Does some of this sound familiar?

Is time right to add Hilton rooms?

Mayor Jim Suttle is banking on an economic turnaround and the Big O’s ability to draw more events in his $35 million pitch to expand the city-owned Hilton Omaha.

The mayor and other advocates say the expansion would pay off for the city as Omaha climbs out of a national recession.

1. Yet the proposal comes on the heels of a tough year when the hotel booked fewer rooms and brought in less money. It comes at a time when the private sector is not taking similar risks in the hotel industry. And skeptics worry that taxpayers could end up on the hook if the Hilton didn’t bring in enough money to make the debt payments.

One hotel developer says private investors wouldn’t dream of taking on a new project right now, given the decline in occupancy rates across the local hospitality market.
HILTON OMAHA
Size: 450 rooms
Opened: April 2004
Cost: City borrowed nearly $109 million to finance project

Proposed expansion: 150 rooms
7,000 square-foot ballroom
15 meeting rooms
100 more parking spaces in hotel garage
Renovation of existing rooms, public areas
Planned completion: Spring 2012
Cost: $35 million, financed through revenue bonds “It would be financial suicide,” said Kirt Trivedi, who built the north downtown Holiday Inn at 14th and Cuming Streets.

Trivedi said he recently walked away from a 100-room hotel project downtown because of concern about the economy. He said he was scouting several possible sites but declined to give details.

Heywood Sanders, a University of Texas at San Antonio professor and critic of publicly financed hotels and convention centers, said Omaha should take note of what’s happening in the private sector. He said group meeting and convention travel is down across the United States.

As a result, private hotel developers are holding off on new projects, he said.

“They know it’s way too uncertain, and they know they’re not likely to find financing for it,” Sanders said.

In pitching the 150-room expansion, Suttle is relying on an April feasibility study prepared for the city by consulting firm HVS Global Hospitality Services at a cost of about $15,000.

The report says that with the expansion, the hotel will produce an additional $2 million in net income the first year it’s open — and higher amounts in later years — that can go toward the debt.

According to city estimates, the expansion would generate an additional $1 million in property tax and room tax revenues, which could go into city coffers.

“We have gone through a great effort to pursue our due diligence and come to a high comfort level that this hotel expansion will be successful,” said City Attorney Paul Kratz, who acts as the hotel corporation’s lawyer.

The city would pay for the addition by issuing revenue bonds, which must be approved by the City Council. The council is considering an ordinance to approve the bonds this month.

If the hotel — and the proposed addition — did not generate sufficient revenue, city tax revenues would be tapped to pay off the bonds. But so far that hasn’t happened.

Kratz said the city has a $3.9 million cash reserve set aside to pay the hotel debt in the event that revenues fell short.

“There’s a long way to go” before taxpayers would have to foot the bill, Kratz said.

Trivedi, the hotel developer, sees that taxpayer backing as an “unfair advantage” the city has over private hotel owners.

“The (Hilton) hotel will still exist,” Trivedi said, “whereas if I don’t profit, I go under.”

The Hilton is coming off a tough 2009. Its occupancy rate dropped to 69.5 percent last year, down from 75.1 percent in 2008.

The Hilton’s average room rate also dropped — from $136 in 2008 to about $125 last year, according to the HVS report.  (this is a city with a real corporate base, unlike Tucson-clothcutter)

Those room rates are lower than the original projections.

The projected room rate for 2009 was about $161, according to a report prepared for the city in 2002.

Kratz said that analysis was done before anyone predicted the coming recession. With the exception of 2009, he pointed out, occupancy at the Hilton has been consistently higher than projections.

In addition, he said, the hotel’s outlook is improving. The occupancy rate is expected to climb to about 74 percent this year, Kratz said.

One hotel industry representative agrees that now is the time for the city to expand the Hilton.

Joe McInerney, president and CEO of the American Hotel and Lodging Association, acknowledged that private hotel developers aren’t taking on many projects. But, he said, that’s because financing is tough to get. He expects hotel occupancy and room rates to increase nationwide over the next three to five years, making new projects a good bet.

McInerney said the proposed Hilton expansion would “be opening up at a time of resurgence.”

If the City Council approves the expansion, construction could be complete by the spring of 2012. That would be in time for the U.S. Olympic Swim Trials, which are to be held at the adjacent Qwest Center Omaha.

Kratz said many of the Hilton’s existing rooms have already been booked by guests planning to attend the swim trials and other events.

The city has been pressured to expand the 450-room Hilton since the first guests were welcomed in 2004.

Both the Omaha Convention and Visitors Bureau and the Metropolitan Entertainment and Convention Authority have advocated the project, saying an expansion would bring more events to the city. ( I wonder if they did a unethical pushpoll like the MTCVB did-CC)

But the administration of former Mayor Mike Fahey opposed the idea.

In 2006, former Finance Director Carol Ebdon told The World-Herald: “At the present time, we do not think expansion is financially feasible.”

Paul Landow, Fahey’s former chief of staff, said recently that an expansion is an even worse idea today, given the economy.

“Nobody can really predict the end to this recession,” said Landow, now a political science professor at the University of Nebraska at Omaha. “Is it going to end next year or five years from now?”

At least one City Council member has raised concerns about the proposed expansion and its potential impact on taxpayers.

Councilwoman Jean Stothert said one of her major worries is that the city would take on an additional $35 million in debt to pay for the expansion.

The Qwest Center, the north downtown ballpark, the Hilton and other projects have caused the city’s debt per resident to quadruple since the mid-1990s. Omaha was expected to pass the billion-dollar debt mark this year.

Suttle believes the expansion would create about 50 new hotel jobs and another 200 jobs during construction.

“Going forward now allows the city to take advantage of a competitive construction environment and low interest rates,” the mayor said. “This will make Omaha even more attractive as a destination.”

The HVS analysis says the Hilton and other Omaha hotels traditionally fill up during the College World Series. With the expansion, the report says, the Hilton would be better able to meet that demand.

The Hilton would also allow the Qwest Center Omaha to attract groups that have historically selected other markets based on the size of their convention hotels, according to the report.

An expanded Hilton, with more meeting and banquet space, also would bring more meetings to the hotel, according to the report.

Dana Markel, executive director of the visitors bureau, said the proposed expansion would give the city an edge in attracting a niche market — meetings hosted by corporations or organizations that draw at least 600 people.

Omaha hasn’t been able to get into that market, she said, because the city didn’t have enough hotel rooms all in one place.

Other hotels in the metro area, including the Holiday Inn convention center, 3321 S. 72nd St., have enough meeting space to hold 600 people. But none has that many hotel rooms.

“It fills up a gap that we’ve had in our city — a hotel of this size with significant meeting room space,” Markel said. “Everything can be under one roof. There is no doubt in my mind that we are going to see an economic gain from this.”