Proposed New Orleans convention center hotel would bring in $282M a year, consultant says

By Richard Thompson

August 23, 2018

Hoping to counteract mounting criticism over plans to build a publicly subsidized 1,200-room hotel, Ernest N. Morial Convention Center officials on Wednesday endorsed a consultant’s view of the project’s potential benefits, which he estimated would be worth $282 million in annual benefits for the city and would help create 1,900 permanent jobs.

The assessment from HVS Convention, Sports and Entertainment Facilities Consulting, a Chicago-based firm, was delivered to the New Orleans Exhibition Hall Authority a week after Mayor LaToya Cantrell expressed “grave concerns” about the large public subsidies being sought by the developers.

Thomas Hazinski, a managing director for HVS, told the board that the city’s economy will be “much better off” if the project is built, even following the developers’ widely criticized initial outline for a deal.

“You’ve got a solid proposal on the table,” he said.

The project has drawn support from many of the city’s business and hospitality leaders, who are eager to add another high-rise hotel to the New Orleans skyline, especially one that’s big enough and with the facilities necessary to serve as the headquarters for major conventions.

Perhaps most important, officials say, is that it would provide a huge bloc of rooms upriver from the Convention Center, making it a key piece of a broader vision to bring more visitor foot traffic to the upriver end of the giant exhibition hall, rather than having it all concentrated around Poydras and Canal streets.

In a report last month, the nonpartisan Bureau of Governmental Research offered a different take, estimating that the requested tax breaks and incentives would be worth $329.5 million in today’s dollars — a tally that Convention Center officials disputed.

HVS put a significantly lower price tag on the requested incentives: $137 million, under a formula that the authority which governs the giant facility endorsed.

Despite a downtown building boom that’s expected to add more than 1,300 hotel rooms in coming years, HVS found that the proposed Omni Hotel would create demand for more than 172,000 new hotel room nights. By 2026, it said, the hotel is projected to fill 306,600 room nights, at an average rate of $225 per night.

The hotel would also allow the Convention Center to recapture some of the business it has lost in recent years, according to Hazinski, who estimated that 19 events could be recouped out of about 275 events that were lost annually to the city the past two years. Most of those events, however, were lost because organizers did not want to come to New Orleans at all or objected to the quality of the meeting facilities.

Without the new hotel, he said, the Convention Center’s attendance would likely stay flat or even begin to fall.

“You’ve kind of hit a limit with the facilities that you have today,” he said, adding that “something needs to be done to move it forward.”

As for the two sharply differing cost assessments, Convention Center officials chalked them up to two different viewpoints, and said they were confident in their own study.

“It’s two different methodologies,” said Melvin Rodrigue, president of the Convention Center board. “We believe in the expert that we hired.”

The hotel project’s developers would include local businessmen Darryl Berger and Joe Jaeger, as well as Matthews Southwest Hospitality, a Texas-based real estate firm, and Preston Hollow Capital, a Texas-based finance company.

They are seeking a complete rebate to the hotel of a 10 percent hotel occupancy tax and a 4 percent sales tax on all hotel revenue from sources other than room rentals, which would last for roughly 40 years. HVS pegged those values at $76 million and $13 million, respectively.

The proposed $557.5 million, 1,200-room Omni Hotel would include at least 150,000 square feet of ballroom and meeting space as well as ground-level retail space on an 8.1-acre site at the upriver end of the giant exhibition hall. It would be connected to the hall by a bridge over Henderson Street.

After the project’s debt is paid off, decades from now, the board that governs the Morial Convention Center could take control of the hotel, or it could lease or sell it and retain the full proceeds.

Part of the reason for different views on the value of the requested subsidies is that HVS did not factor in the proposed free 50-year land lease from the Convention Center, with four optional 10-year extensions, which BGR values at $28.9 million.

HVS’ presentation Wednesday came at the monthly meeting of the New Orleans Exhibition Hall Authority, where not everyone was on board.

The meeting got off to a tumultuous start when its public comment period — typically a subdued part of the agenda — drew more than a half-dozen residents and self-described workers’ activists, who spoke at length about issues related to the city’s longstanding problem of economic and social inequity.

The Convention Center has amassed a surplus of more than $210 million. It brings in nearly $60 million a year from state-approved hotel taxes, a sales tax on food and drinks sold throughout the city and other sources.

Instead of building a hotel, the activists said, the project’s public subsidies should be redirected to address other pressing needs. They denounced the Convention Center’s leadership and decried the center’s proceeds from state-approved hotel taxes as “stolen.”

While center officials stressed that formal negotiations with the developers have not yet begun, Hazinski said that what is on the table now isn’t a bad deal, compared to what other similar projects have cost.

“I think it provides a good starting point for negotiations and also a creative approach to financing that relieves the authority of risk but at the expense of having to provide a little more for the project,” he said.

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