A task force convened by Mayor Sam Adams in mid February has recommended that Portland proceed with the building of a 600-room hotel next to the Oregon Convention Center.

Last December, Metro Regional Council extended its agreement with the hotel's development team until April 18, 2009, saying it was not sure whether it wanted to proceed to creating construction drawings for the hotel at a potential cost of approximately $5m, without assurances from the city and the county that it would get compensated for the outlay through hotel and rental car taxes—subject to an agreement with the city and county called a "visitor development initiative."

The Metro Regional Council was ready to vote on the deal last December, but Metro's Chief Operating Officer Mike Jordan was rumored to be prepared to recommend a "no" vote by Metro. Instead, Portland's mayor-to-be, at the time, Sam Adams, said he needed more time to work on the deal and that he would convene the task force to work out a way for the project to work, as soon as he took office. Metro's extension of the deadline until April granted the mayor's task force time to do its work.

"The task force recommends the currently proposed, 600-room Headquarters Hotel project proceed to the next phase as structured," reads a letter from the task force to Adams, dated March 9, and posted after the jump.

The task force recommends that Metro and PDC invest $12m in public resources for the next two design and engineering phases of the project, before the city of Portland sells bonds to fund the projected $247.5million cost of construction in 2010-11. The task force also wants additional opportunities for public input on the project before the bond sale.

Metro is still due to vote on April 18th over whether or not to proceed with the project. Former mayor Tom Potter had been opposed to the city funding the hotel, but Adams may now decide to take it over on behalf of the city before April, in which case he'd have to ultimately find a source for its cost.

March 9, 2009

The Honorable Sam Adams
Mayor of Portland
1221 SW 4th Avenue, Room 340
Portland, Oregon 97204

Re: Headquarters Hotel Independent Review Task Force

Dear Mayor:

The Task Force was convened February 18, 2009, to take a new, up-to-date and objective review of the currently proposed Oregon Convention Center (OCC) Headquarters Hotel with the charge to:
• Decide whether the proposed project is based on thorough analysis and reasonable, informed assumptions; and

• Provide the recommendation to proceed with the next phase of the currently proposed project which is to advance the architectural plans and budgets, as well as further explore the financing options over the next twelve months leading up to a final decision about whether to proceed with the project — or discontinue or alter the project.

The Task Force held three in-depth meetings to obtain briefings on the convention center industry, the hotel industry and specifically, the proposal for a Portland Headquarters Hotel. Agency staff and consultants presented the Task Force with detailed background information on the national and local convention market, the national and local hotel market, the national bond market, as well as the current project proposal, including a description of the business deal, the financial structure, the proposed Visitor Development Initiative amendments and the operating pro forma. The financial information analyzed reflected information from the private developer, the private hotel operator, and negotiations between the City, Metro and the Portland Development Commission (PDC). Invited guests included the development team and representatives of the hotel industry who had concerns about the project, both of which provided testimony. After the briefings, the Task Force deliberated and reached the following, unanimous*, conclusions.

• The Project proposal is based on thorough analysis and reasonable, informed assumptions.
Staff and the consultants they retained have reasonably and carefully analyzed the market, the financial feasibility and the choice of business partners for the proposed Headquarters Hotel. Task Force members do not agree with all details of each report and analysis, however, the same conclusions and level of confidence were reached by all*.


• The Task Force recommends the currently proposed, 600- room Headquarters Hotel project proceed to the next phase as structured, with the following understandings:

• If appropriate project approvals are ultimately provided by the affected government bodies (Metro, Multnomah County, City of Portland), Metro and PDC should proceed to invest up to $12M in public resources in the next two design and engineering phases to advance the plans and to obtain a guaranteed maximum price from the developer. This work will ready the project for a potential bond sale in 2010-11, assuming that project costs, the hotel market and the bond market result in a financially feasible project. The Task Force understands that there is currently built into the process performance requirements and decision points that determine potential off-ramps, or points at which the project can be cancelled prior to the commencement of construction or any contemplated bond sale.

The Task Force concurs with the project advocates and consultants, based on current market knowledge, that the decision to proceed with a 600-room hotel is reasonable.

• Prior to commencement of construction or approval of any bond sale for the project by the City of Portland, the Task Force recommended that the following should occur:

• A public opportunity to receive, review and comment on the details of the project’s financial assumptions, projections, and debt structure.

The Task Force believes it is important to obtain additional public and industry review of the pro forma and financial structure as part of an open and transparent decision-making process. Specifically, Metro and the City need to fully consider concerns that have been raised by some in the local Portland hotel business, about a) how public investment in a Headquarters Hotel could negatively impact other, privately-owned hotels in the market and b) to ensure that the project budgets and agreements are formed in the best interest of the public partners.

• Development of a holistic and implementable plan for public and private investment in the OCC area immediately adjacent to the Convention Center and the proposed hotel that incents projects that would directly enhance the ‘front door’ image and support increased business to the OCC and the immediate neighborhood.

The Task Force believes this is important in order for the City to fully plan for the success of the OCC, as a City and regional priority, in acknowledgement that Headquarters Hotel is important to the OCC’s business prospects, that alone is not likely to provide the full neighborhood impact that the district requires to become a vibrant 24/7 pedestrian active neighborhood. Additionally, the investment in the Headquarters Hotel will probably not be sufficient to incent private OCC area investment on the immediately surrounding blocks that most impact visitor experiences of the OCC. Thus, additional public investments should be considered.

• Development of a strategy to create opportunities to enhance the adjacent N/NE neighborhoods and aid their residents. This goal will be partially met through Minority/Women/Emerging Small Business and First Opportunity Target Area goals for the Headquarters Hotel project, but additional efforts are requested.

The Task Force believes this long-standing commitment to the community is important to honor and its implementation needs to be assured.

• Additional Task Force Recommendations

In a forthcoming public review and discussion of the project financial details, the following should be considered:

• Evaluate whether a larger project contingency is merited to provide additional cushion to the public partners thereby minimizing the potential need for further public investment in the project should the financial projections not be achieved.

• Identify a funding path that supports development of a Leadership in Energy and Environmental Design (LEED)-Platinum hotel, rather than the LEED-Silver currently proposed. Portland is the most sustainable City in the country and Oregon the most sustainable state and the Headquarters Hotel needs to reflect this community value.

• Ensure that the Visitor Development Fund has adequate funding to support both the marketing of the Oregon Convention Center and the Headquarters Hotel as well as the privately owned downtown hotel transient market. This will be especially important during the stabilization period of the Headquarters Hotel and is intended to minimize any negative impact on the existing hotel industry.

• The project’s public partners should undertake a transparent process to assure that the development and operating agreements include either enforceable restrictions and/or meaningful incentives to assure that the HQ hotel operator implements a room rate structure that, during slack periods, is not detrimental to room rates at other hotels in the marketplace.


I welcome the opportunity to discuss the Task Force’s findings in greater detail with you.

Sincerely,

Mark Edlen, Chair

cc: Task Force Members:
Steve Faulstick, General Manager, Portland DoubleTree Hotel / Travel Portland
Doug Obletz, President, Shiels Obletz Johnsen, Inc.
Judy O’Connor, President, Northwest Labor Council
Jan Robertson, Chief Financial Officer, Norris, Beggs & Simpson NW Ltd. Partnership
Dan Rogers, Associate Professor, School of Business Finance, Portland State University
Harvey Rogers, Partner, K & L Gates LLP
Carl Talton, Executive Chair, Portland Family of Funds Holding, Inc.
Rob Teach, Sr. Vice President, Oregon Commercial Division, U.S .Bank

*Task Force member Rob Teach was not present/did not vote at the Task Force final session on March 4, 2009.