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Panel proposes convention center hotel

Plan seeks $200m in subsidies, says growth would lure events

By Casey Ross
Globe Staff / March 19, 2011

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A state panel is considering construction of a 1,000-room hotel next to the Boston Convention & Exhibition Center that would require $200 million in public subsidies.

The hotel is part of a larger expansion under review by the state panel, one that would double the exhibition and meeting space at the South Boston facility, at a total cost that could run to $2 billion. The panel has not yet estimated how much public aid the expansion of the convention center itself would require.

Officials involved in the planning said the hotel, estimated to cost about $640 million, is needed to help the city grow into one of the nation’s top meeting destinations. They said the largest business meetings and trade shows are bypassing Boston because there are too few hotel rooms within walking distance of the center.

“We’re losing business, plain and simple,’’ said James Rooney, head of the Massachusetts Convention Center Authority. “Over the last three years alone we’ve competed for 46 events that have told us they can’t come to Boston because we don’t have enough hotel inventory.’’

Boston has 1,700 hotel rooms within a half-mile of the convention center; its ultimate goal is 6,000 rooms. That would still leave Boston with fewer rooms than its major competitors: Orlando has 10,800 within a half-mile of its facility, while New Orleans, Atlanta, and Philadelphia each have more than 8,000 rooms. Rooney and other officials said the authority can finance some of the hotel by issuing bonds, but a gap remains because larger institutional in vestors that traditionally back such projects are reluctant to invest. In the last 10 years, only two hotels with more than 700 rooms were built in the United States without public assistance, according to Piper Jaffray, a financial services firm advising the state-appointed panel reviewing the convention expansion. Both were in New York City.

The panel suggested the $200 million funding shortage for the Boston hotel could be eliminated by offering tax breaks, subsidized loans, state grants for infrastructure, and other assistance to induce investors or developers into the project. Officials have yet to identify an operator for the hotel, but have winnowed its location to two sites: One is across the street from the convention center, the other at its western edge, closer to the Fort Point neighborhood.

The panel, appointed by the governor and state and city officials, is expected to release recommendations next month. The goal is to put Boston among the top five convention cities in the United States, as measured by the number of large events each facility hosts. It currently is ninth, behind cities including Las Vegas, Chicago, and New York.

Any expansion — and public subsidies to pay for it — would need approvals from the city and state governments.

But critics said the absence of private funding for the hotel is a clear warning there won’t be enough business to support it. The convention center, built with substantial public subsidies six years ago, received millions of dollars from the state in its early years to cover operating deficits, and to pay for construction of the adjacent Westin Boston Waterfront hotel.

“When do we stop digging?’’ said Charles Chieppo, a critic of expansion who owns a Massachusetts-based public policy research firm. “There is no market for this. It becomes this ‘trust me’ kind of thing where everything is squishy and subjective. But the bottom line is, the demand isn’t real.’’

But convention officials argue the new center has been a net benefit. While it’s received about $120 million in subsidies in six years, it has also generated more than $160 million in taxes, according to the authority. Moreover, the fund that collects convention-center related revenues was able to give the state $65 million in fiscal 2009 to help the government with its budget problems.

However, Boston is pursuing expansion at the same time as many other US cities. Earlier this month, Philadelphia completed a $787 million expansion that doubled its exhibit space, posing a direct challenge to Boston in the Northeast market.

At least 16 other cities have expanded recently or are pursuing new projects. Dallas and Washington, D.C., are each building hotels of 1,000 rooms or more; Nashville is building a new convention complex and 800-room hotel; and San Diego, New Orleans, Miami, and San Antonio are also considering expansions.

Some industry specialists said there will be a surplus of convention space that will leave Boston and other cities fighting over dwindling revenues to pay off huge expansion debts. In 2009 a convention hotel in St. Louis fell into foreclosure, while authorities that financed facilities in Phoenix and Baltimore saw their credit ratings suffer.

Rooney acknowledged that the market is saturated with space, but he argued Boston has proved an effective competitor and must grow to maintain its advantage. Since its opening, the convention center has generated $3 billion in overall economic activity, Rooney said, and exceeded performance expectations in several categories. For example, he said, the facility produced $123 million in revenue from events between 2005 and 2010, when the estimate for that period was $52 million.

“I agree that there are a lot of other cities that never should have gotten into this. Those cities are not doing as well as Boston,’’ said Rooney, “but their troubles are not a reason for us to pack up our bat and ball and go home.’’

Even critics said Rooney has been effective running the convention center the past several years and has put Boston on the map in a highly competitive business. But they said other performance measures raise questions about the wisdom of expansion. Many cite a 1997 feasibility study by the state that predicted the facility would generate some 670,000 hotel room stays by 2009; but the authority said it generated 313,000 room nights by that year. Rooney said the 1997 study was done at a time when the industry was booming and it assumed more hotels would have been built in Boston.

Officials involved in the planning are far from a consensus on financing and other matters, with some saying that the debate will intensify in the coming months.

“We still have a lot of work to do before we make recommendations,’’ said Samuel Tyler, president of the Boston Municipal Research Bureau and a member of the panel studying the convention expansion. “In my mind we’re just getting to the point of talking about these issues.’’

Casey Ross can be reached at cross@globe.com.

Look inside BCEC

Look inside BCEC

Take a look inside the history of the Boston Convention & Exhibition Center.