I am personally not opposed to all public/private partnerships; nonetheless, it is troubling when there is unintended or intended abuse of our precious, hard earned tax dollars. Let me preface this OP-Ed with writing, I do think the Virginia Beach Convention Center is better off with a connected hotel that boasts meeting space within. There is data supporting the fact companies select venues for their conventions consisting of these specifications. I also agree the developer is more than competent to achieve the desired results of a first class hotel. At first glance, there seems to be an excellent match.
However, one of my issues I brought up in 2008 for Virginia Beach was specifically these types of deals, involving a favored developer and massive amounts of tax payer dollars without proper protection to those everyday citizens who sacrifice monies to the common good. The government's main function is to protect its citizens and by extension, their interests. The abusive practice of eminent domain was also involved with this land site, but it is not the priority of this letter.
There are several glaring issues with the Convention Center Hotel term sheet that has now become public. While there are still some negotiations to the final contract, these are minutia as it specifically says in the term sheet, that it "forms the basis" for the transaction. The term sheet is the structure of the deal and a result of previous negotiations.
Virginia Beach (us) will put up over half of the project costs, upfront. This does not include the land we are throwing in the deal gratis (which we should keep).
Below are amazing highlights for the developer and irresponsible use of our money.
- Total hotel costs are 109.2 million only 10% upfront coming from developer and over 50% coming from us, or a total of 61.8 million (initially).
- We will contribute over 42 million in cash at closing time. An additional $13 million will be provided the developer in the form of a Mezzanine financing loan. This type of risky financing usually has interest rates from 12-20%. According to the term sheet, we are to lend the money at 3.2% and the developer will not have to start repaying till 2016. We will also contribute 4.8 million in a grant to the developer.
- The developer will not have to pay lease payments on the Hotel services space for the first 6 years and then only start to pay at a rate of $6 per square foot; this would be equivalent to rent for an old, poorly located, and empty warehouse space.
- The developer will get $450k (to start being paid immediately) a year just to manage the conference center in the hotel. By contrast the nationally known manager of the total convention center space of our competitor the Hampton convention center receives $125k (starting in 2006) per year and they perform grounds maintenance. Hampton Convention Center management. Virginia Beach spends almost $800k on just the convention center management/sales per year; this does not include salaries for maintenance/event coordinators. See salaries here
Note: The Doubletree hotel (right next door to the Convention Center) is willing to put up $25.5 million of their own money to upgrade their hotel and is only asking the city (us) to pay for the bridge connecting it to the Convention center ($5-10 million).
If you believe (no matter your political persuasion) we only have a problem nationally with picking politically connected winners in the banking, auto, and other industries, than just look a little closer to home. In 2008 I raised these issues in regards to the town center project. Furthermore, I was a part of debates and talks of concentrating on keeping our well educated kids or our thousands of skilled exiting military members here in Virginia Beach. There was talk and ideas of creating a business incubator program to spur job growth and entrepreneurship, a better use of monies. This, so far, has been lip service. We just learned of a 90 million dollar budget shortfall last month in the city. In the past few years we have had increases in storm water, sewage and water fees and a new $10 monthly trash fee starts in January. While I do believe the Convention center needs a hotel, I believe the above example is a misuse, perhaps an abuse, of our money.
Respectfully, Scott Taylor