D.C.'s hotel deal raises ire in Baltimore

Billionaire, Marriott offer private financing in plan

Some council members upset

July 15, 2005|By Jill Rosen | Jill Rosen,SUN STAFF

As Baltimore development officials insist public financing is the only way for the city to get a convention center hotel, a prominent entrepreneur and a major hotel chain have an entirely different idea for a convention center hotel just down Interstate 95.

Black Entertainment Television founder Robert L. Johnson and Marriott International's proposal to privately finance a $400 million convention center hotel in Washington raises new questions for some about plans to publicly finance a $305 million equivalent in Baltimore.

In Baltimore, City Council members have repeatedly heard from development officials and Mayor Martin O'Malley that a hotel deal with private money is all but impossible. So they were flabbergasted yesterday to learn of Johnson's offer as they consider the Baltimore project, which the billionaire is helping to develop.

"He apparently has equity," Councilwoman Mary Pat Clarke said of Johnson. "Why can it not be spent in Baltimore?"

And Councilman James B. Kraft, a vocal opponent of the hotel plan, said the news only reinforced his doubts about the city's going into the hotel business.

"Sometime 18 months ago, BDC made a decision that the only way this could be done was public financing," he said. "They pretty much gave up trying to find private financing, and now they're boxed in."

But BDC President M.J. "Jay" Brodie said it was too soon to jump to conclusions about the Washington proposal.

"This is very preliminary," he said. "There would be significant public subsidies involved - it's impossible to guess how much."

Like Baltimore, Washington has long sought a headquarters hotel to complement its convention center. And like Baltimore, district officials say that without one, its new $834 million convention center will falter.

District officials have wrestled for years trying to figure out where and how to build.

However, while Baltimore decided that public financing was the only viable option, Washington officials, who also favor a public deal, have kept the door open for private investment.

Washington's director of development, Stephen Green, said Marriott and Johnson's proposal would be taken seriously.

"We've always said if a private deal makes sense, we would look at it," he said. "We're not sure yet if we have a private deal that makes sense."

Marriott and Johnson have not provided the district with many details about their offer. They did, however, express an interest in tax breaks.

On a 1,200-plus room hotel, that would be a significant amount of money. "It amounts to millions of dollars," Green said.

Johnson did not return phone messages yesterday.

O'Malley and the BDC, backed by tourism officials and union leaders, are pushing for Baltimore to issue $305 million in revenue bonds to build a 752-room Hilton.

Officials intend for the hotel to eventually pay for itself. However, in the event of a shortfall, the city would turn to the hotel's property tax, then its occupancy tax. A last resort would be money from the citywide hotel occupancy tax.

Hilton has pledged $25 million should the city need a bailout, but that's a loan that the city would have to repay with interest.

An attribute of public financing that outweighs the risk, hotel advocates say, is how it enables Baltimore to glean profits from the project.

Brodie said he has yet to see a deal with private investment that rivals the public one he's worked out with Hilton and Johnson.

"They were not viable deals," Brodie said of rejected bids for the hotel that involved private investment combined with public subsides. "Our conclusion was it was not acceptable."

In 2002, Johnson presented Baltimore with an unsolicited proposal to build a convention center Hilton adjacent to the downtown convention center - and he asked for public assistance to make it happen.

While city leaders initially greeted the proposition with open arms, ultimately the BDC decided that rather than give someone incentives to build the hotel, it would go it alone.

O'Malley spokeswoman Raquel Guillory said yesterday that Johnson's overture to Washington sounded like the deals Baltimore has already bypassed from him and others.

"This may not be any different than other deals that have been rejected by Baltimore and other cities as too costly to taxpayers," she said.

Councilman Robert W. Curran, who supports a publicly financed hotel largely because of the chance for city profit, doubts the Washington deal is as good as it sounds.

"I really need to see what he's asking for," Curran said. If tax breaks or public money are on the table, "what advantage is that?"

Downtown Partnership President Kirby Fowler also suspected that Johnson's deal has unannounced strings attached.

"A lot of times they come in saying no assistance is needed and then when it's worked out, assistance is needed," he said.

Clarke said she didn't buy the argument that the city should invest in the hotel in order to reap the profits.

"Government is not a business," she said. "The whole argument of getting into profit-sharing is somewhat unseemly. They're putting public money at risk to do so."

Risk and reward equations occupy the minds of Washington officials considering their hotel, Green said.

"If you're comfortable with the risk, the public financing is a better transaction. But how do you segregate the risk?" he said.

"The Brodie proposal is probably a smart way to do it, but that doesn't mean it's the only way to do it."

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