Starwood Going Forward With Boston Convention Hotel

Officials from Starwood Hotels & Resorts reaffirmed the company’s intent to build a headquarters hotel for the new Boston convention center, despite questions about financing and financial details regarding its contract with the city.

After Starwood’s bid for the coveted property was chosen last November, questions arose concerning whether the company could line up equity partners, the amount of rent to be paid to the city, and mitigation payments to the South Boston neighborhood where the hotel will be located.

"I’m real happy with them agreement," said Gloria Larson, chairman of the Massachusetts Convention Center Authority (MCCA). "[Starwood] agreed to reserve room blocks below market rates and to open at the same time as the convention center."

Larson added that the agreement allows Starwood to seek additional equity partners, and the company is already getting partial financing from the Massachusetts-based Fleet Bank.

Starwood officials did not return calls for comment.

"This is great news," said Patrick Moscaritolo, president and CEO, Greater Boston Convention & Visitors Bureau. "It’s very important for the project to move forward… There have been a host of very positive developments on the development front. If this can happen in the next 2-3 weeks, it will be a great Christmas present for the Bureau from the developers."

Moscaritolo said there are a number of other hotel projects that may happen near the convention center. One would be on a parcel of land owned by the Massachusetts Port Authority, which is putting out an RFP for a 600-room hotel on the site.

Regarding other developments near the convention center, Larson said the Pritzker family recently got environmental approval from the state to develop a parcel of land that would become two Hyatt hotels and an office complex.

Despite the fact Starwood has yet to secure equity for the project, the hotel chain complied with a deadline and increased the amount of its nonrefundable deposit from $1 million to $15 million. Starwood and its local partner, Carpenter & Co., also agreed to reduce the development and management fees it would collect from the deal.

However, the company also said the deal would be unworkable unless mitigation payments to the surrounding neighborhood are far less than the amount previously negotiated.

"It’s clear the initial agreement is not what’s going to be in the financial deal," said Moscaritolo regarding the mitigation payments.

Larson concurred, saying the mitigation payment from Starwood would likely be "far less substantial" than the $6 million in the original agreement.

The board of the MCCA will vote to ratify the agreement Dec. 15. The agency is expected to vote in favor of the project.

The Authority voted unanimously Nov. 19, 1999 to approve the bid of Starwood. The runner-up in the bidding was Marriott International Inc., which was paired up with the local firm Boston Properties.

The bidding for the hotel did not follow the traditional pattern of attracting a developer in with incentives. Larson said that normally, the public sponsor tries "to lure somebody to your site with a major subsidy." This time, the bidders not only received no subsidy, but the finalists ended up offering a significant rental agreement to the authority.

Starwood originally offered to pay four different rents, including a base rent and a percentage of gross revenues. The company’s rent total will be $421 million over 50 years, which averages out at $8.42 million annually. By comparison, Marriott’s rent offer was $401 million total and $8 million per year.

The $695 million, 600,000-square-foot convention facility will be located on Summer and D Streets near Boston’s waterfront. The site is in the developing South Boston waterfront district and only 5 minutes from Logan Airport. Groundbreaking on the convention center took place late last year, with construction to be completed by 2003.

The winning proposal calls for a 1,120-room hotel with a price tag of $264 million. Concessions by the hotel company include agreeing to open the hotel simultaneous to the opening of the convention center and holding room blocks at a discount rate for convention attendees. Starwood plans to put its Sheraton brand on the hotel.

The new Sheraton in South Boston will be Starwood’s 20th hotel in Massachusetts and its fourth in greater Boston, joining the 941-room Boston Park Plaza, the 800-room Westin Copley Place, the 1,181-room Sheraton Boston Hotel & Towers, the largest convention hotel in New England.

Starwood, Marriott and Hilton had formally pursued the hotel project near the convention center, each one aligning themselves with a local developer. The MCCA sent out a request for bids, and the three groups submitted different plans for the building and operation of a headquarters hotel.

Marriott and Hilton will not necessarily be left out of the convention center’s business. There is available land a short distance from the convention center that will likely be developed into additional hotel properties.

In two phases of a report submitted earlier this year, the Georgia-based Strategic Advisory Group initially said that a headquarters hotel built with or connected to the convention center, was an "absolute necessity." The second phase of the report said that putting the hotel on nearby sites and connecting it to the convention center will not work for various reasons. That left the northeast corner of the convention center site as the only other place that a hotel could be built. The report cited a separate consultant’s analysis that a 1,200-room hotel could be built, probably in two towers, without exceeding a 200-foot height limit that exists for the site.

The convention center complex was brought to life after a bill was approved in the Massachusetts legislature in December 1997. The Boston center is part of a larger $944 million package that will build and renovate other facilities throughout the state. The Springfield Civic and Convention Center is being renovated as part of a major complex that includes a new Basketball Hall of Fame facility, financing for the already-constructed convention and meeting center in Worcester and a regional conference center to be built in the New Bedford area of southern Massachusetts.

The new facility in Boston is being financed by a combination of state and city funds and hospitality industry rate increases. Hotel taxes in Boston, Cambridge, Worcester and Springfield were increased by 2.75 percent, making the hotel tax 12.45 percent. There is a $10 surcharge on rental cars, a $2 fee on selected parking facilities and a 5 percent tax on sightseeing tours. The City of Boston is contributing $158 million to the building cost.

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