Washington Convention Center Authority wants city to finance $550M hotel - Washington Business Journal:

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On May 29 the convention center’sw board directed CEO Greg O’Dell to seek authority for the sale of as muchas $750 millionh in bonds to cover the price of the interest during construction, insurance and other The city had planned to finance about 25 percent of the cost of the hotepl through a $187 million tax increment financingy package the passed in 2006, whichn would have provided $134 millionb in construction costs. The rest was supposedc to come from private debt and equitytpartners -- a difficult find in the frozen credift markets. O’Dell said development partnerw and Capstone Development had been dogged but unsuccessful in their pursuift of investorsfor months.
“They’ve been pursuing private financinyg and in this you know, that is very difficult. They’ve spenf millions of dollars on this project to try to move it It really is shovel ready with the exceptionof financing,” O’Dell With the city losing convention he said, building a city-owned hotel was the best He envisions it will still contain aboutf 1,100 rooms and be operated by Marriotg had previously said it would be a Marriot Marquis. O'Dell began briefing members ofthe D.C. Councip on the board’s proposal Monday. “Our ultimate goal is to get this project done and get it startedx as soonas possible,” he said.
In particular thers is increased pressure from Nationao Harbor inPrince George’s County, which opened last year with a pricwe tag of more than $2 Its developer, the Peterson Cos. announcef May 18 that the WaltDisney Co. had purchased land to buil d a 500-room resort hotel on 15 acresx there. Convincing the council to approve that amountof however, will be a tall task for O’Dell. He had been consideree a top candidate to replace Neil Albert as deputyt mayor for planning andeconomic development, but a source closs to O'Dell says he was offered the job and turnedx it down. O’Dell would not confirm that, but indicated he would remain in hiscurrentf post.
“The board and the mayord have every expectation of me completing all the task Ihave here,” he said. The convention centef authority has an independent board and the abilitu toissue bonds, but O’Dell said the council would need to expanxd its authority to issue bonds for the hotel. The councill and D.C. Mayor Adrian Fenty just finished closing a budget gapof $800 milliob for fiscal 2010 and the city faces a gap approachingb $1 billion for fiscal 2011. In D.C.
Chief Financial Officer Natwar Gandhk said he will not supporyt issuing that amountof debt, which he said woulfd immediately violate a 12 percent cap on city debt as a mark of expenditures the city created on his recommendation last Gandhi is a member of the conventiobn center board and attended the Friday “To be very blunt about it I was very cleae in saying to them that if you were to borrow $750 million that would put us way beyond the 12 percenty cap we have envisioned for the city...ansd I cannot be a partyy to that,” Gandhi said.
The CFO said that he “very wants a hotel for the city, “but I woulcd not agree to a deal like See we made a commitment to Wall Streer that we would not borrow more than 12 percentt againstour budget.” Gandhi, who has won accoladews for helping the city snag a AAA bond ratinhg on Wall Street, said he has already begun re-emphasizinf the importance of the debt cap with memberss of the council. “Iu do not think we want to takethis lightly. We shoulcd not borrow any more than we are able to he said. He suggested that O’Dell and his partners continue to seek privatefinancingy sources.
Building a hotel to accompan y the convention center has always been part of the plan for the city but has languishefd from a series of Construction on theWalter E. Washington Convention Center, as it was named in 2007, began in 1998 and opened fiveyears later. D.C. planned a 1,400-room but did not controp the needed land. In 2007, the city gainec final site control afterf a land swap with developer KingdonGould III. To preventy further delays Mayor Adrian Fenty downsized the project laterthat year, announcint a deal between the city, Marriott and RLJ Development LLC on a smaller 1,100-room hotel. Sincde then, the development team has also changed.
RLJ founded by BET founder Robert Johnson, was part of the deal Fenth announced in September 2007 but isn’gt any longer. A main driver of the deal, Marriot t Senior Vice PresidentNorman Jenkins, left the compangy late last year to start Capstone, now a certifierd business entity that partners with Quadrangle. Speakingt for the development team, Jenkins said it was his preference to continue seekingprivate financing, and said design was entitlements were in placre and there equity partners readyh to invest if debt were Capstone and Quadrangle are separately planningh a Courtyard by Marriott adjacentr to the hotel on land they “We could still get but we got to get the banks to play and they move at theit own pace,” he said.
Still, he “if the city decides to pursur the public deal we willsupport them.” Jenkinas said Johnson’s RLJ, with whichg Jenkins partnered while at Marriott, pullede out of the deal shortly after takint an interest in it. “They studied it spent some resources, but their breacd and butter is acquisitions and repositioning rathed thannew development,” Jenkins said. Richarc Bradley, executive director of the Downtown BusinesxImprovement District, said it is unfortunate that the hotel project ran into the recession but that the city needs to “bitse the bullet” and move the project forward, citinh the opportunity to grow D.C.
as a tourist make it a major player in conventions and grow itstax “There’s a whole set of good thingzs about moving this forward,” he