Tucson Convention Center Hotel

As I digest the news that the Tucson City Council has definitively voted down the TCC deal for now, I realized that there was this fairly thoughtful email (if I do say so myself) that I wrote to a friend on the city council on the subject, dated April 2006.  Almost everything I said back then would still apply today, except that they already did try to scale the project down slightly and obviously the credit markets are a tad different now.....

...Yesterday, we discussed the financial model and size of investment required for large commercial developments  Here's an interesting article stating that large, full-service hotels have a tough time getting off the ground: http://www.hotel-online.com/News/PR2007_2nd/Apr07_FinancingHotels.html

That said, several upscale brands have proven successful with 200-400 rooms, hence the popularity of these brands in the marketplace and the availability of easy financing and capital investment.  This option has been the immediate alternative suggestion from any developers to whom I've mentioned the Tucson plan for a 700-room convention center property.

Off the record, I think Tucson could win big by incentivizing one or two competing brands to build at the 200-400 room tier, along with encouraging the existing downtown hotel to renovate and pick up a decent flag, while still leaving some funds available for other related programs.  Here's a list of available brands the city may want to pursue, along with a viable mix:

*Hilton, 307 Rooms (based on converting Hotel Arizona)
*New full-service hotel, 350-400 Rooms (Sheraton, W, Crowne Plaza, Intercontinental, Wyndham, Radisson, Doubletree, Hyatt, Four Seasons, Renaissance, Embassy Suites)
*New upscale select service, 120-250 rooms each (Courtyard, Hilton Garden, Cambria, aloft, Indigo, Hyatt Place, etc)
*New upscale extended stay, 100-200 rooms each (Homewood, Staybridge, Residence Inn, Element)
*New midscale products to compete with dilapidated supply along I-10 corridor

...I would not easily dismiss a nice, newly constructed midscale or upscale select-service product, as these will only encourage bigger developers with incremental gains in achievable rates - a big issue in the Tucson market, due to a typically slow summer season and high amount of government business year-round. 

Judging by the most recent article in Saturday's Daily Star, other professionals agree that Tucson's hopes for the convention center hotel are unrealistic.  But an easily winning strategy may be to go after something like this:

307-room Hilton (conversion)
400-room Hyatt or Renaissance (or something unrelated to Hilton)
200-room upscale select-service property
150-room upscale extended-stay
200 rooms of midscale brands (2 properties...)
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=1,350 rooms of class-A branded hotels added to the downtown, and better market segmentation

Right now, Tucson is not hitting the radar for most of the brands, even though it's one of my top markets.  This should tell you something about the existing demand.  It is wonderful for midscale and marginally tempting for upscale hotels; although upscale hotel developers would prefer to build somewhere closer to existing upscale areas, surrounded by other upscale retail and dining, etc.  The only way to change that dynamic is to incentivize them, which the city already proposes, but do it better than in the existing plan.

Tucson could easily get more bang for its buck by setting its sites on easier targets.  A relatively small incentive could make for a very lucrative deal when you're looking at a $10-50 Million investment that already has a place in the market.  Let's consider someone building a $50-million hotel/mixed-use building, plus a $20 Million renovation of the existing hotel, plus a new $25 Million hotel, and a couple of $15 Million hotel projects.  By offering a small chunk to each of these developers, you not only build up more than the proposed number of rooms downtown, but you also start the ball rolling for other me-too developers.  Incentivizing a $130 Million hotel project that barely makes economic sense, if at all, is a far more expensive and unfeasible investment than dividing that investment into smaller chunks.  Also, you can limit the funds to encourage competition from owner/operators and franchise companies, rather than handing over one big lump sum to a project that might not be sustainable.

I don't even stand to gain from this proposition, but I felt strongly enough about it to put this lengthy email together.... I also can't imagine the city throwing so much money into something that doesn't even make as much economic sense as many of the less expensive alternatives.  FYI, if either plan moves forward, I stand to lose a great downtown site that will likely go up in value to the point that my clients won't want it.  But when the dust settles, at least a package deal means incremental growth, which tends to be very contagious and better for everyone involved.