agreement approval estimated by May 2016

— design work for City permits to begin in 2016

— construction to begin June 2017 with grand opening January 2019

v2 listed the same Next Steps but only gave dates for an ‘expected construction start date no later than mid-2018’ so in seven months the project had lost the best part of a year for an opening early 2020.

v3 states that design will begin as soon as funding is in place, giving July 2017 as the likely date. By then  it should be known whether the Governor will go along with the General Assembly’s appropriation of the funds.

Design work and approvals by the Maryland Historical Trust, and the City Historic Preservation and Planning commissions is stated to all be accomplished between July 2017 and July 2018. That’s a highly optimistic… (strike that) That’s a wholly unrealistic 12 months for assembling plans and getting state and city agreement to demolish one and a half of two historic buildings in a historic district and planning commission support for major changes to the City street network and minimal onsite parking — all in the context of public hearings on a project with major impacts on citizens accustomed to minimal change nearby.

Construction time of 20 months from mid-2018 makes the v3 opening Spring 2020.

v1, v2 and v3 have the same table of costs summing to $84m of which the hotel and unspecified amenities are $53m, parking $9.6m, conference center $8.3m, land $3.4m, off-site improvements (street and landscape work) $1.4m and public soft costs (multitudinous consultants, lobbyists etc) & contingency is $8.3m.

v3 has a table of prospective funding sources summarized as

— developer financing $53m

— City $3.75m (mostly parking revenues)

— County $8.5m (split TIFs $5m, hotel tax $3.5m)

— State so far $1.1m (DHCD $0.85m, capital grant $0.25m)

— State grant appropriated 2017 session but may be impounded by BPW $15m since Gov opposes

That totals to $82.35m so $1.65m is missing.

There is considerable scope for a blowout in costs. The only professional costing of the project by Forella  late 2015 was $93m (without Parking Deck 6.) The $9m cut from this to reach $84m has never been properly explained. The costing makes no allowance for special foundations that may be needed in the soft ground of an old creekbed. Extra parking may be needed if the size of the hotel and event space is maintained. And there’s the possibility of extra land being needed.

It isn’t difficult to see costs going over $100m if it is brought to fruition. $100m for a project which Municap the City’s financial consultant says would be worth about $30m on opening!

How’s that for negative value?

One Pager v3 the March 1, 2017:

http://cityoffrederick.com/DocumentCenter/View/7035

2017.04.20

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