A group of Center
City hotel owners have banded together to come out against a proposed tax
increment financing district for a 700-room hotel at 1441 Chestnut St. across
from City Hall in Philadelphia.
The coalition,
which goes under the name “Concerned Hotel Owners of Philadelphia,” sent a
letter to Mayor Michael A. Nutter and City Council President Darrell L. Clarke outlining their concerns
over the proposed W Hotel and Element. The group is worried about the $33
million in tax increment financing, or TIF, the developer wants to help finance
the $280 million project. The group believes the location at 15th and Chestnut
streets is out of the way for conventioneers and it would add too much
inventory to the hotel market.
“We’re not
opposed to new development in Philadelphia but when you look at occupancy
levels and performance of the hotel market, it doesn’t support new development
and it doesn’t support new development of this scale at this time,” said Ben Rowe, chief financial officer of Kimpton
Hotels.
The developer of
the W-Element project is Chestlen Development, an entity controlled by Brook Lenfest, who couldn’t be reached for
comment. Councilman Clarke also couldn’t be reached.
The hotel group
is comprised of owners of the Le Meridien, Four Seasons, Hotel Monaco, Loews,
Sofitel, Ritz Carlton, Westin and Embassy Suites. Many, if not all of these
hotels owners received some form of public assistance for their Philadelphia
projects. Rowe indicated Kimpton receives $250,000 annually for its two
Philadelphia hotels so long as it owns the properties as well as a $5 million
loan through Housing and Urban Development on the Hotel Monaco.
“Both of our
projects in the market did not receive subsidies of this nature and size,” Rowe
said. “Our projects were done predominantly with private money and we received
the grants after we were moving forward.”
In general, the
numbers just don’t work to construct a hotel in Philadelphia without some sort
of pubic subsidy. Aware of this, the city, through the Philadelphia Industrial
Development Corp., offers a suite of financing tools that it can deploy to
support hotel development.
It is not unusual
for the city to arrange tax incremental financing for construction projects and
between 1998 and 2001, the city signed off on a total of $123 million in TIFs
to fund a wave of hotel development.
In the case of
the W-Element project, a bill was introduced by Clarke to designate the site at
1441 Chestnut as a “Headquarter Hotel Tax Increment Financing District” and
deem the parcel as blight. If that bill passes, the project would receive the
$33 million TIF. In all, the project is seeking a total of $75 million in
tax-payer subsidies. The developer would put up $205.4 million.
While the
hoteliers said they have “deep concern” over the TIF, they also contend the
city just can’t support a hotel of that size at this time.
“Philadelphia’s
downtown hotel market is not strong enough to absorb another 700 rooms on top
of what’s already planned without cannibalizing business from existing
properties,” the letter stated, later adding: “If the W development project was
a true headquarters hotel — a 4-star conventional property adjacent to the
Convention Center — it could help sales effort and this hotel community would
be more supportive. However, this development is too far from the Convention
Center to have the intended effect.”
The Philadelphia
Convention and Visitors Bureau retained PKF Consulting to figure out how many
additional hotel rooms were needed to accommodate the expansion of the Pennsylvania
Convention Center and its ability to host two large conventions and without
hurting the existing business for downtown hotels.
The study
concluded that between 2,000 to 2,500 rooms would be needed. A total of 1,175
new rooms will have been added to the market by the end of 2013, bringing
Philadelphia halfway to where it needs to be, according to the report.
Peter Tyson, vice
president at PKF Consulting, said he understands the coalition’s concerns over
the state of the Center City hotel market, however he discounts some of their
main worries. For one, the W-Element hotel wouldn’t open until 2017, allowing
the city’s hotel market to gain traction as well as for SMG, the new facility
manager, to work out issues at the convention center. It would also give the PCVB,
Starwood and the hotels’ sales staffs time to market this property as a major
addition to the city’s hotel inventory, he said.
Tyson also
believes the proposed site for the hotel across from City Hall is “suitable for
a convention headquarters hotel, particularly for groups utilizing the expanded
portion of the [Pennsylvania Convention Center].”
Until improvement
at the convention center can be measured and the hotel sector shows marked
improvement, the project isn’t justified, especially with this level of public
funding, Rowe said.
“We’re not
suggesting there’s never a time for this hotel,” Rowe said. “We want to be
reasonable and we think this should be approached on the facts and a fair
analysis on what’s actually going to happen. When you look at the numbers and
projections, you don’t have to be expert in this industry to conclude that this
analysis is significantly flawed and the city and taxpayers are getting a bad
deal. If their analysis was right, we would be supportive.”
Source: Philadelphia
Business Journal
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