Omni deal a decade in the making
So this is it. On Tuesday, Oklahoma City could be set on a course for a 600-room Omni convention hotel in a deal that starts at $85.4 million in public participation with an additional interest cost to be incurred from bond financing.
I've pulled a few stories from archives to show how this deal proceeded over the past decade. This is not every story, but they do show the nature of the policy debates, pros and cons, potential benefits and risks.
The story begins with an annual Greater Oklahoma City Chamber gathering on January 17, 2007:
A large conference hotel and additional meeting space may be the next mission downtown for the Greater Oklahoma City Chamber as it explores how to move from a tier three to tier two convention city.
The effort, announced by chairman Larry Nichols at Wednesday's State of the City address, will start with the chamber hiring a consultant next month.
"A new 1,000 room convention hotel is something we can certainly dream about,” Nichols said. "The convention center is at capacity. If you try to book something in three weeks, you won't find anything available.”
Nichols said the city has been told repeatedly it needs more than 1,000 hotel rooms to attract large conventions — and the opening of six new hotels over the past few years has put downtown's room count at more than 1,400. He noted more meeting space was added at the Cox Convention Center a decade ago as part of the Metropolitan Area Projects improvements back when downtown only had one hotel.
"Now we're on the other side, where we have more rooms but less convention space,” Nichols said. "We've got to define what a tier two city needs in terms of facilities and hotel capacity. And if you look around, major tier two cities all have major conference hotels — 500 to 1,000 rooms, a convention headquarters — which we don't have.”
For the next couple of years the chamber then went under the radar, working with consultants to make the case for a new convention center and to a less noticeable degree, a convention hotel.
But in March, 2009, with a campaign set to be launched for MAPS 3, the pitch for a new convention center took on urgency:
Oklahoma City is at a crossroad in its quest to become a second-tier convention market, and a new study commissioned by the Greater Oklahoma City Chamber recommends building a $400 million convention center to ensure the city stays competitive.
The study by Conventions, Sports & Leisure International, suggests that replacing the 38-year-old Cox Convention Center will cost $250 million to $400 million.
Mayor Mick Cornett has suggested for the past two years that any MAPS 3 should include a new convention center as a priority project. That call is being joined by the Greater Oklahoma City Chamber.
Critics in the ensuing years noted the possibility of a hotel did not get highlighted or prominently discussed during the 2009 MAPS 3 campaign. They were right.
But by June 2010, the hotel was back in the news – along with discussion of how such deals work and why subsidies would be likely. Some best and worst case scenarios also were detailed using other cities as an example:
Two veterans in the business of financing hotels cautioned that any city looking to add a large conference hotel should prepare to back it with either subsidies or incentives.
The "How You Build It” conference, hosted Monday at the Cox Convention Center by the International Economic Development Conference, also included warnings that getting such deals done in the current economy is tougher than ever.
Roy Williams, president of the Greater Oklahoma City Chamber, confirmed Monday civic leaders still hope to see a new conference center hotel built in conjunction with a $280 million convention center approved by voters in December as part of MAPS 3. But funding for a hotel is uncertain. A panel of experts with the Urban Land Institute warned during a presentation earlier this year the city will likely need to provide subsidies of up to $60 million.
Lisa Sexton, senior vice president of public finance investment banking at El Segundo, Calif.-based Piper Jaffray & Co., and J. Mark Tobin, principal with HREC Development Resources of Greenwood, Colo., said all but two of 17 hotels with 700 or more rooms built between 1997 and 2008 — and not in gaming or resort areas — required public participation.
"A private developer who says I can build a 500-room hotel in your backyard without any assistance is not going to happen,” Tobin said.
Sexton listed convention hotels being built across the country the past several years that required municipal bond guarantees of 30 to 60 percent.
She added that over the past few years highly rated insurers are no longer giving any consideration to hotel properties and that most conference-size hotels require 100 percent municipal guarantees.
With such participation comes risk for cities, as recounted by not just Tobin and Sexton, but even those attending the conference.
A delegate attending from Cedar Rapids, Iowa, reported his city was struggling to revive the fortunes of a conference hotel defaulted by the developer, while Tobin recounted a Boston project where the developer "whittled” down planned meeting and public space, then sold it for a $40 million profit a year later.
By 2012, Councilman Ed Shadid was hosting town halls and commissioning Heywood Sanders, author of critical reports on such deals. I delved into the risks and explored the track record of the consultants used to pitch the deal:
Oklahoma City is moving ahead with development of a new $250 million convention center amid fierce national competition that pits what industry observers say is an oversupply of meeting space against shrinking demand.
The consequences include a sharp drop in bookings at one of America's largest convention centers in Chicago.
Heavily subsidized conference hotels, meanwhile — some also built after receiving upbeat projections from Conventions, Sports & Leisure — have experienced financial losses and in some cases debt defaults.
In June 2013, the city proceeded with hiring a consultant to provide a clearer picture of what was involved in doing a convention hotel. Councilman Ed Shadid was leading the opposition by this point, asking questions and providing analysis that conflicted with the pitch made by the chamber:
For the past five years, Oklahoma City leaders have been advised if they want a large conference center hotel, they will need to chip in $50 million or more to make it a reality.
Tuesday, the Oklahoma City Council is set to decide whether the city will pay $100,000 to consulting firm Public Financial Management Inc. to draw up options on how the city can proceed with development of a hotel with at least 500 rooms in conjunction with construction of a new convention center.
Mike Carrier, president of the Oklahoma Convention and Visitors Bureau, has been a leading voice in arguing a large hotel is critical to the success of the $250 million convention center approved by voters in 2009.
“We continually receive requests for headquarters hotel of at least 500 rooms,” Carrier told The Oklahoman Friday. “We don't have that in Oklahoma City. That's why it is essential that we have a new headquarters hotel of sufficient size to support the convention center and serve the meeting planners we cannot deal with now.”
Downtown already was home to several hotels when Conventions Sports & Leisure completed a study in 2008 for the Greater Oklahoma City Chamber that identified a hotel of at least 650 rooms as needed to make a new convention center successful.
Critics, including Ward 2 Councilman Ed Shadid, have long questioned why no funding plan was considered for a hotel during the MAPS 3 campaign, and have asked that consultants be hired to determine the potential cost to the city.
The effort to proceed was not without some debate, with Shadid voicing increased concern about how the subsidies might line up with a consultant suggesting such funding might not be necessary:
A pitch to spend $100,000 on a study on how to fund a convention center hotel was put on hold by a skeptical Oklahoma City Council on Tuesday as members sought to be assured first as to whether the project is needed and feasible.
The council was asked to provide $100,000 to the Oklahoma City Urban Renewal Authority to contract with Chicago-based Public Financial Management to draw up potential funding plans for a hotel of at least 500 rooms.
The Alliance for Economic Development of Oklahoma City, meanwhile, has contracted with Stone Consulting to do a market analysis for whether a hotel is needed, and if so, how big of an operation can be supported by a new $250 million convention center funded through MAPS 3.
Both Tom Morsch, managing director at Public Financial Management, and marketing consultant Jeremy Stone promised they were prepared to start their studies with "no preconceived ideas."
A hotel was first suggested in 2008 as part of a report commissioned by the Greater Oklahoma City Chamber. The full report was never released to the public, but a summary suggested a hotel of at least 650 rooms would be needed to ensure success for a new convention center.
After funding was approved by voters in December 2009, outside experts, including the Urban Land Institute, suggested the city likely faced a minimum subsidy of $50 million to complete hotel deal.
"We don't have a preconceived outcome of options here," Morsch said. "There is plenty of data out there. What's changed is there used to be an expectation on behalf of the hotel people of how big can the subsidy be. And we've tried to eliminate that altogether or at least get a more fair balance of contributions."
Councilman Ed Shadid, long a critic of the proposed hotel, bristled at a suggestion by Cathy O'Connor, a leader of The Alliance for Economic Development and the Urban Renewal Authority, that the need for a hotel was discussed in the MAPS 3 campaign.
"What was promised was when the convention center is completed, it would create 750 jobs and triple the amount of convention business," Shadid said. "No convention center in the country has been able to triple its convention business. No city in the country has been able to double its convention business. And there was no mention of a convention hotel."
Shadid's comments were echoed by newly elected Councilman James Greiner, who said he never heard a hotel mentioned during the MAPS 3 campaign. Shadid also doubted Morsch's claim that a deal might be possible without a public subsidy.
The report returned six months later with a detailed recommendation:
A consultant hired to analyze the feasibility of a convention hotel downtown was hit with a blistering verbal attack by councilman and mayoral candidate Ed Shadid, but otherwise found a receptive audience among the remainder of the city council Tuesday.
Texas consultant Jeremy Stone, hired by The Alliance for the Economic Development of Oklahoma City, told the council his research shows the city can support a 735-room, $200 million conference hotel as part of development of a $250 million convention center south of the Myriad Gardens.
Looking at forecast occupancy hovering at 64 percent the first few years of operation, Stone also provided estimates of revenues and expenses for such an operation — but with the caveat he was making no assumptions on the project’s financing.
“It is a profitable property at the end of the day,” Stone said. “A property similar to this would make sense in this market.”
In 2015, the effort to set up sources for the public subsidy got underway. New tax increment financing districts were created. The Oklahoma City Urban Renewal Authority started the process of soliciting interest from hotel groups.
Some of the country’s biggest hotel operators are showing an interest in a request issued by Oklahoma City to develop a 500- to 800-room downtown convention hotel.
The request-for-development proposals are due March 3, and among those inquiring about the project is Omni Hotels, which operates 60 properties in North America, many of them convention hotels. Omni convention headquarters hotels include a 1,001-room hotel in Dallas, an 854-room hotel in Nashville, and a 614-room hotel in Fort Worth.
Elite group responds
Other companies showing an interest include Hyatt, which operates 549 properties around the world; Starwood Hotels, which operates 1,200 hotels in 100 countries including downtown’s Sheraton Hotel; Peabody Hotels, best known for its historic Peabody Hotel in Memphis; and Marcus Hotels and Resorts, which owns Oklahoma City’s historic Skirvin Hilton Hotel.
In October, 2016, the city council approved moving ahead in negotiating a deal with Omni:
Over the past decade, the debate over adding a convention hotel to the downtown skyline has included questions and challenges over the convention business model, the use of subsidies and what role such convention venues play in growing a city.
Last week, the discussion took one step closer to becoming a reality as the Oklahoma City Council approved negotiating a deal with Omni to build a 600-room headquarters hotel to open with a $288 million convention center being built as part of MAPS 3.
The top task for negotiators with the city and the Urban Renewal Authority as they meet with Omni executives is to see if they can reduce the $84.5 million in public assistance requested by Omni, which is committing to finance the remaining $151 million of the $235.5 million hotel.
Omni was chosen over a rival offer from Marcus Hotels and Resorts, which proposed a 600-room Marriott that included a request for $105 million public assist.