In Need of a Place to Stay
Convention Hotel Called Crucial to Bookings, but Deal Beset by Several Snags

By Dana Hedgpeth
Washington Post Staff Writer
Monday, February 19, 2007

Washington's convention center has exhibit halls, meeting rooms and restaurants. What it doesn't have is an adjoining headquarters hotel -- and that, center officials say, is a central reason it has failed to draw more big conventions and shows.

With convention attendance decreasing and convention-booked hotel rooms fewer than predicted, politicians, developers and tourism officials are eager to move ahead with plans to build a 1,400-room hotel, the biggest in the city, connected by a tunnel to the convention center.

"Every day there's not a shovel in the ground is costing us business," said William A. Hanbury, president and chief executive of the Washington, D.C., Convention & Tourism Corp., who estimates that the lack of a hotel has cost more than $200 million in convention trade.

A headquarters hotel has not been a panacea in cities such as Baltimore that are struggling to draw lucrative conventions. But that has not resulted in any second-guessing about plans for the Washington hotel, which is being developed by Marriott International of Bethesda, Quadrangle Development of the District and RLJ Development, also in Bethesda and headed by Black Entertainment Television founder Robert L. Johnson.

Nevertheless, the plans, in the works for the past six years, have been beset by numerous delays caused by city bureaucracy, a tough-negotiating landowner and the desire of the developers to be sure they get a deal that makes economic sense for them.

At this point, no one is predicting the project will be scrapped. But it is a complex deal, with numerous players and a tight downtown location at Ninth Street and Massachusetts Avenue NW. Some of the sticking points include approvals to close alleys, getting changes in zoning and meeting requirements to preserve historic buildings.

And there is the issue of how many rooms will be dedicated to the convention center's needs.

RLJ officials say that even though 35 to 40 percent of the hotel's bookings -- or, as people in the tourism trade put it, the number of heads on beds -- will likely come from the convention center, hotel managers want to be assured that they can actively pursue plenty of non-convention travelers, so they can still make money if the convention business lags.

But convention center officials say they need a guarantee that the big conventions, crucial to the center's success, can get blocks of rooms on the dates they want.

Control of room rights "is a key operating decision," Johnson said. For example, if Congress is in session on a Monday or Tuesday in October, "we may not need a lot of convention-generated business then," said Thomas J. Baltimore Jr., president of RLJ Development. The executives said they want flexibility to schedule conventions later in the week, when things may be slower.

"Somehow we're not communicating on the specific issues in a way that can get us to a workable agreement," Johnson said. "We're not walking away from this project at all. We just want to get this done as quickly as possible."

He and J.W. "Bill" Marriott Jr., chairman and chief executive of Marriott, recently met with Mayor Adrian M. Fenty to try to get his attention on the project.

"I think the new convention center is performing very well," Fenty said. "I think it can perform better and I think the government can help in certain ways. We are working on how we can get the long-planned convention center hotel off the ground. My emphasis is on moving faster and being more decisive."

Fenty said Neil O. Albert, his deputy mayor for planning and economic development, will help coordinate the negotiations and try to finish the deal. "At the end of the day, you need one person who makes the decision, and that is the deputy mayor, and they're going to have to live with his decision," Fenty said.

Convention center officials said the $550 million hotel will be funded in part from a $135 million subsidy from the city, which they expect to be repaid with tax revenue generated by the project. The rest will be privately financed. But RLJ executives warned that escalating construction costs could drive up the project's cost. That could mean more money would be needed from public and private funds, Baltimore said.

Everyone involved in the complex is targeting the most important players in the convention business: the meeting planners who decide where large organizations will hold their meetings -- and usually make the bookings years in advance. For example, in response to meeting planners saying that they wanted more mid-size meeting rooms instead of large, open exhibit halls, the plans for the hotel complex include a 75,000-square-foot underground expansion of the center, featuring a ballroom and meeting rooms.

Similarly, meeting planners complain when conventioneers have to get to their meetings from hotels scattered around the city. Last fall, the Washington convention center hosted 14,400 professionals and their families for the annual meeting of the American Academy of Family Physicians. The group said that it got good customer service.

But Sondra Biggs, the group's meeting planner, said the group used 28 hotels and spent $280,000 running shuttle buses every 15 minutes from the convention center. "If there was a hotel right across the street," said Biggs, "it would be ideal."

But experience in other cities suggests a hotel might not solve the problem. Baltimore, for example, has a hotel set to open next year at its convention center, but meeting planners have not lined up enough large conventions going forward. In fact, Baltimore's room nights are expected to drop substantially, from 254,126 in 2005 to 72,398 in 2010. With fewer shows booked in 2010, annual convention attendance is expected to decrease to 40,550 from 189,500.

A convention center hotel in the District could also face competition from the National Harbor project in nearby Prince George's County, where Gaylord Hotels is building an even bigger hotel -- 2,000 rooms -- and a meeting complex.

Construction on the Washington convention center hotel project was supposed to start this fall and be completed in 2010. But now the earliest that ground could be broken is next winter, and that would mean the hotel would probably open in 2011.

To get the land for the hotel, the city paid $30 million for a corner parcel that was owned by a plumber's union. It still needs to settle a deal with developer Kingdon Gould III, who owns the rest of the property. Under the deal, Gould would swap almost an acre and a half that is now a parking lot in exchange for a piece of land at the site of the old convention center, which will be developed into housing, office and retail.

Gould says the city agreed to waive a requirement that he build 200 housing units on his lot at the old convention center site, at 10th Street and New York Avenue NW. He says the housing could go on part of the old convention center site that is being developed by Texas-based developer Hines. As part of the deal, Gould was to be made the manager of a parking garage at the old convention center site and the city is to pay him $2.2 million in late fees for missing deadlines to close the deal.

"I'm waiting to have the letter of intent implemented," Gould said. "We spent months negotiating it. It was agreed upon. Now they want to change it."

City officials maintain that even though those things were agreed upon, getting them done is nuanced. They say they need D.C. Council approval before they can pay Gould the late fees, because anything over $1 million requires such approval. To waive the housing requirement on his portion of the land at the old convention center, the city says it needs a change in zoning law. They also want Gould to negotiate directly with Johnson and Marriott to operate the 600-space parking garage.

Another problem is that the city does not own two key parcels at 9th and L streets NW. The D.C. Council has authorized the District to take the properties by eminent domain, but officials are still trying to negotiate with the landowners.

"We're under a tremendous amount of pressure to get it done," said Konrad Schlater, the city's project coordinator on the hotel in the deputy mayor's Office of Planning and Economic Development. "We're working very quickly to resolve these issues."

RLJ says it needs to be assured that it can get approvals to close alleys and dig 80 feet below ground to build the expansion space for the convention center. It says that unless the city has control of all the land needed to build the hotel and can enter into a lease for it to rent the ground, it cannot move forward on getting financing. RLJ also needs exceptions to the zoning rules that require it to start building housing along 9th Street before the hotel is built.

"Unless some of these issues are addressed it is difficult to say that this one is economically viable," Johnson said in an interview. "We definitely want to do this project. It's a legacy for Bill Marriott, but these key critical issues have to be done before we can make the determination that this project is economically viable from the standpoint of a reasonable investment return.

"We have no plans to pull out at this time," Johnson said. "However, until these issues are resolved we cannot unilaterally move this project forward."

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