oregon convention center headquarters hotel

Oregon Convention Center Headquarters Hotel

Metro Council & MERC CommissionJoint Work Session

9/06/07

Agenda

• Introduction• Consultants’ Key Findings• Alternatives Analysis• Financial Analysis• Staff Recommendation• Questions and Discussion

Background

• The mission of the OCC is to maximize economic benefit for the region.

• National conventions provide the greatest economic impact for the OCC and the region.

• In recent years, demand for national conventions at the OCC has leveled off.

• Metro Council has asked MERC to look at alternatives to address this situation.

Alternatives

• Status quo with increased subsidy for operations

• Change the OCC Mission: regional meeting center

• Enhanced Incentives: i.e. shuttle service, free rent, etc.

• Privately owned, small scale headquarters hotel with public subsidy

• Publicly-owned, privately operated, 600-room headquarters hotel

ProcessWhere are we now?

• MERC/Metro Work Session: 9/6• MERC Recommendation: 9/12• Metro Public Hearing: 9/20• Council Decision: 9/27

Consultants

• KPMG – Susan Sieger

• Strategic Advisory Group (SAG)– Tony Peterman

• HVS Market Study– Tom Hazinski

• ECONorthwest– Abe Farkas

• Piper Jaffray– Peter Phillippi

7

Economic and Fiscal Impacts Estimates Oregon Convention Center CY 2006 Operations

Proposed New Headquarters Hotel

Presentation - September 2007ADVISORY

8

Background

• KPMG conducts an annual economic and fiscal impacts analysis forthe OCC based on historical event data and budget figures provided by management

This presentation summarizes CY 2006 estimates

• KPMG was also retained to estimate the economic and fiscal impacts associated with construction and operations of the proposed 600-room headquarters hotel based on information provided by PKF and HVS International as well as historical OCC operations

9

Methodology

Estimate Direct Spending

DelegatesExhibitors

AssociationsHotel Guests

Budgetary Spending

Estimate Spending Amounts By

Type of Activity

Apply Multipliers Provided by Minnesota

IMPLAN Group to Estimate Indirect &

Induced ImpactsThrough Multiplier

Effect

Estimate TotalEconomic Benefits

Generated from Operations

SpendingEmployment

Earnings

Estimate Fiscal Benefits Generated From Operations

Personal Income TaxCorporate Excise and Income Tax

Transient Lodging TaxMotor Vehicle Rental Tax

Allocate Direct Spending into

Industry CategoriesThat Serve as Basis for

Multiplier Analysis

10

Total spending generated from OCC operations in CY 2006 was estimated to be 32% lower than in CY 2005

$0.0

$100.0

$200.0

$300.0

$400.0

$500.0

$600.0

2004 2005 2006

Direct Spending Indirect/Induced Spending

(in m

illio

ns)

Summary of Estimated Spending Generated from OCC Operations

$420.9

$551.6

$373.8

11

OCC event activity is increasingly becoming more local in nature drawing fewer attendees from outside the region

• The number of public shows and meetings has increased each of the last two years

• These events do not typically generate significant economic impact to the region

54

9358

87105

262

148122

305

7389

366

0

50

100

150

200

250

300

350

400

Public Shows Food & Beverage Events Conventions/Tradeshows

Meetings

200420052006

Source: OCC

Comparison of the Number of Events at the OCC

316,

141

559,

670

385,

266

688,

086

404,

413

71,5

40

74,4

69

70,2

51

90,7

06

302,

734

72,8

98

92,5

41

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

Public Shows Food & BeverageEvents

Conventions/Tradeshows

Meetings

200420052006

Comparison of Total Attendee Days at the OCC

Source: OCC

12

The decrease in total spending between CY 2005 and CY 2006 is primarily attributable to the decline in total attendee days (29%)

• Certain categories of attendees generate more spending at area hotels, restaurants, retail and other business establishments (e.g. overnight, those attending regional/national/international events)

• The same attendee days can be segregated into multiple categories

• As shown below, several categories associated with higher spending per day were down in CY 2006

Conventions/

TradeshowsAttendee

Days

41%

All EventsHigh Impact (Overnight)Attendee

Days

47%

All EventsRegional/National/

InternationalAttendee

Days

52%

Decrease in Total Spending from OCC Operations

32%

13

Estimated total employment generated from CY 2006 OCC operations decreased in each county to the lowest level in six

years

700

4,700

800900 1,100

500

3,600

600

6,300

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Clackamas County Multnomah County Washington County

2004

2005

2006

Summary of Estimated Total Employment by County

14

Estimated fiscal impacts generated from CY 2006 OCC operations decreased by approximately 41% to the lowest level in six years

• Decreased fiscal impacts are primarily attributable to the decline in convention/tradeshow attendees and related spending during CY 2006

$15.9

$21.8

$12.8

$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

2004 2005 2006

(inm

illio

ns)

Summary of Estimated Fiscal Impacts (Counties & State Combined)

15

According to independent research conducted by SAG, PKF and HVS, certain factors are contributing to the decline of the OCC’s

convention and tradeshow business

• Portland’s lack of a headquarters hotel

• Competition from other cities

• The relatively small room block available near the OCC

• The high occupancy rates at Portland hotels

• The distance to convention-quality hotels

16

POVA records indicate that last year alone, Portland lost 52 future OCC bookings due to the lack of a headquarters hotel

and/or limited hotel package

Source: SAG

Convention Center Destination

Attached or Adjacent

Within 2 Blocks

Within 4 Blocks

Within 6 Blocks Total

San Francisco 1,908 2,249 1,951 2,685 8,793 Denver 1,321 1,007 3,329 420 6,077 San Diego 4,179 1,213 350 301 6,043 Salt Lake City 896 1,050 3,086 393 5,425 Anaheim 2,882 1,883 490 0 5,255 Seattle 1,430 2,137 0 1,035 4,602 Austin 800 1203 977 189 3,169 Phoenix 712 1,651 0 0 2,363 San Jose 1,270 891 0 100 2,261 Long Beach 895 460 609 0 1,964 PORTLAND 174 0 678 239 1,091

Approximate Hotel Rooms at OCC Competitors

• Lost groups represent approximately 250,000 room nights

• Represent significant lost potential economic and fiscal impact to the community

17

Drivers of hotel economic/fiscal impact study

• OCC management asked KPMG to use these historical estimates as well as figures provided by their hotel consultants to estimate the following:

Economic/fiscal impacts associated with net (loss)/gain of OCC-related business

Economic/fiscal impacts associated with non-OCC related business at the proposed property (e.g. independent business travel, leisure, in-house group)

Cumulative State fiscal benefits from OCC operations since 2000

18

Presence of the proposed new headquarters hotel impacts future convention/tradeshow business at the OCC

Without the proposed headquarters hotel

• PKF and HVS research indicates a potential loss of six (6) conventions/tradeshows at the OCC annually

• Economic loss to the region is estimated to be approximately $40.8 million annually

• Fiscal (tax) loss to the region and State combined is estimated to be approximately $1.9 million annually

With the proposed headquarters hotel

• HVS research indicates a potential gain of eight (8) conventions/tradeshows at the OCC annually

• Incremental economic benefits to the region are estimated to be approximately $54.5 million annually

• Incremental fiscal (tax) benefits to the region and State combined are estimated to be approximately $2.5 million annually

19

There are regional economic benefits associated with the proposed new hotel’s non-OCC related business

Notes: Indirect/inducted spending results from the circulation of the initial spending through the Tri-County economy and is captured by the multipliers.FTE denotes full-time equivalents.

Economic Benefits: First Year (2011)Stabilized Year

(2014)Direct Spending $33,101,000 $37,043,000Indirect/Induced Spending $24,181,000 $27,056,000Total Spending $57,282,000 $64,099,000

Total Employment (Number of FTE jobs) 730 820Total Earnings $22,598,000 $25,276,000

Estimated Net Economic Benefits to the Tri-County Metropolitan Region From Operations of a Proposed New Headquarters Hotel - Non-OCC Related Business

600 Room HQ Hotel

20

There are fiscal benefits associated with the proposed new hotel’s non-OCC related business

Summary of Estimated Net Annual Fiscal ImpactsGenerated From Operations of a Proposed New

Headquarters Hotel Non-OCC Related Business

First Year (2011) Stabilized Year (2014)

State of OregonPersonal Income Tax $670,000 $749,000Corporate Excise and Income Tax $98,000 $116,000Transient Lodging Tax $90,000 $102,000Total $858,000 $967,000

Multnomah CountyTransient Lodgings Tax $1,128,000 $1,331,000Motor Vehicle Rental Tax $350,000 $387,000Business Income Tax $19,000 $21,000Total $1,497,000 $1,739,000

Total Tax Benefits $2,355,000 $2,706,000

Non-OCC Related HQ Hotel Operations

21

Cumulative State fiscal benefits from OCC operations since 2000 are estimated to be $47.0 million in constant dollars

Summary of Estimated Fiscal Benefits Realized by the State of OregonFrom On-Going OCC Operations (2000 – 2006)

$6.1 $6.0 $6.3

$7.8

$8.8

$5.5

$6.5

$0.0

$2.0

$4.0

$6.0

$8.0

$10.0

2000 2001 2002 2003 2004 2005 2006

Notes: In 2004, the State instituted a transient lodging tax of 1% on all hotel night stays statewide.All figures are shown in constant dollars for that particular year.

22

Summary of key findings

• OCC event activity during calendar year 2006 supports the independent research findings that the lack of a headquarters hotel is negatively impacting the facility’s ability to attract certain groups associated with relatively higher spending and, consequently, the economic and fiscal impacts to the region are similarly impacted

• Although there may be some shifts in business among properties, the existing hotel market in Portland is not expected to be negatively impacted, after the first stabilized year of operation, by the proposed property’s operation based on independent studies conducted by HVS, PKF and SAG

• The State of Oregon stands to benefit significantly from the continued marketability of the OCC to regional, national and internationalconventions/tradeshows

• Conversely, the State’s tax collections could be negatively impacted by the continued erosion of these groups due to the lack of a headquarters hotel in Portland.

S T R A T E G I C A D V I S O R Y G R O U P L L C

2007 HQ Hotel Update Study:

Oral Presentation for Metro/MERC

PORTLAND OREGONVISITORS ASSOCIATION

PORTLAND OREGONVISITORS ASSOCIATION

September 6, 2007

Convention & Hotel Industries:Are they healthy?

Convention & Hotel Industries:Are they healthy?

-10%

-5%

0%

5%

10%

15%

20%

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Demand: Net Square Feet

Supply: Venue Exhibit Space

Convention Industry Growth

Year-to-Year Growth Rate: 1986 to 2005

Source: Tradeshow Week Custom Research; US Dept. of Commerce.

-10%

-5%

0%

5%

10%

15%

20%

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Demand: Net Square Feet

GDP (Chained 2000$)

Convention Industry Growth

Year-to-Year Growth Rate: 1986 to 2005

Source: Tradeshow Week Custom Research; US Dept. of Commerce.

Health of the Hotel IndustryADR and Room Demand Pct Change:12 Month Moving Average 1989 to 2006

Total US Hotel Market

Source: Smith Travel Research

Portland Hotel Market

67.2%65.7%

61.6% 61.9% 62.3%

68.1%

73.3%74.6%

$108 $107

$104

$100 $100 $101

$108

$116

50%

60%

70%

80%

90%

1999 2000 2001 2002 2003 2004 2005 2006$80

$90

$100

$110

$120

Occupancy Average Room Rate

[Portland Central City including Lloyd District]


Lost Business Report:Why does Portland continue to lose?

Lost Business Report:Why does Portland continue to lose?

Projected Use: “As-Is”“Assuming that OCC completes its expansion in April 2003, and given the hotel package that currently exists, and understanding that your HQ hotel would be one of these existing hotels,

how likely would you be to host your event in Portland?”

0%9%

29%

53%

10% 12%

21%

46%

10% 12%0%

20%

40%

60%

80%

100%

Definitely No Highly Unlikley Might Highly Likely Definitely Yes

2002 Survey

2007 Survey

Expanded OCC/Function Space was only part of the solution

Reasons for Lost Business

0

50,000

100,000

150,000

200,000

250,000

300,000

Needed Larger Facility Cost/Rate Issues HQ Hotel Issues Date Availability

1999 2000 2001 2002

2003 2004 2005 2006

Total Room Nights Lost

Source: POVA

Destination Selection Criteria:What is important to event planners?

Destination Selection Criteria:What is important to event planners?

Destination Factors

23%

14%

48%

48%

39%

21%

13%

11%

7%

4%

5%

18%

16%

27%

36%

16%

16%

32%

30%

20%

5%

9%

14%

38%

64%

68%

59%

64%

75%

4%

25%

4%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Nearby Retail Shopping

Nearby Entertainment

Type of Chain Available

Nearby Restaurants & Bars

Overflow Hotel Rooms

Adjacent HQ Hotel

Distance from Hotels to Center

Overall Cost & Affordability

Clean & Safe Streets

1 2 3 4 5LOW………...………Relative Importance……………..…….HIGH

“On a scale from 1 to 5, how important do you consider the following factors?”

Source: S.A.G.

Destination Factors

11.0%

16.0%

25.0%

46.0%

48.0%

73.0%

73.0%

73.0%

88.0%

89.0%

84.0%

75.0%

54.0%

52.0%

27.0%

27.0%

27.0%

12.0%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Nearby Retail Shopping

Nearby Entertainment

Type of Chain Available

Clean & Safe Streets

Nearby Restaurants & Bars

Distance from Hotels to Center

Overflow (Non-HQ) Hotel Rooms

Adjacent HQ Hotel

Overall Cost & Affordability

Yes No

“Can this factor alone have the potential to be a “Deal Breaker”?”

Source: S.A.G.

Portland v. Comp Set:What do comps have that we do not?

Portland v. Comp Set:What do comps have that we do not?

Portland v. Comps: Hotel Rooms

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

PORTLAND LongBeach

San Jose Phoenix Austin Seattle Anaheim Salt LakeCity

San Diego Denver SanFrancisco

Within 6 Blocks

Within 4 Blocks

Within 2 Blocks


Total Hotel Rooms within Walking Distance of Center

Source: Individual hotels, CVB’s. Includes financed properties.

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

PORTLAND LongBeach

Salt LakeCity

Austin San Jose Denver Phoenix Seattle SanFrancisco

Anaheim San Diego

Within 2 Blocks


Total Hotel Rooms within Walking Distance of Center

Source: Individual hotels, CVB’s. Includes financed properties.

Portland v. Comps: Hotel Rooms

Meeting Planner Survey:Would a HQ make a difference in Portland?

Meeting Planner Survey:Would a HQ make a difference in Portland?

“What is the minimal number of blockable rooms that a New Adjacent HQ Hotel would need to offer in order for you to characterize your expected future usage of the OCC as ‘Highly Likely or ‘Definitely Yes’ ?”

Would They Come with HQ?21

% 23% 27

% 31%

40%

46%

52%

62% 65

%

75%

75% 79

% 81%

81%

81%

81%

81% 85

%

15%

0%

20%

40%

60%

80%

100%

200 300 400 500 600 700 800 900 1000 1100 1200 1300 1400 1500 1600 1700 1800

2002 Survey 2007 Survey

Potential Target Market Penetration by HQ Hotel Size

Source: SAG - Meeting Planner Survey 2002, 2007

Will come to Portland

As-is

Likely willnever come to

Portland

Summary RecommendationsSummary Recommendations

RecommendationsPortland should continue offering financial incentive packages when cost-effective to appropriate events – 68% of all high-impact industry events receive financial incentives– Trend mitigates effectiveness; Back to fundamentals

• Function Space - Hotel Package - Destination Appeal

Portland and other industry stakeholders should make best efforts towards realizing the development of a new convention HQ hotel adjacent to OCC– Continue to coordinate public transportation; facilitate uniform/common

room block; and develop Lloyd District area (fundamentals)

HQ hotel should be as large as the market-wide occupancy levels in Portland allow– Market-wide occupancy levels should stabilize at no less than 65%

HQ hotel should be as large as the cost-effective use of public resources permit

Two Major Questions:a. Why 65%?

b. Will HQ impact the Portland Market?

Two Major Questions:a. Why 65%?

b. Will HQ impact the Portland Market?

35%

45%

55%

65%

75%

85%

95%

Occupancy

U.S. Full-Service Hotel Performance

Monthly Occupancy: Jan-1987 to Jun-2007


‘87 ‘88 ‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07

Trendline

$45

$55

$65

$75

$85

$95

$105

$115

2000 2001 2002 2003 2004 2005 Sept 2006 YTD

Austin SacramentoIndianapolis Myrtle BeachVancouver WA St. LouisHouston LouisvilleCharlotte Portland Central CityUS Full Service

HQ Hotel Impact on its MarketRevPAR

HQ Opens


Presentation Metro Council and

Metropolitan Exposition Recreation Commission

Proposed Westin Convention Center HotelSeptember 6, 2007

Presentation to Metropolitan Exposition Recreation Commission

Average Rate and OccupancyPrimary and Secondary Competitors

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Source : Smith Tra ve l Re se a rch

Occ

upan

cy (a

vera

ged

over

tren

d pe

riod)

$90

$95

$100

$105

$110

$115

$120

Roo

m R

ate

(ave

rage

d ov

er tr

end

perio

d)

Are a wide Occupa ncy

Are a wide Ave ra ge Ra te


Performance of Competition

2004 2005 2006

Primary CompetitorsOccupancy 67.5% 71.7% 72.3%

Average Rate $104.98 $109.69 $118.08REVPAR $70.90 $78.67 $85.34

Secondary CompetitorsOccupancy 70.2% 74.3% 75.8%

Average Rate $105.08 $114.03 $122.93REVPAR $73.80 $80.54 $87.77


Estimated Segmentation

20% 20%

60%

CommercialMeeting and Group

Leisure

Estimated market segmentationof the subject propertyat stabilization (2014)


Market Penetration by Segment

0

20

40

60

80100

120

140

160

180

2011 2012 2013 2014

Commercial Meeting and Group Leisure


Occupancy Estimates

61% 65% 69% 71%68% 70% 71% 73%

2011 2012 2013 2014

Subject Occupancy Market Occupancy


Five Year Proforma

2011 2012 2013 2014 2015

Occupancy 61% 65% 69% 71% 71%Average Daily Rate $136.06 $143.11 $152.30 $161.76 $166.61

RevPAR $83.00 $93.02 $105.09 $114.85 $118.30

Projection of Financial Opearations ($ millions)

Revenue 31,055 35,113 39,843 42,804 44,075 % Growth 13.1% 13.5% 7.4% 3.0%

Contribution 16,026 19,037 22,628 24,915 25,662 % of Revenue 51.6% 54.2% 56.8% 58.2% 58.2%

Undistributed Expenses 8,122 8,752 9,339 9,837 10,132 % of Revenue 26.0% 25.0% 23.4% 23.0% 23.0%

House Profit 7,904 10,285 13,289 15,077 15,531 % of Revenue 25.6% 29.2% 33.4% 35.2% 35.2%

Management Fee 1,025 1,159 1,315 1,413 1,454 % of Revenue 3.3% 3.3% 3.3% 3.3% 3.3%

Fixed Expenses 997 1,089 1,594 2,123 2,186 % of Revenue 3.2% 3.1% 4.0% 5.0% 5.0%

NET INCOME 5,883 8,037 10,381 11,542 11,890 % of Revenue 19.1% 22.8% 26.1% 26.9% 26.9%


Forecast of Market Occupancy

73% 74% 73% 71% 71% 68% 70% 71% 73%

2006 2007 2008 2009 2010 2011 2012 2013 2014Subject Occupancy Market Occupancy


Average Daily Rate Projections

$0$20$40$60$80

$100$120$140$160$180$200

Base Yea

r20

0720

0820

0920

1020

1120

1220

1320

1420

1520

16

Market-wide Subject Hotel


Forecast of Market RevPar

$0

$20

$40

$60

$80

$100

$120

$140

2006 2007 2008 2009 2010 2011 2012 2013 2014


Induced Room Nights

Oregon Convention Center Groups 60,000In-House Group 27,600Leisure 2,300Loss without the addition of the Hotel* 25,000Total 114,900*Source: PKF


Room Night Demand Forecast

0

150

300

450

600

750

900

1,050

1,200

1,350

1,500

2007 2008 2009 2010 2011 2012 2013 2014

Thou

sand

s

Base Demand Induced Demand


Percent Change in Room Night Demand

0%

1%

2%

3%

4%

5%

6%

7%

8%

2008 2009 2010 2011 2012 2013 2014

Without Proposed Hotel With Proposed Hotel

Headquarters Hotel

Alternatives AnalysisPrepared by ECONorthwest

Overview of alternatives

• Publicly-owned, privately-operated 600 room hotel

• Privately-owned 400 room hotel• Enhanced incentives• Change the OCC mission• Status quo with increased subsidy

Evaluation criteria

• Impact to convention center• Impact to neighborhood• Impact to region• Impact to hospitality industry• Impact to Metro• Financial feasibility

Data sources

• HVS analysis of hotel market and proformas• KPMG estimates of economic impact of HQ

Hotel and the OCC• SAG survey of selection criteria for national

convention planners• PKF study of hotel market and HQ hotel

impacts• Previous PDC studies regarding a 400 room

hotel and other options• Interviews regarding IGAs and VDTF

600-Room publicly funded headquarters hotel

• Revenue Impacts:– 20% of OCC’s lost potential business could be

recovered with a 600-room HQH (HVS)– 8 new high impact national conventions/yr– $940,000/yr additional OCC operating revenue

• HQH would be catalyst for economic development and redevelopment– 820 permanent jobs in Lloyd district/ $25 million in

additional wages to area– $54 million in net new area economic activity– 2 block intensive development is positive impact for

surrounding area

600-Room Continued

• No major impacts to hospitality industry at stabilization

• Development of the hotel would create a public asset owned by Metro– If hotel is unable to service debt, Metro

would be responsible for supporting bonds

• VDF funds may need to increase to accommodate incentives to additional conventions

400-room privately funded/ publicly subsidized HQH

• Minimal impact on new national conventions– 300 room block would only increase OCC penetration

of the national convention market from 21% to 27%– Room block of any size may not be possible with

private hotel– Hotel would need to acquire new site - PDC would not

donate its land

• Minimal impact on area economic development– 400-room hotel would create fewer jobs– Does not induce new room nights into the market,

but “divides the pie.”

400-Room Continued• PDC RFP for private hotel showed

minimum public subsidy of $35 million– Variations in amenities and facilities only increased

needed subsidies– New Market Tax Credits infeasible for closing gap

• Starwood/Westin hotel showed need for $56 million in public money

• Public money to private HQH may put Metro general fund at risk– Metro funds in subordinate position - operating

revenues would not be available to repay bonds

Enhanced Incentives • OCC currently offers incentives including

free space and transportation subsidy– Additional incentives may be possible, but marginal

benefit is unclear– Enhanced incentives could have positive effect– 13% of meeting planners cited low incentives at OCC

as contributing to rejection of venue

• 68% of all high impact events nationwide are offered incentives– 90% of all comparable entities have dedicated

incentive funds– Incentives such as free rent and transportation

subsidy are an expectation

Incentives Continued

• Evidence suggests POVA has never lost a convention only because of incentives– VDF funds have never been insufficient to provide

required incentives

• Incentives already increasing at industry rate– Further increases in VDF funds may affect funds

available to other VFTA programs

• Incentives are an important part of an overall package, but cannot replace the demand for a headquarters hotel and large room block

Change the OCC Mission

• Change would shift focus from national conventions to local events and trade shows

• 2006-07: small meetings and public shows made up 58% of all OCC events

• Revenue from local events much lower– Local events generate $15K on average– Conventions generate $118K on average

• Spending from local attendees much lower– Local attendees spend $28/day– National attendees spend $298/day

Change the Mission Continued

• Shifting to a local/regional focus would decrease OCC revenues and economic impact

• Room night demand to surrounding hotels would decrease– 20% of existing Portland hotel group business is OCC

related

• Hotel occupancy tax revenue would likely decrease while OCC operating gaps increase

Status Quo with Increased Funding

• 22% of national meeting planners would consider OCC based on current incentives/ accommodations package

• OCC faces increasing future operating deficit under status quo

• Projected loss of 6 conventions/yr would cause negative impacts to economy ($40.8 million/yr) and hospitality industry (25,000 room nights)

Status Quo Continued

• Increasing operating deficit would inhibit OCC’s ability to fund reserves for renewal and replacement– Additional public money may be necessary

for capital improvement

• Current IGA could be modified to allow VTFA money to cover operating deficit

Financial Analysis

Metro & MERC Joint Work Session9/06/07

Presented by Piper Jaffray

Financial Analysis Discussion

Public versus private financing

Projected revenues and expenses

Facility and construction cost estimates

Current market conditions

Project timing

Financing alternatives

Capitalization plan for planning purposes

Stand Alone Financing

With the exception of 2012, HVS projected net income alone is sufficient to cover debt service

However, the projected net income alone is insufficient to implement a financing and insulate Metro from project risk

Fiscal Year Ending 2011 2012 2013 2014 2020 2025 2030 2040

Hotel NOI 6,688 8,929 11,771 13,454 16,070 18,629 21,597 28,179 Net Debt Service 5,153 10,307 10,307 12,637 13,280 13,856 14,466 15,788 FF&E Reserve 621 702 1,195 1,712 2,041 2,366 2,743 3,686

Coverage - 0.81 1.02 0.94 1.05 1.15 1.25 1.45

Coverage (Hotel Revenues Only)

0.700.800.901.001.101.201.301.401.501.60

2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038

Potential Financial Resources

Hotel specific TLT taxes and additional room surcharge

Development team contribution

Restructuring of existing VDI debt service

Financial support from the State

Explore additional funding as necessary

Legal Structure

Proceeds

Design-Builder

Developer

Metro

Hotelier Asset Manager

Trustee

Underwriter

Investors

Metro or Public BenefitNon-Profit Corporation

ProceedsBonds

Bonds

IndentureArticles of Incorporation

Bond PurchaseAgreement

Asset ManagementAgreement

Hotel ManagementAgreement

Design-BuildAgreement

Design-Build Agreement

Master DevelopmentAgreement

Convention Center HQ Hotel

Gtd. Maximum Price

Flow of Funds

Site SpecificTLT Hotel NOI

Available Revenue Fund

Other DedicatedFunding Sources

Taxes and Insurance

Administrative Expenses

Senior Debt Service Account

Senior FF&E Account

Deferred Bond Ins. Prem.

Subordinate Lien D/ S Account

Subordinate Mgmt. Fee

GovernmentBond RedemptionFund

Hotel Operator Gntee. Loan Rpmt.

Other Debt Service Support

Subordinate FF&E Reserve

Super subordinate Mgmt. Fee

Cash Trap Fund

Financing Analysis – General Assumptions

Current market rates and sensitivity

Private investment of $15 million

PDC contribution of land and $4 million

Project budget of $168.6 million

Additional financial resources

– Annual contribution of site specific TLT and surcharge

– VDI debt restructuring

– Additional contributions

Limited backstop by Metro

Base Case - Sources and Uses of Funds ($000)

Sources of FundsBond Proceeds 215,819$ Development Team Contribution 15,000 Interest Earnings on Project Construction Fund 9,209 PDC Contribution 4,000 TOTAL SOURCES OF FUNDS 244,029$

Uses of FundsDeposit to Project Construction Fund 168,654$ Owners Contingency 8,408 Pre-opening expenses 4,500 Deposit to Capitalized Interest (CIF) Fund 28,505 Deposit to Debt Service Reserve Fund (DSRF) 14,683 Operating Reserve 12,500 Costs of Issuance 5,280 Construction Period Expense 1,500 TOTAL USES OF FUNDS 244,029$

Metro & MERC Staff Recommendation

Staff Recommendation• Developing a 600-room publicly owned, privately

operated headquarters hotel adjacent to the Oregon Convention Center will generate the greatest benefits to the OCC and to the region.

• Identify additional resources and partners to minimize risk to Metro, and complete the financing plan

• Increasing the existing incentives package provided to prospective conventions would also be necessary for increasing national conventions at the OCC

• The OCC must continue to receive an adequate level of public funding for marketing and operations.

• Adequately funds debt service, risk scenarios, capitalized bond interest, bond insurance, and sinking fund requirements

• Provides necessary funding to offer enhanced incentives to prospective national conventions

• Provides adequate level of funding for OCC capital and operations

• Protects Metro’s general fund and existing programs from undue risk

Elements of a Successful Financing Plan

Project is Contingent Upon:• Completed financing plan

• Metro entering into a satisfactory development agreement with the Project developer, Garfield Traub-Ashforth Pacific and previously selected Project team;

• Garfield Traub-Ashforth Pacific delivering a Project guaranteed maximum price that is in line with the financing plan developed;

• Metro entering into any necessary Intergovernmental Agreements with the City of Portland, PDC, Multnomah County, and other parties to implement a proposed financing plan;

• Final Recommendation on March 31, 2008

Questions & Discussion

oregon convention center headquarters hotel

Documents