Archive for February 22, 2010

Developing with Public and Private Partners

Overton Hotel and Conference Center

Overton Hotel and Conference Center, Lubbock, TX

As Seen in Lodging Hospitality

For Ray Garfield, the principal of Garfield Traub Development, the Overton Hotel and Conference Center in Lubbock, TX is a prime example of how well developing with public and private partners or public-private partnerships can work.

The 303-room full-service independent hotel opened last September and is privately owned by Garfield’s company and owner/operator 1859 Historic Hotels. The 20,000 square feet of meeting space is owned by the city of Lubbock, and operated by 1859. Together the two sides are helping bring state and regional conferences to the city and ultimately driving economic growth, Garfield says.

His real estate development services firm has been specializing in public and public-private projects since 1997. Fifty percent of his business comes from hospitality projects like the one in Lubbock, and the other half range from sports facilities to performing arts complexes to government and municipal buildings.

Garfield took some time to discuss the often-complex nature of public projects and the new development in Lubbock.

So your company specializes in publicly funded developments and private-public partnerships?
We absolutely do, almost since our first day in 1997. We devised a methodology that works. This is just something we felt there was a real need for years ago and it’s proven to be a correct assessment. The role we play is as development services orchestrator.

Tell us about your most recent project, the Overton Hotel and Conference Center in Lubbock, TX…
The two-story conference portion is owned by the city and the (15-story) hotel tower is owned by the independent equity group we assembled. It’s one of the smaller hotels we’ve done—303 keys, 25,000 net square feet of meeting space, all in one building—with separate ownership.

How did the financing of the project work?
It was $67 million total and I think about 66 percent of that was private funds and 34 percent public funds. Each of these developments is a unique structure, every one a little different. In Lubbock we got a little more than a 50-percent loan, a $35-million first mortgage and what makes this unique is it’s right across from Texas Tech University and they have a great restaurant and hotel majors program (Restaurant/Hotel & Institutional Management). We actually, in collaboration with the department at Texas Tech, designed a classroom in the city’s conference facility, with separate locker rooms for the students who use (the complex) as a laboratory for their studies. As a consequence, two foundations in the state contributed $11 million in grants to the city to help with the financing. And the city sold $11.4 in bonds and we brought $8.8 million of equity in the project.

How does a strictly publicly financed project work?
Like in our Overland Park, KS project (the Sheraton Overland Park at the Convention Center), we helped the city set up a not-for-profit entity that owns the hotel. While it has debt on it the city backs those tax-exempt bonds with a pledge of hotel occupancy receipts as a backstop for when the net operating income can’t totally cover the debt service.

How do you overcome the typical reaction that a city shouldn’t be involved in owning or operating a hotel?
I’ve heard this my entire career, and my answer may sound glib, but it’s true: If you’re in the convention business, you’re in the hotel business. It’s all about maximizing tourism and economic development.

Back to Lubbock, it seems odd the big full-service headquarters hotel doesn’t have a flag flying on it. Will that change?
It’s the first unbranded hotel we’ve done, but the reason is this is a unique market and there’s no other full-service product to speak of. We designed the hotel to take any major flag, in terms of size, room layout, meeting space. The hotel can carry a Marriot, Hilton or Sheraton flag and we’d probably go in that direction once the first real competitor goes up in the market. We were able to save some money by not having a franchise agreement and in an unproven market without a full-service hotel, we spent so much to design and build this, we tried to manage the bottom line as best we could. It was the decision of partner 1859 Historic Hotels and the community. We’ve had such fantastic response from those who have gone to the hotel, I think it will remain independent if a Hilton, Marriott or Sheraton doesn’t come into the city and build another full-service hotel.

How did you find partner 1859 Historic Hotels?
It was a needle in a haystack for Lubbock. I knew of them from previous discussions and they had great interest in coming to Lubbock and probably accepting less investor type returns than any Wall Street investors we would have brought in. They are an outstanding hotel company, even if they’re not as well known as the big ones. They’re local to Texas (based in Galveston) and it’s incumbent on the development services company to access the smartest money for the city to mitigate the municipal risk.

Do you expect this avenue of development to continue growing?
We do. West Palm Beach (FL) is building a new hotel for their convention center, there’s ongoing competition in Virginia Beach for a new hotel at their convention center, competition in Pasadena, CA, Portland and Albuquerque, NM … I could go on and on. All these future deals are in the immediate future or the next two to three years and we’ll continue to see that. Maybe in another 10 years this may have played out, but thankfully we just opened a performing arts center for Durham, NC, and did a municipal courthouse and the other half of our business (isn’t hospitality). It’s nice to have a broader footprint.

To see more about this project click here.

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