City's financial aid for hotel supported

Backers say trend is for governments to help boost lodging

July 16, 1999|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

The way Carroll Armstrong sees it, critics of Baltimore's decision to provide multimillionaire baker and real estate developer John Paterakis Sr. with $10 million to build a 750-room hotel east of the Inner Harbor should look to Philadelphia.

There, the city is providing tens of millions of dollars to subsidize a half-dozen new hotels in support of its $522 million convention center. "All you have to do is look up the road. It's unbelievable," said Armstrong, president of the Baltimore Area Convention & Visitors Association.

"There's hotel construction everywhere. There are 3,000 new rooms on the way. The business the convention center there is generating is tremendous, in terms of financial impact and jobs, it's tremendous. We in Baltimore need to look at this as an investment."

Most notably, Philadelphia gave $18 million and millions in tax breaks to the developers of a 350-room Hyatt Regency Hotel.

Nationwide, governments seeking to boost tourism and convention business are subsidizing hotel construction to help bridge the gap between development costs and average room rates.

Cities are giving millions of dollars to developers through grants, low-interest loans, tax increment financings, tax breaks or rebates and infrastructure work. In the process, government is stirring debate over feeding private development with public money and wrestling with the notion of how much is too much.

In Baltimore, the city's economic development agency contends the $5 million grant and $5 million low-interest loan Paterakis' H&S Properties Development Co. received for its Wyndham International hotel is necessary to ensure the long-term success of the $151 million expansion of the Baltimore Convention Center. It also notes that much of the subsidy will be re-paid through occupancy, entertainment and other taxes.

"Compared to what public subsidies are being received in other cities, we're substantially below the average," said Michael Beatty, an H&S Properties vice president in charge of developing the 31-story hotel.

In all, H&S Properties will receive $103 million in public subsidies for its $117 million project -- the $10 million from Baltimore; $18 million in state-funded infrastructure work; and $75 million in city tax breaks over 25 years.

Experts say subsidies are as different as the cities that provide them, and that comparing subsidies is often difficult because of their various forms.

"You won't see subsidies provided in Atlanta, Boston or New York," said Warren Marrs, director of hospitality and leisure consulting at PriceWaterhouseCoopers, one of the nation's largest accounting and consulting firms. "But in a city where there's a need to increase hotel rooms in response to new convention center construction, it's not unusual. In Philadelphia, none of the hotels would have been built without subsidies."

In Boston, where the city is requesting bids for a major hotel to support its convention center, officials have hinted that subsidies will not be granted.

But usually, incentives and subsidies pour like rain.

In Orlando, Fla., county officials gave a developer $90 million over 30 years for a 1,400-room, $350 million Opryland Hotel; Charlotte, N.C., agreed to $16 million in incentives to get a 793-room, $132.7 million hotel; and Houston arranged $64.5 million to support construction of an 1,100-room hotel.

Typically, public sources of financing for convention center hotels outpace private equity and debt investment by 55 percent to 45 percent, according to a study by accounting firm Ernst & Young's Kenneth Leventhal Real Estate Group.

Still, that's little consolation to those irked by Baltimore's decision to give Paterakis a $10 million grant and loan.

"I'm disappointed, because it indicates to me the project will continue," said City Councilman John Cain, whose district includes the site for the Wyndham. "I think it's a bad project for the city."

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