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Convention Hotel a Possibility for Hutchinson Island

By Ted Carter

SBJ Staff

Feb. 8, 2010 - Years of talk about erecting a genuine convention hotel on Hutchinson Island could soon evolve into some actual deal making with a developer, backers of the long-sought project say.

The Georgia International and Maritime Trade Center Authority, the policy board for the Convention Center, has laid out an ambitious schedule that would put forth a detailed plan for a convention hotel later this year and issue a Request for Proposals from potential developers later this year.  Once the authority awards a contract, “We’re probably looking at three years to open,” said Bob Coffee, general manager of the Savannah International Trade & Convention Center.
Coffee conceded developers have limited access to credit for such a project. “We’ve been aware financing would be tight,” he said.

But timing could help. As the months go by and the project progresses to the development stage, capital may be more readily available, Coffee said. “Everybody expects the economic recovery would be sufficient by the time the hotel opens up.”

If the authority had cut a deal with a developer to start construction on a hotel three years ago, “We would not be congratulating ourselves,” Coffee noted.

At the moment, occupancy and rate declines nationally are threatening to send some hotels into bankruptcy as they struggle to pay down debt.  Slightly more than a year ago, according to the Wall Street Journal, hotel debt in the United States considered to be in distress stood at $1.6 billion.  By last fall, it totaled $18 billion, the national business newspaper reported.

The distressed category includes hotel debt that is either delinquent, in bankruptcy proceedings, in foreclosure or under restructuring.

Coffee acknowledged the deep debt trouble hotels are encountering but emphasized that financing for a convention hotel “is a different animal” from that of a more conventional hotel.

“The small, privately financed hotels are the ones tending to go broke,” he said. “There’s a different dynamic associated with convention hotels, which is that they tend to be more safe to finance.”

In this instance, Coffee said, the hotel developer would be using tax free bonds administered by the Savannah Economic Development Authority. The developer would be on the hook for paying the debt but buyers of the bonds would be free of tax liability.

That’s an attractive proposition to potential investors, according to Coffee.

Moreover, Coffee noted, the convention hotel developer would be in a partnership with the Georgia International and Maritime Trade Center Authority, the policy board for the Convention Center.

Under the plan, the hotel would go up on authority-owned land known as Parcel 7 just west of the center. Also, roads and other infrastructure would  be covered with money from the authority, the state and Chatham County’s Special Purpose Local Option Sales Tax, or SPLOST.

As for public dollars going into any other aspect of the development, “We’re not there yet,” Coffee said.

Developing a convention hotel is not without some potholes, Coffee noted. “You tend to spend more per room” than you would on a conventional hotel that offers limited service. Ancillary facilities such as banquet rooms and meeting and conference space drive up the costs.

Once open, “You start with the need to fill up the hotel and to get rates that allow you to retire the construction debt.”
In all, Coffee conceded, “We’re looking at upward dynamics in the best case.”

The authority wants a developer willing to build the hotel and commit 400 of its rooms to lodgers taking part in conventions or meetings at the next door center. A commitment for 40,000 square-feet of function space would also be required, according to Coffee.

The hotel would be positioned cattycorner to the Convention Center. This way, said Coffee, “We can further expand the center to be at its front door.”

Before going any further, the authority must get an answer to a key question: What economic punch would a convention hotel directly next to the Convention Center have for Savannah and the rest of the region?

The authority will seek an answer through a consultant’s study. “The study is of the economic impact that a hotel like this would have on the overall community,” Coffee said.

Some assumptions going into the study are that the hotel would return the property to the county’s tax rolls,  would support further convention center expansion and provide  intermodal transportation facilities to fit the needs of the hotel and center.

Related story: Developer Interest is Key To Greenlight for Convention Hotel

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