A Tale of Two Hotels

It was the best of times.

On Sept. 5, 2013, during the launch of the Tall Ships Festival Erie, when we weren't experiencing a polar vortex and at worst 65 degree temps and a light breeze, the Erie County Convention Center Authority announced that Erie would be getting $25 million in state funds to develop a new hotel just west of the Bayfront Convention Center. At the time, this announcement received mixed reviews, as Erie had been down this road before. And while it's been successful, it's not without the potential cost to the taxpayers.

Since that significant day, the Authority has continued to make progress towards breaking ground. However, in the meantime, a similar announcement was made to the Erie community. Yet, this time, a private enterprise is involved.

That private enterprise is Scott Enterprises, Inc., and their project is now known as "Harbor Place," a mixed-use plan that also includes a hotel, which would be situated on the northeast corner of State Street and the Bayfront Parkway.

Both projects have potential to move Erie forward, both in small and great ways. Each project has been down similar roads before – one in actuality, one in theory. But there are risks involved. As it stands, the decision to move forward with the public hotel rests in the hands of the Erie County Council. And ultimately, that decision will have consequences.

What do these projects have to do with each other? More than you'd think.

To start, the two representing groups have a complicated history together. In 2001, Scott Enterprises had an agreement to build a hotel next to the convention center (before the BCC was built) on Scott Enterprises property. But there was a dispute about the size of the hotel, and the Convention Center Authority voted to drop Scott as the developer. Allegations arose from both sides, Scott filed a lawsuit, the authority countersued, and a long legal fight followed.

According to Chris Scott, vice president of Scott Enterprises, "This went on for nearly a decade. Our land was tied up in the lawsuit so we settled. We ultimately decided it wasn't worth it, and we wanted it free and clear so that we would not be encumbered to move forward."

Ultimately, Scott's Bayfront Development agreed to pay the Convention Center Authority $1.3 million to settle the case.

Story over.

More like chapter closed.

Now both groups are back in the spotlight for proposed plans that are causing a heated dispute that may ultimately end in the Scotts pulling out of their project. The reasoning the Scotts are giving? They have gone on record stating that they believe both hotels would have difficulty existing in the current market.

While from quick glimpses and flashes of news, some might be quick to paint this as a good guys versus the bad guys-type of story, a this or that, a one or the other. But can both plans exist? And more importantly, can both entities put aside their differences and work together? The following will hopefully help answer  those very questions that will shape the landscape of Erie for decades to come.

The Authority is proposing to build a limited service 200-room hotel and parking garage adjacent to the Bayfront Convention Center (BCC). This hotel (recommended to be affiliated with the Courtyard by Marriott brand) is intended to complement the Sheraton Bayfront Hotel – all the while enhancing the viability of the BCC. The argument for the hotel is that it would help attract larger conventions to Erie – something the Authority argues is not currently feasible with just the Sheraton in proximity of the BCC. And the new hotel would also offer a lower price point to conventioneers and visitors than the Sheraton.

In order for this hotel to materialize, in addition to the $25 million grant that was received, the group needs to secure a bond from the County to make this happen. Thereby, the group recently approached County Council asking for a $60 million debt guarantee. The total cost of the project will not exceed this amount, and the guarantee would likely only apply to about $35 million, as $25 million of it will be financed through the state grant. Also, by obtaining this guarantee, the overall costs will be reduced and incur a net savings over the life of the bond issue of $19 million. That additional $19 million will go to the GAF site, which could ultimately enhance the possibility of growth on what would be a taxable property.

The Authority also has a proven history of success when it comes to bonds, as the Sheraton Hotel has a similar history (created with the help of public dollars) and is operating successfully.

In 2005, County Council agreed to guarantee a $48 million bond issue on behalf of the Authority for the Sheraton. And according to data provided at Jan. 23's County Council finance meeting by Kirby Pain, a principal with HVS Consulting and Valuations Services – a firm hired by the Authority to conduct a marketing study on the proposed hotel – the Sheraton has been successful.

"As of today, the Sheraton hotel has met all its debt service covenants, and it is the largest remitter of hotel sales tax in the community, because it is the largest revenue generator," Pain said. "The operating results of the last three years have exceeded the initial forecast that was done when the project was initially conceived."

Reports show that in 2013, the profit of the hotel exceeded the original forecasts by 11 percent, in 2012 by 8 percent, and nominally exceeded the projected forecast in 2011 as we were coming out of a recession.

"The RevPAR [revenue per available room, a measurement used in the hotel industry] for the Sheraton is $94.64," he continued.

On average, a competitive hotel, according to Smith Travel Research [a firm that gathers data in the hotel industry], runs a RevPAR of $65.95.

"The hotel has also maintained a reserve of 4 percent of revenue monthly, which is held in trust and is then in turn used for capital improvements," he added.

Casey Wells, executive director of the Authority, in agreement with Pain's remarks, added, "One of the market penetrations that we are getting pushback from are the meeting planners, as the hotel sprawl is posing a real challenge."

As such, the planners want convention rooms connected to the Convention Center so elements outside aren't something they have to deal with.

"We have associations that are saying they are not coming to Erie because of the lack of a number of continuous hotel rooms attached to the BCC."

Pain also pointed out, "There are a number of hotels that the study had anticipated being developed and therefore are addressed."

However, that study didn't include anything beyond qualitative data on the chance that another Bayfront hotel would be built. "There is something called an 'extraordinary circumstance' where you ask the consultant to make certain assumptions they don't necessarily think will come to fruition. So, we then asked that an additional study be done assuming that a second hotel would be built on the waterfront."

The results of that additional analysis showed that both hotels are market feasible, that the projections are better than was anticipated in March 2013 though the projections are not quite as high in occupancy rates as would be anticipated without building a second hotel.

Attorney and Convention Center Authority Board Member Roger Richards added in closing, "There is something we should remember. We received $25 million allocated to Erie County. There wasn't another place in the state that got another $25 million grant except for the city of Philadelphia. If this money has to go back, other communities are going to gobble it up, and it's going to be difficult to get future grant money in Erie if we can't take advantage of this opportunity."

On Nov. 27, 2013, officials from Scott Enterprises announced plans for a $150 million private waterfront development, known as "Harbor Place." It would be located about a half-mile east of the Convention Center on 12 acres of prime real estate that was purchased in 1999.

According to Nick Scott, Sr., "Simply put, this is a game-changer for our community."

And that it would be. The group announced that Harbor Place – borrowing a name from a project that sparked the renovation of Baltimore's inner harbor in the late 1970s – would be built in phases and would include corporate offices, hotels, retail shops, a restaurant, parking garages, an outdoor ice-skating rink, condominiums, and apartments. The group has also made steps towards moving forward with the plan. Over the past year, they have been working with Weber Murphy Fox Architects on renderings and plans, and they've already purchased a liquor license from the now-defunct Under the Clock Restaurant for a new restaurant to be developed within the plan.

The hotel will also be put on the tax roles. Upon completion of their Harbor Place project the development would pay around $4.8 million annually in taxes.

And Erie knows the successful history of Scott Enterprises. All one needs to do is be anywhere on upper Peach Street or skiing in Western New York to see their successful developmental footprint in the region.

However, should the public hotel come to fruition, Harbor Place may be in jeopardy. Scott Enterprises is arguing that a publicly-backed hotel is unnecessary when a privately-funded one is already shovel ready

Chris Scott, vice president of Scott Enterprises, addressed County Council last week citing all of the potential concerns of a publicly funded hotel – such as the potential burden to the taxpayers and the feasibility of success for additional hotels along the Bayfront."

He closed by adding, "If the $25 million needs to be used to create jobs, the Convention Center Authority should use the funds to build something that will attract people to Erie, such as a science center, an IMAX Theater, or an aquarium," he said. "These types of facilities are not built by private industry. They are built with public money, like the Erie Insurance arena and the Warner Theatre. These facilities generate tourism. We can build the hotel at our own risk, pay taxes, and get the extra rooms the convention center wants. We need to work together."

It's important to note however, that the funds may only be able to be used towards the hotel designation – and not re-directed. This is a question that hasn't been answered yet.

The Scott's concerns are legitimate – and worth noting. In addition, there has been little communication between the two groups, which also makes a partnership difficult.

On one hand, the Convention Center Authority is looking to create a project that would not only potentially increase conventions brought to Erie, but would also create the infrastructure necessary to attract private developers to the former GAF site, ultimately beautifying a substantial portion of our Bayfront region. On the other hand, we have this magnanimous multi-use development project proposed by the Scotts that would not only help boost tourism, but would also be a destination in and of itself for both the citizens of Erie and visitors to our community.

As it currently stands, these two entities have yet to work together on Bayfront development, each of these two arms of development stretching to reach forward, moving independently of the other, while both remaining connected to a core that is Erie's Bayfront. And both have stated publicly they would work together, albeit under different conditions.

Conditions aside, both are bold visions that come at a pivotal time for Erie. Yet the feasibility of these plans comes with risks, both private and public. But with calculated risk can come great rewards, rewards that can drive our economy forward – which isn't a bad bet since as both entities have successful résumés when it comes to development, despite their differences.

So what Erie needs most – aside from bold vision for development of the jewel in our crown that sits along the water's edge – is collaboration and transparency and an informed community. The second reading of this ordinance proposal will come up during County Council's next meeting on Tuesday, Feb. 11. Whether or not a vote will be cast has yet to be determined; however, time is definitely of the essence.

Rebecca Styn can be contacted at rStyn@ErieReader.com, and you can follow her on Twitter @rStyn.