The evaluation committee charged with selecting a developer for a headquarters hotel has recommended Mortenson Development for the job.

During a work session on Tuesday, Metro councilors reviewed a staff report from the committee that outlined the details of two development proposals Metro received in July. Minneapolis-based Mortenson Development and Portland-based Langley Investment Properties responded to a request for proposals that Metro issued in May for construction of a hotel with at least 500 rooms near the Oregon Convention Center.

Mortenson’s proposal was preferred because the committee found Langley’s proposal potentially too costly and risky.

“This is something that needs to happen,” said Mick O’Connell, vice president of real estate development for Schlesinger Cos. (part of the Mortenson team), after the meeting. “(The project has) been talked about for many, many years. It’s the primary goal in the urban renewal plan, which was developed, I think, back in ’89. So we’ve been talking about this and looking forward to getting a hotel going for many years … It’s a beautiful convention center. It’s underutilized. It’s time to get this thing going.”

The Mortenson team (which includes Hyatt Hotels Corp., Portland-based Ankrom Moisan Associated Architects and Portland-based Star Terra LLC/Schlesinger Cos., among others) proposed two possibilities for either the Star Terra-owned property slightly north of the convention center, or the Portland Development Commission-owned site directly east of it. One option would be a 600- to 614-room Hyatt Regency; the other would be a 416- to 420-room Hyatt Regency plus a 181-room Hyatt Place.

A key advantage of Mortenson’s proposal, which ranged in cost from $157 million to $200 million, was a letter of intent from Hyatt to acquire the hotel for cash upon completion of construction.

“They believe their dollars are worth owning a hotel next to a convention center in Portland,” said Scott Cruickshank, Oregon Convention Center executive director, during the meeting. “They also have their own book of convention business and client accounts.”

Cruickshank said Portland is the number one market in which Hyatt’s clientele has asked the hotelier to build. Presently it operates in the area only a Hyatt Place near Portland International Airport.

According to the report, Mortenson intends to provide construction financing and equity; however, it wants between $10.3 million and $36.1 million in Metro and PDC public money. The developer also is seeking reinvestment of 11.5 percent in transient lodging taxes generated by the hotel over a 30-year period.

Langley’s team (which includes Sheraton-Starwood Hotels, Portland-based ZGF Architects and Turner Construction, among others) proposed two development options. One would be a 587-room hotel on the northeast corner of the convention center property; the other would be to “re-explore” development on the PDC-owned property.

Langley proposed development of a privately financed hotel with collaborative public investment, and said it would look to traditional private debt and equity sources. But because it was so early in the pre-development process, it did not include letters of interest from prospective lenders or investors for the $175 million proposal.

That was not received favorably by the evaluation committee.

“In addition, the financing proposal was considered to be too complicated and speculative to be completed in the schedule presented,” the report said of Langley’s bid.

Langley also requested a PDC/Metro loan of $8 million with a 4 percent interest rate, a 60-year land lease with $200,000 in annual payments, and a 10.225 percent reinvestment from transient lodging taxes for 15 years.

The evaluation committee expressed concerns with both proposals.

With respect to Mortenson, the committee questioned Hyatt’s willingness to enter into a “labor peace agreement” for hotel employees; its willingness to enter into a room block agreement acceptable to the city’s national sales and marketing contractor, Travel Portland; and the team’s ability to close gaps between available and requested amounts of public subsidies.

“In the committee’s judgment, the Mortenson team gave positive responses to each of these concerns, and the committee is confident that these issues can be resolved either before the negotiations begin, in the case of the labor peace agreement, or during the actual negotiations,” the report said.

As for Langley’s proposal, in addition to the “speculative” nature of financing, the committee questioned whether the development team had adequately identified the actual costs associated with construction and parking. Langley proposed physically integrating the hotel into the convention center so that it shared parking and meeting space.

“While the team responded with improvements to the original proposal, the committee concluded that the construction costs and parking package had considerable risk to be more expensive than proposed, and the financing proposal was likely to be much more costly than first presented, thus creating considerable risk on the project schedule as well as the needed public subsidy,” the report said.

During the meeting, little attention was paid to particular financial differences between the two development proposals. Rather, conversations seemed to focus on the many failed attempts to develop the hotel and an eagerness to see the project accomplished.

Metro Council President Tom Hughes said a healthy hotel market is part of the reason that the project is being resurrected now.

“That plus construction and lending costs being down makes it kind of a perfect storm for trying to get this project going,” he said.

The PDC is scheduled to consider the committee’s recommendation on Sept. 12. Metro Council is scheduled to follow suit the next day.

If the council were to vote in favor of following the committee’s recommendation, initial negotiations would begin immediately. Construction would be slated to begin in fall 2013.

The post Committee recommends Mortenson as Convention Center Hotel developer appeared first on Daily Journal of Commerce.