A Perfect Storm of Bad Planning: The Convention Center Hotel

A few years ago, when the economy was a bit more stable, Metro officials thought that if they built a hotel across from the Oregon Convention Center, it would attract more conventions and help the ailing facility. Such a hotel would be the second attempt to boost business; the first was the Convention Center expansion of 2003. That effort proved fruitless.

Metro approached virtually every hotel chain, and after extensive studies, none wanted to build the hotel. That is when Metro decided to try to build it using public money. The original cost of a Convention Center hotel was estimated at $147 million. As time went by and hearings were held, the economy took a turn for the worse. Construction estimates have increased nearly 40%, and convention business has fallen nationwide. Toward the end of 2008, and after reworking the numbers, the best Metro could hope for was a cost of just over $200 million, after adjusting fees and taxes.

Metro Council Policy Director Reed Wagner stated in December that while building the hotel to boost business was always a good idea, the numbers just didn’t work. He admitted that the financials for the hotel “were flimsy from the beginning.” A $40 million funding gap still exists, no matter how they work the numbers. An outside consultant to Metro, Piper Jaffray, , alerted agency officials to this shortfall in an October memo. The authors of the memo wrote:

As you know, we are experiencing a severe dislocation in the financial markets. Interest rates on municipal bonds have risen considerably since the credit crisis began last month. As of last Friday, October 17, interest rates were approximately 130 basis points higher than levels on September 15″¦.

Without additional financial resources, the financing at today’s rates exceeds the acceptable risk profile to Metro and the City.

We analyzed how much additional resources are required to maintain an acceptable risk profile. An upfront cash contribution of $40 million would be necessary. Alternatively, an annual cash contribution from a highly rated source of approximately $2.9 million would be required in lieu of an upfront cash contribution.

In early December 2008, citing this memo, Mr. Wagner and Metro General Counsel Dan Cooper wrote a recommendation to the Metro Council that the project be scrapped. They were about to issue that memo when Portland Mayor-Elect Sam Adams called for a meeting to discuss the project. Adams held a closed door meeting with Metro officials and emerged to announce that he will recommend that the City of Portland float bonds and fund the project.

How can Mayor Adams and the City Council think it is good business to fund a money-losing project like this one? If the City Council approves it, the plan is to spend $200 million-plus on the hotel project, when not a penny over $160 million is financially sound.

Even so, many assumptions are still being made: “If” the hotel is built and “if” there are new convention bookings, then “maybe” more money will be spent in the local economy. Baltimore built a convention hotel to try to boost business, and the plan so far has failed. Being on the West Coast, Portland is less accessible and more expensive to reach from the Eastern U.S. than is Baltimore.

Building a Convention Center hotel with public money on nothing more than a wish and a prayer is asking for trouble. This is one project that should be stamped “rejected” and put in a file labeled “LESSON LEARNED.”


Jeff Alan is Chief Investigator at Cascade Policy Institute, a non-partisan free market research center based in Portland, Oregon.

Post to Twitter Post to Facebook Post to LinkedIn Post to Reddit

Posted by at 05:30 | Posted in Measure 37 | 3 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Jerry

    Won’t a new, big hotel bring jobs to the area? We must have them. It will be grand.
    I say full steam ahead.
    Does anyone really care if it gets filled with convention goers? It most likely won’t, but in the very short term it will help us all.
    Build away.
    We have a great convention center. It is always full and brimming with happy convention goers, isn’t it?
    We must support these efforts to bring people to Oregon, or else we are in big trouble.

  • provo

    Metro or the County can easily come up with the missing $40 million. Why sweat that?

  • Bob Tiernan

    Like with the current stadium deal in the works, it’s the so-called corporate welfare-hating progressives who will help or at worst look the other way (i.e. not stop) this one along. This is all part of the new urbanist way of thinking, i.e. our city must have everything a real city should have.

    The only way the population of this city will stop it is if the money is handed to someone like Mark Hemstreet so he could build the hotel.

    Bob Tiernan

Stay Tuned...

Stay up to date with the latest political news and commentary from Oregon Catalyst through daily email updates:

Prefer another subscription option? Subscribe to our RSS Feed, become a fan on Facebook, or follow us on Twitter.

Twitter Facebook

No Thanks (close this box)