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Home My Public Portal About2007 - Garfield Traub Conference CenterF Jefferson City, MO .lune 21, 2007 Turnkey Delivery Program Conference Centers and Headquarters Hotels GARFIELD TRAUB DEVELOPMENT 2 GARFIELD TRAUB DEVELOPMENT • National developer of essential facilities for the public sector • Creative financing experts • Developed 27 million SF and financed $11 billion in real estate over past three decades • Developed and/or financed over 100 hotels and $3.5 billion of debt and equity • A pioneer in tax-exempt finance and development of hotels, conference centers and entertainment facilities for the benefit of the public sector • A pioneer in taxable public/private development and finance of convention and conference center hotels 3 GARFIELD TRAUB DEVELOPMENT Developer of the $92 million, 412 -key Overland Park, KS Sheraton at the convention center and the $34 million, 154 -key Bay City, MI Doubletree and conference center, two of the first tax-exempt hotel developments in history Currently developing the $200 million, 500 -key Sheraton convention center headquarters hotel and mixed-use development in San Juan, Puerto Rico Currently in pre -development for the $60 million, 304 -key hotel and conference center for the City of Lubbock, TX and Texas Tech University Currently in pre -development for the $182 million, 600 -key Westin Hotel at the Oregon Convention Center in Portland, OR HOSPITALITY EXPERIENCE Resort at Squaw Creek Lake Tahoe Bay City Doubletree Hotel ia.0 Loews Vanderbilt Plaza Nashville 00 ' f HOSPITALITY EXPERIENCE Property Location Sheraton at the Overland Park Convention Center Overland Park, KS Sheraton San Juan at the Puerto Rico Convention Center San Juan, Puerto Rico Westin at the Oregon Convention Center Portland, OR Westin La Paloma Tucson, AZ Overton Park Hotel and Conference Center Lubbock, TX Doubletree Hotel and Conference Center Bay City, MI Squaw Creek Ski and Golf Conference Resort Lake Tahoe, CA Hilton Garden Inn Suffolk, VA Hyatt at Fisherman's Wharf San Francisco, CA Hyatt Regency San Francisco Airport San Francisco, CA Hyatt Regency Chicago Chicago, IL Hyatt Regency Atlanta, GA Hyatt Regency Houston Houston, TX Le Meridien San Diego at Coronado San Diego, CA Loews Annapolis Hotel Annapolis, MD Loews Coronado Resort Coronado, CA Loews Vanderbilt Plaza Hotel Nashville, TN Marriott Quorum Dallas, TX Marriott Town Square Sugariand, TX Marriott Horseshoe Bay Resort Horseshoe Bay, TX Marriott Franklin Cool Springs, TN Marriott Waterside Hotel Norfolk, VA Marriott Residence Inn Henderson, NV Marriott Courtyard Henderson, NV The Melrose Dallas, TX Pan Pacific Hotel San Francisco, CA Regency Hotel New York, NY Renaissance Portsmouth Hotel Portsmouth, VA Ritz Carlton San Francisco Sands Hotel and Casino Atlantic City, NJ Sandpiper Bay Resort and Conference Center Pt, St. Lucie, FL Divi Divi and Divi Tamadjn Beach Resorts Aruba, Dutch Caribbean LaBelle Inn and Country Club LaBelle, FL Ramada Inn Pt Charlotte, FL ' f.*-�"a .. fir +� � b � �'- ✓"'� µ no Developer's Role of Defining Financial Structures A hallmark of the Developer is the financial ingenuity, experience and capital markets resources of its principals, and their abilities to engineer creative financing structures and secure capital for developments. 0 Standard Hotel Financing Approaches Current industry standard approach to convention center hotel financing can be classified into two broad categories: A. Publicly Owned, Tax -Exempt Bond Financed B. Privately Owned, conventional Debt & Equity Financed SENIOR LIEN BONDS Senior Lien Project Revenues Only Investment Grade (BBB-) Negotiated Minimum Coverage SUBORDINATE LIEN BONDS Subordinate Lien Project Revenues + Additional Credit Investment Grade JUNIOR LIEN BONDS Private Sector "Quasi -Equity" SENIOR LIEN BONDS Senior Lien FIRST MORTGAGE Project Revenues + Credit Enhancement on a portion of debt service Investment Grade Negotiated Minimum Coverage FIRM MORTGAGE PRIVATE EQUITY I MEZZANINE DEBT JUNIOR LIEN BONDS■ PRIVATE EQUITY 1 N Private Sector "Quasi -Equity" MEZZANINE DEBT PUBLIC INVESTMENT 00 P P11 1' '•R GARFIELD TRAUB UP ODEVELOPMENT Sample of Recent Public Hotel Transactions Vancouver Hilton December 2003 St. Paul Radisson Bay City MI Doubletree November 1999 September 2002 Pittsburgh Airport Hyatt August 1998 Portland Westin November 2007 Sacramento Sheraton April 1999 Denver Hyatt June 2003 Omaha Hilton May 2002 Austin Airport Hilton January 1999 LaGuardia Airport Crowne Plaza 1998 Overland Park KS Sheraton December 2000 Austin Convention Center Hilton June 2001 Houston Convention Q Center Hilton April 2001 Trenton NJ Marriott April 2000 JFK Airport Holiday Inn 1998 Chesapeake Bay Hyatt November 1999 Myrtle Beach Radisson May 2001 Sample of Recent Public/Private Hotel Transactions 10 Boston Westin June 2006 Indianapolis St. Louis Renaissance Marriott 2001 November 2000 Portsmouth Renaissance 1999 Nashville Marriott •� 1997 Raleigh Marriott Lubbock Overton Park 2006 February 2007 San Antonio Hyatt Charlotte Westin 2006 2002 I: fo rt Worth Omni 2005 Sugarland Marriott , 2001 San Juan Sheraton Tampa Marriott 4 August 2006 2000 11 Motivation for Tax -Exempt Approach • Lower cost of capital improves project feasibility and increases returns on asset • Significant economic upside to the City - profits and residual value accrue to City rather than to Developer (investment vs. subsidy) • City can use surplus funds to reinvest in hotel, retire debt early or for any other permitted public purpose • Limited financial risk to City. Transactions have typically been structured with the sponsor providing a defined amount of credit enhancement • City retains control of the hotel's ongoing upkeep, to provide best experience for convention visitors • Performance standards in management and operating agreements will ensure that the hotel is optimally operated and maintained • Additional security is provided through debt service reserve funds Sheraton at the Convention Center - Overland Park, KS 12 • $92M, 318,000 SF, 412 -key first-class full-service "upscale" Sheraton headquarters hotel • City goal for fifteen years and conventional private financing had not been feasible • Garfield Traub Development created tax-exempt financing structure. • Design -build GMAX delivery • City general credit not required • City will be reci lent of all net cash flows ($92M) and residual value of hotel 0140+M) • City to own facility when financing is paid in full • Opened November 2002, ahead of schedule and more than $ p5M under budget • Garfield Traub serves as Asset Manager to city • Design Build Institute of America (DBIA) 2003 National Award • DBIA Mid America Chapter 2003 Project of the year eft-) GARFIELD TRA Oregon Convention Center Westin - Portland, OR 13 • GTD and Ashforth Pacific co -developing this $182M, 600 -room first-class Westin • The hotel will anchor the existing Oregon Convention Center • Goal of the Oregon Convention Center Urban Renewal Plan since 1989 • The 23 -floor hotel will include full-service dining, banquet and meeting facilities, street -level retail and glass canopy • GTD will lead the public/private financing solution currently in progress Financing/Legal Structure (Tax -Exempt) Qualified Management Agreement *Municipal Sponsor is entity created by the City Indenture Development Agreement Design -Build Agreement Design Agreement 14 Hotel Net Operating Income Senior Lien Debt Service Senior Lien Debt Service Reserve Fund Subordinate Lien Debt Service Subordinate Lien Debt Service Reserve Fund Subordinated Management Fee Ground Lease Payment Junior Lien Debt Service Junior Lien Debt Service Reserve Fund Supplemental Reserve Fund Surplus Fund Sponsoring City ' i M I,'I� loop GARFIELD TRAUB R, �II .; �� DEVELOPMENT WI Motivation for Public/Private Approach • Political influences outweigh economic benefits • No future funding obligations on City after initial investment • City can share in long term profits/cash flow from hotel • Multiple ways for City to structure participation • City has some control over ballroom and meeting space in hotel through booking policy agreement IF so— p PF pop 00 W . . . . . . . . . . 00 010 304 -Room Hotel and Conference Center - Lubbock,Texas 17 • The full service hotel will consist of 304 rooms, a three -meal restaurant with adjacent lounge, swimming pool with hydrotherapy pool, exercise facility, 24-hour business center and a convenience shop • Located on approximately 5 acres of land across the street from the campus of Texas Tech University and Jones Stadium in Overton Park, the largest private redevelopment project in the history of the United States • This project will be a public/private partnership with the City of Lubbock • Value estimated at nearly $60 million Financing/Legal Structure (Public/Private) Private Management Agreement *Municipal Partner can be City, County or State Government Public Development Agreement Design -Build Agreement Design Agreement MV Hotel Net Operating Income* Debt Service Preferred Return to Investors Cash Flow to Investors and Municipal Partner 0 ��GARFIELD TRAUB DEVELOPMENT 20 Public vs Private Ownership/Financing 1) Who decides? 2) How does the City decide? 3) How does the City get educated? The City Education Pre -construction feasibility 21 Private Financing Challenge A full-service 3 to 4 star privately owned hotel cannot be financed 100% from private debt and equity sources in most U.S. markets today! 22 Explanation Challenges of the Private Debt & Equity Hotel Financial Model: 1. To build a full service hotel of this quality, including ballroom and meeting space typically costs between $200,000 to $275,000 per room today; 2. The underwriting by senior debt lenders in the hotel industry has changed significantly in the last 10 years, due to overcapitalization in the 1980's and very large losses on loans, both in absolute dollar amounts and as a percentage of the total loan: — High Loan to Value ratios (85 - 90%) in the 1980's are now low Loan to Cost ratios (60 - 65%); — Debt Service Coverage ratio projections at stabilization have increased from 1.2x to 1.4x; — The result is a much lower available loan amount as a percentage of the total budget, and a correspondingly higher amount of required equity; 23 Explanation Challenges of the Private Debt & Equity Hotel Financial Model: I Internal rates of return for hotel equity investors are typically in the 20% to 25% (pre-tax) range for new hotel construction. — These high IRR's are necessary to compensate for the perceived stabilization / market risk of the new hotel. — New hotels are considered by investors to be among the highest risk real estate classes and they require a high return. 4. In most markets, average daily rates and occupancies (and the resulting net cash flow from the hotel) are not high enough to complete capitalization through 100% private debt and equity, resulting in a gap that needs to be filled. 24 Private Ownership Example Conventional Model Mid 1980's % Today 0/0 Total Hotel Budget* $100,000,000 100% $100,000,000 1000/0 Senior Debt $ 85,000,000 85% $ 60,000,000 60% Equity $ 15,000,000 15% $ 10,000,000 100/0 Capitalization Gap $ 0 00/0 $ 30,000,000 30% TOTAL $100,000,000 1000/0 $100,000,000 1000/0 * Adjusted to 2007 Dollars Who fills the capitalization gap? 25 When there is a p flrjlj need for hotel rooms, such as is created when a convention center is built or expanded, the capitalization gap must (and can) be filled by the p wjfl r� sector. 26 The Public/Private Financial Model Option ➢ In today's difficult capital market climate for hotel finance, choosing a hotel Development Team with financing expertise and deep capital market resources is critical to achieving project success. Garfield Traub Development has a national reputation for engineering creative financial structures to overcome economic impediments to hospitality developments. In order to identify the capitalization gap when financing a convention center hotel, we utilize a proprietary public/private financial model which incorporates a budget prepared by our general contractor and a P&L from our operator. v After being chosen as the City's Development Team, we will enter into a pre - development feasibility period to calculate the capitalization gap using the public/private financial model and identify ways in which it might be filled. (Note: This pre -development feasibility can also be done before formal Development Team selection.) 27 Development Cycle 1) Pre -Construction Feasibility (Capitalization gap quantified) 2) Design Development 3) Construction W Overall Goals of Pre -Development Feasibility Period 1) To provide a detailed study of the proposed convention center hotel that results in reasonable, quantifiable and easy to understand options for its financing and development upon which the City can make an educated and informed decision on how to proceed. 2) To provide information to the City throughout the study so that at the end they are totally comfortable with their financing options, their sources of funding any participation and/or investment they may be required to make, and the cash flow streams they can reasonably expect to receive as a result of their participation or investment under each option. 29 How the Pre -Development Feasibility Process Works 1) City signs Agreement with Team. 2) Team and City negotiate for a hotel market feasibility study with qualified firms. City enters into agreement with selected firm. 3) Team coordinates and monitors market feasibility study and works with the selected firm to determine the scope and facilities programming of the proposed project. 4) Team works to develop a preliminary budget and projected P&L for the proposed hotel. 5) Team estimates the amount of private financing available for the project in the public/private option and the resulting amount of public financing necessary to complete capitalization. MEN How the Pre -Development Feasibility Process Works 6) Team works with underwriters and the City's bond counsel to prepare a preliminary bond pricing model for the publicly owned option. 7) Team introduces various options for securing public funding necessary to complete capitalization and reviews the legal, political and economic viability of each funding option. 8) Team prepares final presentation of results for the City and presents to City at the appropriate forum. 9) City makes informed decision on how to proceed with the project. if Duties of the Client 1) Commission the market feasibility study within 14 days of signing the Agreement. 2) Meet with Team to discuss various public and private alternatives for financing the hotel, as well as political and economic sensitivities surrounding the project. 3) Provide access to City's bond counsel and financial advisors familiar with the City's bonding capacity and similar tax-exempt offerings to confirm that the proposed project is qualified and meets state law. 4) Provide all materials related to the project, including any previous studies and zoning and land use issues. 5) Provide contact person to coordinate all issues that come up during the process. 32 Duties of Development Team 1) Assist in the negotiation and selection of the market feasibility consultant, including the scope of services and fee. 2) In conjunction with feasibility firm, prepare preliminary facilities program and design analysis and site plan for the project. 3) Prepare preliminary budget and P&L for the project. 4) Work with bond counsel and underwriters to get preliminary bond pricing models and cash flow projections for the publicly owned/tax exempt financed option. 5) Calculate overall capitalization options, including amount of public participation required. 6) Review possibilities for funding the public sector participation and discuss with City. 7) Review preliminary findings with City. 8) Final presentation to City. 33 Summary At completion of the pre -development feasibility period, the City will have a valuable tool for assessing the viability of the project, including a good understanding of the costs and benefits. y The City will have a far greater understanding and working knowledge of their financing and ownership options after the feasibility period. This information can be very useful in educating the public on the need for public participation and public benefit resulting from the project. v This feasibility period can be useful in eliminating the need for a traditional RFP process which can delay the start by years. Contact Information Garfield Traub Development LLC Two Galleria Tower 13455 Noel Road, Suite 2150 Dallas, TX 75240 972-991-5200 972-991-5150 Fax Garfield Traub Development LLC 2821 W. Horizon Ridge Parkway Suite 221 Henderson, NV 89052 702-227-7111 702-227-7191 Fax www.garfieldtraub.com 34 Direct Lines Ray Garfield Greg Garfield Stephen Moffett Dan Hennessy Tony Traub 972-716-3838 972-716-3839 972-716-3843 972-716-3848 702-227-7111 Ext 1