A Hyatt hotel proposed to support the Oregon Convention Center would have to pull in $56,500 a night in its first year in room revenue to meet publicly-bonded debt obligations, a financial analysis showed.
That analysis projects the Hyatt to earn about $20.6 million in room revenue its first year, with the 11.5 percent room tax on that revenue paying back the $60 million bond issued by the region to help pay for construction.
According to the financial framework approved by the Metro Council earlier this month, the hotel's development team would front about $120 million of the $198 million hotel project. Another $14 million in grants from Oregon lottery bonds and Metro would subsidize development, with the rest coming in the form of the $60 million bond and a $4 million loan from the Portland Development Commission.
Financial analyst Ken Rust, a director at Public Financial Management Inc., ran the numbers as part of his look at whether the public finance plan was viable, even in a down economy. The analysis said that "All funding obligations are fully paid when due in each year of the forecast."
Rust said he based his projections off numbers provided by the Hyatt Hotels Corp. His numbers, in turn, were reviewed by consulting firm HVS. Both Public Financial Management's and HVS' reviews were paid for by Metro.
"They're based on Hyatt's projections of room rates and occupancy," Rust said. "We've taken those numbers and used them in my modeling of the VFTA (Visitors Facilities Trust Account)."
Representatives from Hyatt did not respond to inquiries about the analysis.
Rust said Hyatt's numbers project an occupancy rate in the mid-to-upper 70 percent range nightly. If that holds in the first year of operation, Hyatt would have to charge $125 a night to meet its debt obligations on the bond through the room tax.
By the fifth year, Hyatt would have to earn about $178 a night at 75 percent occupancy to meet those projections, by then forecast at $29.4 million.
Those numbers seem to be in line with what the Portland hotel market is supporting presently, according to one analyst working for the Smith Travel Research, an independent firm that tracks global hotel occupancy.
Jan Freitag, a senior vice president at STR, said downtown Portland hotels have been 78.3 percent occupied so far this year, with an average rate of $138.
"Your downtown summer months are rocking," Freitag said. Since April, downtown Portland hotels have had more than 80 percent occupancy. In July, he said, downtown occupancy was 90 percent.
"It looks like this is a very, very healthy and robust market," he said.
But Erick Lorenzana, a professor at Fairleigh Dickinson University's International School of Hospitality and Tourism Management, warned that hotel companies can over-estimate revenues when seeking to line up funding.
"When ownership's… doing a pro forma, they're going to be aggressive, they're going to want to see a return within a certain amount of time," Lorenzana said. "They want to recoup their money, and pay their lenders and whoever they owe."
The nature of the convention center hotel – different from the open market – could play a role in Hyatt's ability to meet its revenue projections. Travelers not linked to a group pay more than those in a group.
But at the end of the day, Hyatt's interest is to recoup the $120 million it's set to put down on the hotel project.
"They'll look at what the competition around them is offering, take that into consideration and be realistic and competitive," Lorenzana said.