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Convention group will push 1,200-room hotel

Scott D. Smith and Andrew Tellijohn

Staff reporters

The Greater Minneapolis Convention & Visitors Association (GMCVA) will start pursuing the development of a long-sought convention hotel with about 1,200 rooms.

The organization will distribute a request for proposals this week to hotel consulting companies about conducting a feasibility study on the prospects for such a development.

At least three Twin Cities developers are jockeying to be a part of the development, which the GMCVA argues the city needs to compete for the nation's largest conventions and make use of the newly expanded Minneapolis Convention Center. It hopes to have study results by May and a site, a developer and financing wrapped up by late summer.

But it is hardly a done deal. The project is unlikely to happen without a significant public subsidy, and such a request might get a chilly reception at City Hall. One downtown hotel official also questioned whether the time is right for the GMCVA to pursue such a development.

Early maneuvering

This has been a tough year for the GMCVA. Meeting planners are canceling long-reserved conferences, and new bookings have been tough to sign.

But local convention officials are looking ahead to 2006 and beyond when they expect a turnaround. It will be vital for the city to have a 1,200-room hotel to compete with other large cities for major convention business, said Greg Ortale, president and CEO of the GMCVA.

Two years ago, the GMCVA's counterpart in Denver announced plans for a 1,100-room hotel during the annual meeting of the American Society of Association Executives (ASAE), a group of meeting planners. Ortale would love to do the same here when the group holds its annual convention in Minneapolis on Aug. 14-17.

"If there were a just God, we would have that puppy all wrapped up before the ASAE convention," said Ortale. "We hope it happens sooner than later."

The GMCVA will fund the feasibility study and lobby on behalf of the project. Beyond that, the next step is largely in the hands of the city, Ortale said.

Minneapolis-based Ryan Cos. U.S. Inc., Minnetonka-based Opus Group and Roseville-based McGough Cos. have explored sites for a major hotel since learning of the GMCVA's interest two years ago. At one time, Opus had an option to buy the block that's home to the League of Catholic Women, though it's mostly a parking lot. That option has since lapsed, sources said.

But the company has studied the project and remains interested, said David Menke, vice president of real estate. Ryan also searched downtown, but doesn't have a site under contract, said Collin Barr, vice president of development at Ryan.

McGough Development has control of arguably the best site -- the block where the Ivy Tower and the Second Church of Christ, Scientist are located -- just across 12th Street from the Convention Center.

McGough is approaching the project as a long shot because of several political and financing issues, said Thomas McGough Jr., president.

"It's not like this is some easy no-brainer," he said. But he believes that Minneapolis needs such a hotel, which could cost $200 million to $300 million to construct, and he wants to build it.

"The lack of a headquarters hotel may significantly impact the viability of the Convention Center itself," McGough said, adding that the city needs to seriously consider the potentially negative consequences of not acting.

Other cities kicked in cash

City investment in such developments is fairly common, sources said. Houston, Omaha, Detroit, Indianapolis, Denver and Sacramento, Calif., have or are building headquarters hotels, Barr said. Portland and Phoenix are considering similar proposals.

Headquarters hotels generally require some public subsidy because they include amenities such as large ballrooms and abundant parking, McGough said.

Typically the hotels are financed with tax-exempt bonds issued by a city, with future revenues from the hotel covering the bond payments. To make the financing work, cities often have to provide "capital enhancement," which means they will cover the debt payments if hotel receipts fall short.

For example, the city of Denver has committed to pay up to $9 million of bond payments for the 1,100-room, $349 million Hyatt Denver Convention Center Hotel, Barr said.

On the other hand, Minneapolis successfully financed construction of the Minneapolis Hilton and Towers, which was built in 1992. The city sold its interest in the hotel for $40 million in 1999. "One of the best deals the city ever did was when they built the Hilton," said Jeffrey Laux, part owner of the Ivy Tower.

Securing a new hotel deal will be a challenge, given that subsidizing downtown projects is out of favor among many city officials, and the city's balance sheet is loaded with debt.

"If there's market demand, the private sector will do it," said Lisa Goodman, who represents downtown on the Minneapolis City Council. "And if there's not, then government certainly shouldn't."

But Minneapolis Mayor R.T. Rybak said he's receptive to the idea of a major new hotel, if the need is demonstrated.

Furthermore, he disagrees with locating a hotel as close to the Convention Center as possible, such as on the McGough block. "We don't want [conventioners] just hanging out at the hotel bar," he said.

Instead, Rybak said a new hotel should be located where it will draw visitors to downtown restaurants, bars and entertainment venues.

"I believe there is a case to be made for hotel expansion to support the Convention Center expansion, if that kind of action has a significant benefit to existing businesses," he said.

Could hurt existing hotels

Jim Callaghan, general manager of the 357-room Radisson Plaza Hotel Minneapolis, said Minneapolis eventually will need a convention hotel.

Right now, he said, the weak market and the recent openings of the Minneapolis Grand Hotel and the Le Meridien Minneapolis have left the city with more rooms than it can fill.

"I absolutely am totally against that," Callaghan said. "This is a recipe for continued depressed occupancy in the downtown area."

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Actually there's a really good chance that this hotel will be built because of the need to have more activity in the immediate area around the convention center as well as the importance of keeping up with those cities that have recently built or are in the process of building new hotels (i.e. Denver & Omaha). Also, one of the potential developers of the new hotel owns land across the street from the convention center. I don't think this hotel will be built any time soon, but it will happen.

And speaking of the Westin, there are plans to build a Westin along the LRT line. However, I don't know exactly where it will be built. I'm assuming it will probably be built in Bloomington (near the MOA). A developer recently announced that his company will be building a 700+ room hotel in that area.

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As long as the city can support a large hotel like this, it'll be great for Minneapolis. They are thinking about a new hotel for Detroit's new convention center, but vacancy rates for hotel rooms downtown are already about 40%, so there's some doubts about whether or not the city can support it.

The new LRT should go to the convention center. It's silly to have a major convention center w/no transit going to it, IMO.

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