Until then, there are several things that can happen that will affect the funding of the project.
Fortunately, you don’t need a financial degree to understand how the city will pay for the $167 million hotel.
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A report released in April outlines four different funding scenarios for the project. Of the three tax-exempt bond options, two of them will require the project to keep the taxes and fees that would otherwise go toward the city. The fourth, but least likely option, involves taking on private investors that would reduce the risk ownership to the city, but would also cut Tucson out of any profits from the project.
The hotel and convention center project took an important step forward on May 12, when the Tucson City Council approved a $240 million agreement with Garfield Traub Development to begin construction on the project. Earlier this year, the council voted to shift the focus of the Rio Nuevo development program away from the original museum projects and toward the more “revenue generating” hotel and convention center construction.
The hotel will sit along South Granada Avenue, just north and physically connecting with the convention center. Before shovels hit the ground, a renovated east entrance to the convention center need to be completed to replace the entrance set to be torn up when hotel construction begins in March 2010.
As the $240 million figure is preliminary, a more accurate estimate on the cost will come late in the year when the projects architects finish designing the hotel to come up with a guaranteed maximum price, on which funding can be based. After that, bond ratings and the interest rate they attract come into play.
“The question that comes out of the plan is whether it is financeable,” said Tucson Deputy Finance Director Silvia Amparano.
Last month, the city’s general obligation bonds received separate ratings from several agencies. Fitch rated them AA, but the rating outlook was changed from stable to negative. Moody’s gave them a AA3 rating, while Standard & Poor’s downgraded the GO bonds to AA- from AA.
“The lower interest rate we can get, the more we can borrow,” Amparano said.
In the most desirable plan, the Rio Nuevo Multipurpose Facilities District issues the bonds, but $4.5 million in additional revenue will be needed. In the other two tax-exempt scenarios, the City of Tucson will issue the bonds. One scenario involves a lower interest rate but will have to make up $1.1 million while the other has a higher interest rate but requires no extra revenue.
“If you look at all of the publically owned convention-center-hotels, and there have been quite a few of them, no two of them are the same as far as the financing goes. Most of them have one common thread and that’s the district-owned revenue bonds to finance the project,” said Steven Moffett, president of the hospitality division at Garfield Traub Development.
“I think our bond rating is by and large driven by our ability to generate sales tax revenue, number one. And then this hotel and this rating is going to be based more on the performance of the hotel more than it’s going to be placed on the performance of the district,” said Greg Shelko current director of the Rio Nuevo district.
Most likely, the financing the hotel will be based on the projected revenue for the project. The Sheraton hotel is expected to bring in $45 million in total revenue by its fifth year of operation, according to the April pre-development report.
“It’s using the revenue and the taxes it will generate to pay for itself,” Shalko said.
Once completed, the hotel will be operated by Sheraton, but owned by the Rio Nuevo district, which would realize the profits.
“If the district owns the property for the long haul past debt retirement it owns a very valuable asset at that conclusion and has built up some very residual cash on deposit,” Shelko said, adding that the district could decide to sell the hotel outright to get more cash for other Rio Nuevo projects.
By the numbers
Room count: 525
Meeting space: 35,095 sq. ft.
Cost: $167 million
Construction start: March 2010
Tentative opening: June 2012
Contact reporter Nicholas Smith at nsmith@azbiz.com or at (520) 295-4238.
Comments
chris wrote on Jun 24, 2009 11:30 AM:
is it true that the University of Arizona is moving to Prescott?
What is going on in the Old Pueblo.. aren't there enough hotels that need financial assistance.. we don't need one more..
oh.. too late "
Jimmy wrote on Jun 23, 2009 8:11 PM:
Where is the revitalization and community oriented aspect of the project??? "
Alan R. wrote on Jun 22, 2009 8:25 AM:
Ten years later Rio Nuevo has failed to deliver anything of significance. But even worse is what the Rio Nuevo has become, an expanded convention facility and a convention hotel, not what the voter's approved. No museums, no culture, no quality, no vision.
For me, Rio Nuevo is a failure that symbolizes my Tucson experience. So much less than hoped for, so much less than advertised, so little quality. "