$203m convention hotel proceeds

A May 27 groundbreaking was set for a $203 million Westin convention headquarters hotel next to the Boston Convention & Exhibition Center in South Boston.

The hotel's developers disclosed the groundbreaking date yesterday for the first time during a meeting in which the Massachusetts Convention Center Authority's board gave final approval to leases needed to move the project forward. Construction on the hotel will start two months before the Macworld Conference and Expo, the convention center's first event, and is expected to wrap up in spring 2006, perhaps in time to host the Microsoft TechEd event slated for that June.

Convention center officials hailed the deal's completion as an accomplishment that was about five years in the making, and vital to the ultimate success of the center. The new facility has had trouble gaining a large number of bookings, partly because of the dearth of commercial development nearby.

"This hotel is such a major coup" for the new center and the waterfront, said Gloria Larson, who chairs the convention board.

"Does it make the convention center an easier sell? Absolutely. Many people who attend conventions prefer to stay in attached hotels."

In its first year, the convention center will host 15 events, including Macworld. Convention center officials also said they got a new booking during July's Democratic National Convention that will feature recording star Sheryl Crow and New York Senator Hillary Rodham Clinton.

At the same time, construction on the hotel will be proceeding next door. The hotel will be built in phases, with an initial 790 rooms to be built by 2006, and the developers holding an option to build an additional 330 within 10 years.

Leases for the hotel were originally signed last year after developers landed funding for the project. But they were changed because Starwood, then lead developer, has since taken a back seat to its local partners on the deal. Starwood will still operate the property.

At yesterday's meeting, the developers also said they will put up less cash and borrow more than had originally been reported, although the hotel is still on target to be built with little public investment.

Starwood had originally committed $35 million to the project, with a team of four local developers pitching in $45 million, for a total of $80 million in developer equity in the project. Under the original plan, they would borrow the rest.

But according to a presentation to the convention board yesterday, Starwood and developers Stephen Karp, Steven Fischman, Joseph Fallon, and Joseph O'Donnell will now put up a total of $49 million -- $31 million less than originally planned. The remainder of the construction costs will come from a $121 million mortgage loan, and a $15 million loan from the US Department of Housing and Urban Development. The City of Boston and the convention authority are spending $18 million for street and infrastructure repairs near the site.

"What's changed is that the financing has evolved, different components have gone up and down," said Richard Martini, development director for Boston Convention Hotel LLC, the partnership building the hotel.

"Starwood and the developers make up that $49 million. It's not in an amount that we want to make public right now because things are still being worked out."

Most of the lease details remain the same as the original agreements, Martini said. His presentation detailed tenets that stipulate how many rooms in the hotel must be set aside for convention use, the rates the conventioneers would be charged for them, what percentage of the proceeds from a sale of the hotel would go to the authority, and how rent payments on the hotel and adjoining retail space will be structured.

Also discussed at yesterday's board meeting was the convention authority's preliminary budget, which shows that the authority's operating deficit will jump significantly with the opening of the new convention center.

The center is expected to host 15 events in fiscal 2005, bringing in $3.5 million of revenues, while its projected expenses of $12.5 million represent 35 percent of the authority's total $37.4 million budget.

At yesterday's meeting, convention officials discussed how they might better define the convention center's role as an economic generator for the city and state, rather than a money loser.

"It's unfair to look at our coverage ratio without taking a look at our broader economic impact," said Travis McCready, chief financial officer for the authority.

Keith Reed can be reached at reed@globe.com.