The projected price for Metro's long-hoped-for headquarters hotel next to its Oregon Convention Center got a lot more expensive today.
For more than a decade, tourism boosters have tried to figure out how to pay for such a hotel because they've contended (despite critics
) the convention center's lack of a HQ hotel has put it behind other such facilities in its ability to attract big groups.
When Metro discussed the possibility of building a publicly-financed, 600-room headquarters hotel last September, financial projections showed a $168 million price tag.
To cover all costs and contingencies, the agency projected it would have to borrow about $211 million. Then last fall, Metro councillors felt nervous about the numbers,
which showed the hotel's operating income alone might not cover debt service. They said they would be unwilling to guarantee the hotel debt and would need another public sector "partner" to issue bonds if the project were to move forward.
Then in December, Metro agreed to spend $600,000 on a design and a more concrete budget. Metro released that budget today, and the cost increase from previous figures is jawdropping—instead of $168 million, the projected cost of construction is now $247 million.
Using the same debt service coverage as last fall, that higher estimate implies issuing $308 million in bonds-not $211 million.
Metro's assembled throng of consulants were quick to urge reporters not to be hasty in comparing the $168 million from last fall to today's $247 million—to do so would like "like comparing apples to watermelons," one consultant said.
(The increased costs include construction inflation of 20 to 30 percent over the past two years and a number of costs such as developers' fees that weren't included in the earlier estimate).
Maybe. But from the public's perspective, the cost of this deal just went up $79 million. And consultants could offer no compelling arguments as to why revenues from the hotel would rise nearly as much.
Councillor Rod Park, given the task of putting the best face on the news, says, "What's exciting is that we now have the first real numbers on this project."
Maybe. But assuming the same 5 percent interest used in projections last fall (probably optimistic now given the more chaotic state of credit markets) debt service on the project is nearly $5 million per year more than previously expected. That's a huge increase considering the project's projected net operating income is about $13 million a year for the first decade of operation.
On July 16, the hotel, development and construction consultants will give the public a full briefing on the project. As WW reported
last week, Metro staffers are in talks with the City of Portland, which previously balked at subsidsidizing a hotel, about the city's willingness to guarantee hotel bonds.
The Metro Council expects to vote on whether to go forward with the project within the next 90 days.