June 23, 2013 Updated: June 26, 2013 at 11:38 am
An $824 million hotel and convention center project planned in Aurora near Denver International Airport is a major threat to downtown Denver hotels and also could draw meetings away from Colorado Springs, tourism industry and city leaders say.
Construction is scheduled to begin on the 1,500-room hotel by late next year or early 2015. It would be the state’s largest hotel and include 400,000 square feet of meeting space. An early 2017 opening is planned on a site nine miles from the DIA passenger terminal.
The size of the project, as well as the way in which it would be financed, has drawn the attention of tourism industry leaders across the Front Range.
The project would be financed with $81.4 million in rebates of state sales taxes for 30 years under a deal approved last year by the Colorado Economic Development Commission. The city of Aurora would rebate all room taxes paid by the hotel for the next 30 years, valued at up to $300 million, though developers of the hotel say the value of the city rebates would be $170 million in today’s dollars. That would mean a total of $381.4 million in government subsidies without adjustments for inflation.
The project would be operated by Marriott International and built by Houston-based Rida Development Corp. with financing to be arranged by New York-based AREA Property Partners, a firm formerly known as Apollo Real Estate Advisors. AREA Property has invested nearly $14 billion in more than 600 projects worldwide. Rida and AREA are developing a 1,000-room Marriott Marquis hotel in Houston and built a 1,400-room Hilton hotel in Orlando and renovated a 1,200-room Hyatt Regency hotel in New Orleans after Hurricane Katrina.
The cost of the Aurora project may be lower than initially estimated. A draft proposal to lenders estimated the project would cost $735 million to build; the proposal calls for $400 million to be financed with a mortgage, $60 million from a loan by Marriott and the remaining $275 million raised from investors recruited by AREA. The city of Aurora has offered to issue bonds for the $275 million, which would eliminate the need to raise that money from investors.
Rida President Ira Mitzner said the $735 million estimate is an “aggressive number” based on the company wringing the maximum efficiencies out of the project and that the actual cost is more likely between $750 million and $800 million. He also said the project could be built without Aurora issuing bonds.
“The size and scope of the project is not changing,” Mitzner said. “Our goal is not exceed $800 million. Getting bank financing for large hotel projects are the most difficult to secure. Banks are unwilling to finance more than 50 percent of the cost because of the risk.”
The Aurora project, at one time called Gaylord Rockies Hotel & Conference Center, had been shelved a year ago when its original developer, then known as Gaylord Entertainment Co., left the hotel development and management business to become a real estate investment trust called Ryman Hospitality Properties Inc. In that move, Gaylord sold its brand and management rights to Marriott. Rida and AREA announced last month they would replace Gaylord Entertainment as developer of the project, ending nearly a year of uncertainty about whether it would go forward after Nashville, Tenn.-based Gaylord pulled out of the deal.
“This is a fabulous deal for the developer — it is unprecedented in my 38 years in the hotel business,” said Steve Bartolin, president of the 744-room Broadmoor hotel, the largest in the Colorado Springs area. “You have a deal between the city of Aurora and the state funding 46 percent of the cost, meaning the city is taking on all of the risk and all of the debt and getting no equity (ownership). If I were a resident of Aurora, I would be scratching my head and have to question this deal. If you are building something and someone else is putting up nearly half the cost, it is hard not to succeed.”
Bartolin, who spent eight years at Gaylord before coming to The Broadmoor in 1988, said the Aurora hotel likely would follow the same business model as the former Gaylord hotels by generating more than 80 percent of its bookings from group meetings and conventions.
He said the biggest impact from the new Aurora hotel likely would be felt by the 600,000-square-foot Colorado Convention Center and the Hyatt Regency Denver Convention Center hotel, both owned by the city of Denver, and other large hotels near the convention center in downtown Denver.
The Aurora project could compete but to a much lesser degree with The Broadmoor, which has less than half the meeting space than Gaylord Rockies, Bartolin said. Gaylord likely would try to attract all types and sizes of meetings to its Aurora complex, not confining itself just to huge conventions, he said. The Broadmoor is owned by the Denver-based Anschutz Corp., whose Clarity Media Group owns The Gazette.
Mitzner disputed that Aurora will take any risk with its incentives, since the rebates would be paid only after the hotel is built.
Doug Price, CEO of the Colorado Springs Convention and Visitors Bureau, said he believes local hotels may face some competition from the Aurora complex, but he doesn’t see it as much of a threat since area hotels, including The Broadmoor, cannot accommodate the same large groups the Aurora hotel could.
“Their target market is a different sort of group mix than we are after in Colorado Springs,” Price said. “The ideal group for us books 200 to 300 rooms on their peak nights so they will fit into a single hotel or a group of adjacent or nearby hotels. That is different from the market they go after in Denver or will go after in Aurora. They are targeting citywide conventions that attract 10,000 to 15,000 people. It (the Aurora hotel project) will, however, have a direct impact on the Denver market.”
The project has triggered plenty of opposition among owners of hotels and businesses in downtown Denver.
“This level of subsidy is unprecedented in the state and is not fair to the existing businesses who compete with this project that didn’t receive a subsidy or at least a subsidy of this magnitude,” said Walter Isenberg, CEO of Denver-based Sage Hospitality, one of the nation’s largest hotel management firms. Sage owns 60 hotels with 13,000 rooms in 18 states, including the Oxford Hotel in lower downtown Denver and a 112-room hotel scheduled to open in July 2014 as part of the redevelopment of Denver’s Union Station.
“People are saying this project is being done to spur growth in the region, but that is not Gaylord’s business model. They have done the same thing everywhere they go, which is to keep people inside their facility with multiple restaurants and retail so (guests) spend all their money there,” Isenberg said. “It doesn’t create a level competitive landscape. If they wanted to come in and build without a subsidy, it would be great.”
That echoes the financing document, which cites as a unique feature of Gaylord hotels that they “capture so many travelers and groups and keep them on property for meals and entertainment.”
Isenberg said the Union Station project is receiving a subsidy less than half the size, on a percentage basis, as the Aurora project, and will help to preserve “one of the most historic structures in the state.”
Mitzner disputed that guests from Gaylord’s hotels never leave the property.
“Guests at Gaylord’s Orlando hotel add extra days to their trips to visit theme parks there and in Washington they visit the Smithsonian (Institution) and National Mall,” Mitzner said. “Those are better comparisons to our Aurora project because of the skiing you can do in Coloado in the winter and the hiking and biking you can do in the summer.”
Joe Raso, CEO of the Colorado Springs Regional Business Alliance, said the group hasn’t taken a position on the project and declined further comment.
The Downtown Denver Partnership last year opposed the Aurora project, saying the subsidies from Aurora and the state gave it an unfair advantage. The group cited a 2011 study by Greenwood Village-based Hospitality Real Estate Counselors Inc. for the Denver Metro Convention & Visitors Bureau that estimated that a third of the business for the Aurora project would come from existing Denver area hotels, draining $186 million from the Denver-area economy in the first four years it is open. Officials from the Downtown Denver Partnership were not available last week for further comment.
The financing document for the project cites the two largest hotels in downtown Denver as Gaylord Rockies’ biggest competitors.
Gaylord Entertainment officials criticized that study, saying it includes “several extraordinary assumptions which appear to be designed to cause shock and anger,” according to a letter sent to state officials in 2011 by the company’s CEO. Gaylord produced its own studies showing that hotels it developed in the Dallas and Washington, D.C., areas added to the economies there. The Aurora project is forecast to create 10,000 construction jobs for three years and 1,550 permanent positions once it opens, generating an annual economic impact estimated at $273 million. For the permanent positions, the government subsidies would cost between $160,000 and $250,000 per permanent job, depending on which estimate of the Aurora rebates is used.
A study by Economic Planning Systems Inc. estimated that 87.5 percent of the 400,000 guests Gaylord Rockies would attract annually would be new to the state and not drawn from other hotels in the Denver area and around the state. The Colorado Economic Development Commission hired the company to evaluate proposals for the state sales tax rebates, a program created by legislation called the Regional Tourism Act. EPS recommended cutting the incentive request for the Aurora project by nearly half, which the commission later backed.
Aurora Mayor Steve Hogan last month told The Denver Post that the hotel project would be an asset to both Aurora and the region by attracting visitors who would not otherwise come to the state.
Mitzner said many of the groups the Aurora project hopes to draw are national groups that meet every year at one of Gaylord’s other projects near Dallas, Nashville, Tenn.; Orlando, Fla., and Washington, D.C., and are looking to add a western U.S. property to that rotation.
“I believe the downtown Denver convention center will continue to be a very strong competitor for the large citywide conventions that attract 15,000 to 20,000 people,” Mitzner said. “The goal for this project is to take groups out of Las Vegas, Dallas, Orlando or Washington that need 1,500 rooms under one roof. They won’t go to three or four hotels in downtown Denver.”
Jim Clark, CEO of Visit Fort Collins, that city’s convention and visitors bureau, said the Aurora project will “probably attract new business to the state. The project Gaylord built (near Dallas) attracted a lot of business to that state. Nobody is building full-service hotels without meeting space unless they get a government assistance.”
However, Colorado Springs Mayor Steve Bach said in a statement that the private project in Aurora should be built without government subsidies.
“Otherwise, taxpayers in the Pikes Peak Region will be contributing to the Marriott subsidy given that the State of Colorado will be waiving taxes due from that project and will less funds to spend, including in our area.”
Mitzner said project could not be built without the subsidies from Aurora and the state.
“The choice is not to build with or without a subsidy,” Mitzner said. “The choice is to build with a subsidy or not build it and get the benefit of the construction jobs, the permanent jobs and the economic impact.”
The financing document for the project, however, estimates the hotel will generate more than $50 million in profits during its first full year of operation and $76.8 million in the fifth year. Add in the city and state incentives, and the profit grows to $110 million in the fifth year.
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