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HomeMy WebLinkAbout2003-06-05 e-packetPlease note change of location. SPECIAL JOINT MEETING CITY COUNCIL and CONFERENCE CENTER AUTHORITY OF THE CITY OF SOUTH SAN FRANCISCO P.O. Box 711 (City Hall, 400 Grand Avenue) South San Francisco, California 94083 Meeting to be held at: SOUTH SAN FRANCISCO CONFERENCE CENTER 255 SOUTH AIRPORT BOULEVARD THURSDAY, JUNE 5, 2003 5:00 P.M. NOTICE IS HEREBY GIVEN, pursuant to Section 54956 of the Government Code of the State of California, the City Council of the City of South San Francisco will hold a Special Joint Meeting with the Conference Center Authority on Thursday, the 5th day of June 2003, at 5:00 p.m., in the South San Francisco Conference Center, 255 South Airport Boulevard, South San Francisco, California. II Purpose of the meeting: 1. Call to Order 2. Roll Call Public Comments - comments are limited to items on the Special Meeting Agenda Study Session: Joint Meeting with Conference Center Authority to Discuss South San Francisco Convention Facility/Hotel Development Options o Closed Session pursuant to Government Code section 54956.8: Real Property Negotiations related to 245 and 275 South Airport Boulevard; Agency Negotiator: Marty Van Duyn Under Negotiation: Terms and Conditions for Purchase of Property 6. Adjournment StaffReport DATE June 5, 2003 TO Honorable Mayor and City Council Conference Center Authority Members FROM City Manager Conference Center Executive Director RE South San Francisco Convention Facility/Hotel Development Options RECOMMENDATION It is recommended that the City Council and the Conference Center Authority accept the information included in this report and provide direction regarding the questions asked at the end of the report. BACKGROUND/DISCUSSION In April, 1993, the South San Francisco Conference Center (Center) opened its doors. Prior to that time, South San Francisco had a difficult time competing for group business due to the lack of meeting space in its hotels. With the opening of the Center, 16,500 sq. ft. of meeting space was added; and South San Francisco was able to compete for group business. The Center books its space 1) on a long-term basis to those groups which require, in addition to meeting space, hotel rooms and 2) on a shod-term basis to any group requiring meeting space regardless of hotel room requirements. In 1998, the Center had achieved a utilization occupancy of 70%. Many groups interested in using it were being turned away because either the space was already booked or the space requirements of the events were larger than the space available at the Center. During this same time, South San Francisco began to see its hotel room inventory increase with the construction of new hotels. The Conference Center Authority (Authority) began to question what could be done to increase the meeting space at the Center so that those groups wanting to meet in South San Francisco could do so. In early 1999, the City Council (Council) together with the Authority requested a study of several areas of the South San Francisco's hospitality industry to assist them in making some important decisions. As it related to the Center, the consultants (Scott Hospitality ConsultantsNernazza Wolfe Associates) were asked to Honorable Mayor and City Council Conference Center Authority Members June 5, 2003 Page 2 evaluate the Center's operating position in the marketplace; consider the possibilities for expansion in terms of how it could happen and in what configuration; comment on the potential reception of the expanded Center from the marketplace, and consider what the Center's business future might be in the next 10-20 years. As presented to both the Council and the Authority in September, 1999, the consultants concluded that with the increasing time periods throughout the year that the Center operated at close to peak utilization, were the Center to expand, and given other site improvements, there is an excellent likelihood that there would be demand for it. The consultants suggested that it would be in South San Francisco's long-term interest to pursue expansion as conference business will continue to be a viable industry. They cautioned that in order to move forward with an expansion plan, two critical issues must be addressed: the inadequate parking and the inadequacies of the Ramada Inn and Holiday Inn in supporting an expanded Center. As a result of these conclusions, both the Council and the Authority concurred that study on an expansion of the Center should continue. In the Spring of 2000, the Authority engaged the firm of Convention, Sports and Leisure, Inc. (CSL) to prepare a complete market and financial feasibility study for an expanded conference center. They were also asked to provide market and development findings for a headquarters hotel to support the Center. In an early 2001 progress report, CSL advised the Authority that there was qualified/quantified demand from current and potential users to support an expanded convention facility and that the existing facility had reached "practical maximum capacity" and may be turning away some level of business. The following, market-supportable options were presented: expand the existing Center by approximately 25,000 - 30,000 square feet of meeting room/ballroom space; Construct a new, Phase I Convention Center on another site with approximately 90,000 square feet of exhibit/meeting room/ballroom space; or 3. do nothing; there is and will be demand for the existing Conference Center. Based on these findings, the Authority directed the consultant to continue their work completing the architectural, operational, and financial portions of the study for both an expansion of the existing facility and construction of a new facility and also the market and Honorable Mayor and City Council Conference Center Authority Members June 5, 2003 Page 3 development findings for a headquarters hotel to support the Center. As part of their work, CSL identified possible sites for construction of a new facility finally concluding that the site at Oyster Point had the most possibilities particularly given its proximity to the proposed Hilton Hotel. In October of 2001, CSL together with their associates who assisted in preparation of the study, Hotel Real Estate Counselors and architectural firm, HNTB, presented their completed findings to both the Council and the Authority. In addition to their initial findings, CSL also presented the following: 1. Expand the existing Center scenario - Existing resources/facility would continue to be utilized; there is a development cost benefit to utilizing the investment in the existing Center. The Center's presence along Highway 101 would be maintained. No new hotel development would be required as the site would continue to take advantage of the surrounding hotel inventory. However, the quality of a portion of the hotel inventory may need to be upgraded. Hotel room nights generated from Center events would increase to approximately 37,000 - 47,000 annually. An increase in the number of events to 565 annually would be possible by providing the ability to host concurrent events as well as larger-sized events. Public and other events are assumed to increase significantly with the added date availability. Higher-end corporate and association events that require significant first-class hotel inventory and an environment geared towards convention and visitor activities would experience less of an increase. The area for expansion would be the area located directly behind the Center (Airborne Express building). The facility would have to be acquired and likely torn down to accommodate an expansion. A portion of the Ramada site would likely be needed also. Development or purchase agreements with at least two land owners would be required. The main orientation of the expanded Center would relocate to the side as opposed to South Airport Boulevard impacting the sense of address. Power lines located in front of the Center would likely remain. There would be a continued lack of visitor-oriented environment surrounding the Center; i.e., restaurants, shopping. Honorable Mayor and City Council Conference Center Authority Members June 5, 2003 Page 4 2. Construct a new, Phase I Convention Center scenario A new headquarters hotel with approximately 350 rooms would require development. Hotel room nights generated from Center events and a new headquarters hotel would increase to approximately 50,000 - 70,000 annually. An increase in the number of events to 670 annually would be possible. Higher-end corporate and association events that require exhibit space and ballroom/meeting space together with first-class hotel inventory would experience the highest increase. Creation of a convention/visitor environment surrounding the Center would be required. Existing site - CSL did review the existing site on a limited basis. Several parcels of land (Ramada Inn, Holiday Inn, Airborne Express, etc.) would need to be acquired. 10 - 12 acres would be needed to accommodate the Center, new hotel and parking. The ability to develop a convention/visitor environment may be limited. The presence of the convention complex on Highway 101 would be maintained and enhanced. Power lines located in front of the Center would likely remain. There would be limited landmark building opportunity. Oyster Point Site - CSL identified Oyster Point as being the most desirable location for a newly constructed center. There is public ownership/management of the site and the ability to accommodate the full building program, possible future expansion, and a headquarters hotel. There may be a cost premium for building on a landfill together with complex environmental permitting. There are landmark building possibilities; a strong and very marketable project image at the waterfront site; the possibility of stimulating related development; good access to eventual San Francisco bay ferries, the airport and nearby hotels. Direction was requested on the following question - should we do nothing and continue on with the existing Conference Center or should the study on either an expanded or new Center continue. It was the consensus of both the Council and the Authority that staff should continue their work researching the development possibilities of a new, Phase I Convention Center and headquarters hotel at the Oyster Point site. In addition, how such a project would be financed, without General Fund money, would need to be known. Honorable Mayor and City Council Conference Center Authority Members June 5, 2003 Page 5 The Authority concluded that given the importance of a headquarters hotel to the project development at Oyster Point, the lack of forward direction on development of the proposed Hilton Hotel at Oyster Point, and the possibility of private financial opportunities from hotel development which might favor the development of the Convention Center, it made sense to focus on the headquarters hotel development aspect of the project. In addition, since securing an appropriate hotel was key to the Center's ultimate success and since hotel development had all but stopped due to economic conditions which drive the financing of new hotels, this portion of the project was critical. In April, 2002, Hotel Real Estate Counselors (HREC) began their work answering these questions. In October, 2002, HREC reported the following to the Authority: One hotel (332 rooms) would support the new Convention Center. The proposed Hilton Hotel could serve as this hotel. In the event the current developer was unsuccessful in building the Hilton Hotel, there are two, viable options for developing a hotel. One, viable option is a public/private partnership with the City providing various incentives, financial and otherwise, to make the deal work. The second, viable option is for the City to publically-finance the building of the hotel utilizing tax-free bonds. The City would create a not-for-profit corporation to administer the development; and the corporation would contract the services of an hotel managment corporation, asset manager, and other essential service providers. The Authority was advised that this option would insure the hotel would be built, provide the City with "control" over how the hotel would be operated so that the best interests of the City would be first and foremost, provide the City with financial control and new revenue opportunities not possible under any other arrangement, and provide financial opportunities for the building of the Convention Center. For both options, HREC identified similar-sized hotel projects either completed or in progress being undertaken by other cities. The Authority chose to continue study on the publically-financed option to make sure it was understood how, specifically, it works and the risks and safeguards associated with this method. A subcommittee of the Authority, the Conference Center Executive Director, the City Manager and staff have been involved in review sessions with HREC Asset Management representatives (Mark Tobin) and Underwriters (Bob Swerdling/Lisa Jacobs) specializing in this hotel development/financing method to insure complete understanding prior to making a recommendation. Meetings were ongoing through the winter of 2003. Honorable Mayor and City Council Conference Center Authority Members June 5, 2003 Page 6 CURRENT SITUATION In late March, 2003, the Conference Center Executive Director was advised that the Ramada Inn and the Holiday Inn had been listed by the owners, Wyndham International, with Colliers International for sale. The broker indicated that the Ramada Inn sales price is $6 million; the Holiday Inn sales price is $16 million; there is considerable interest in the properties due to the Iow pricing; offers would be accepted in late April, 2003; Wyndham International was interested in moving the properties quickly to satisfy their financial requirements; and the risk to the Conference Center is that the properties may or may not be sold to new owners who do not share similar marketing, operating and service levels as the Conference Center. This situation was immediately discussed with our consultants at HREC Asset Management, and it was suggested that a meeting be set with the Wyndham International development and acquisition decision makers to discuss our mutual interests. The Authority was advised of this situation at its April 3 meeting. The Authority is concerned about the impact of the properties' sale on the Conference Center. Both the Ramada Inn and Holiday Inn have physical, marketing, operational and service levels that are no longer consistent with those of the Conference Center. Our consultants arranged a meeting with the Wyndham International representatives on May 1. In attendance, together with our consultants, were Mike Wilson, City Manager; March Van Duyn, Assistant City Manager; Authority Chairperson, Steve Dworetzky, and Conference Center Executive Director, Sandra O'Toole. We reminded the Wyndham reps of our shared parking agreement so that they would advise potential buyers of the Use Permit requirement to maintain a specified level of parking for use by the Conference Center and the new owners. We also asked if the Wyndham reps were aware of our ongoing study of the expansion possibilities for the Conference Center and if they had any interest in working with us. They indicated that they did have an interest in working with us in a Conference Center expansion/hotel development project on the existing site. However, they were only interested in providing management services for the hotel since their company was no longer pursuing new hotel construction projects. They advised us that time was critical; we would need to give them notice of our intentions by June 1. They would not be accepting any offers prior to that time. Since the May 1 meeting, City/Conference Center staff have been meeting regularly between ourselves and with our consultants to understand our options as it relates to a Conference Center expansion/hotel development on the existing site. Through the previously described publically-financed, not-for-profit corporation option, it is possible to expand the Conference Center by 25,000 sq. ft., demolish the Ramada Inn and construct 175 new rooms on that property, completely renovate the Holiday Inn, add parking, etc. Honorable Mayor and City Council Conference Center Authority Members June 5, 2003 Page 7 QUESTIONS FOR DISCUSSION/DIRECTION Which opportunity is in the best, long-term interests of the City of South San Francisco - the Convention Center/hotel development at Oyster Point or the expanded Conference Center/hotel development on the existing site? Is there interest in pursuing a convention facility/hotel development utilizing the publically-financed, not-for-profit corporation financing option which places the City of South San Francisco in the controlling position of constructing both the convention facility, hotel, parking component, etc.; making the management decisions related to the project; and working within the guidelines/restrictions which are required by this type of financing? What other development opportunities are there for the Conference Center, Ramada Inn, and Holiday Inn site? Is there interest in securing more time to continue study on the existing site possibilities and what opportunities exist for securing more time? During our meeting of Thursday, June 5, our consultants (HREC Asset Management representatives Mark Tobin and Patrick Hallman and Underwriters specializing in this type of structure Bob Swerdling and Lisa Jacobs) will be in attendance to assist our discussion. Wyndham International representatives are aware that we are meeting on this date and will need to be given an indication of our direction. Michael A. Wilson City Manager Sandra M. O'Toole Executive Director