Does this make any sense what so ever to any of you?

By Alan Willenbrock, special for Inside Tucson Business
Published on Friday, August 6th, 2010

As a member and treasurer of the board of the Rio Nuevo Multipurpose Facilities District, I have reviewed numerous documents related to the proposed downtown convention center hotel project and other similar projects. My research suggests that we may be overpaying by at least 40 percent compared to other hotels. This is my personal opinion and not the board’s opinion.

Here are some of the percentage differences I’ve found. Versus what’s happened elsewhere, the Tucson hotel proposal is:

39 percent more expensive than the downtown Phoenix Sheraton hotel.

 
127 percent more expensive than average per-room costs calculated by the city’s consultants HVS Convention, Sports and Entertainment.

110 percent more expensive than a comparable hotel built in Peoria, Ill.

170 percent more expensive than a Four Points Sheraton in College Park, Ga., near Atlanta’s Hartsfield-Jackson International Airport.

101 percent more expensive than a hotel tower in Portland, Ore.

17 percent more expensive than both the hotel tower and conference in Portland, Ore.

The details:

The proposed Sheraton Tucson Convention Center hotel has these preliminary guaranteed maximum prices:

$319,485 cost per key (This is an industry term that is essentially the total amount spent in all areas of the hotel divided by the total number of rooms in the hotel.)

$27,900 per room for furniture, fixtures and equipment (FF&E).

$12,206 per room for operational supplies and equipment.

Let’s compare those estimates to the others:

• Phoenix Convention Center Sheraton hotel. This is a good comparison because it’s the same hotel brand built in the same state.

$230,000 cost per key.

$20,000 cost per room for FF&E.

$8,800 per room for OSE.

The Tucson hotel is 39 percent more expensive by all three measures.

• HVS, the same consultants the City of Tucson is using, did a valuation survey in 2008 and 2009 of full-service hotels and came up with:

$140,700 median cost per key when land costs were excluded.

$19,000 median cost per room for FF&E.

Most convention center headquarters hotels include meeting space, so you need to add on these costs. But you also must figure that some of the work from HVS has been less than precise. This survey was designed to report what has happened and relies less on assumptions so it provides useful information.

• Peoria’s civic center hotel cost:

$151,800 per key, which was $132,000 in actual costs plus a 15 percent profit to the developer.

$19,000 per room for FF&E.

• The Four Points Sheraton in Georgia cost:

$118,430 per key.

While this is a Sheraton hotel, the Four Points brand is not entirely comparable but still, you have to ask why it cost less than half of what Tucson’s Sheraton is estimated to cost.

• Westin Portland at the Convention Center cost:

$158,641 cost per key.

$18,184 per room for FF&E.

$10,861 per room for OSE.

The Westin is part of the Starwood group, the same as Sheraton. The developer is Garfield Traub, same as Tucson’s developer. But it is a bit difficult to determine its comparability and cost because the Portland project has two major components that might properly be combined in all or part.

Many suggest that Rio Nuevo is where it is partly because no one has ever asked tough questions. I am here to ask some of these critical questions before we spend another $200 million.

Why is the Tucson Sheraton hotel 39 percent more expensive than the Phoenix Sheraton?

Why did Portland terminate its project in 2009 as not financially feasible despite the fact that it was at least 17 percent less expensive than Tucson’s hotel?

Why should Tucson pay twice what HVS’ survey says is the median cost per room?

Alan F. Willenbrock, CFA, is a director and treasurer of the Rio Nuevo Multipurpose Facilities District board. Send comments to editor@azbiz.com

Copyright © 2010 Inside Tucson Business