City of Sacramento
City Council - 5PM Report
915 I Street Sacramento, CA 95814
www.cityofsacramento.org
File ID: 2024-01951 11/19/2024 Discussion Item 25.
Potential Financial Assistance for a Convention Center Hotel File ID: 2024-01951
Location: District 4, Represented by Councilmember Valenzuela Recommendation: Pass a Motion to support the use of future Transient Occupancy Tax generated by the Convention Center Hotel Project for the development of a 350-room full-service Convention Center Hotel, subject to financial review and design approval with a sunset period of three years.
Contact: Sabrina Tefft, Development Project Manager, (916) 808-3789, [email protected]; Leslie Fritzsche, Economic Investment Manager, (916) 808-5450, [email protected]; Office of Innovation and Economic Development
Presenter: Leslie Fritzsche, Economic Investment Manager, (916) 808-5450, [email protected], Office of Innovation and Economic Development
Attachments:
1-Description/Analysis
2-Convention Center Hotel Preliminary Design
Description/Analysis
Issue Detail: The SAFE Credit Union Convention Center ("Convention Center") recently underwent a $245 million renovation and expansion, increasing its programmable space and allowing it the capability of hosting larger conferences and conventions. This expansion has generated the need for additional hotel rooms to fully utilize the additional capacity of the center. Sacramento Convention Center Hotel, LLC is proposing the private development of a 350-room full-service hotel, situated adjacent to the Convention Center at 1418 K Street, which is at the southwest corner of 15th and K streets.
The development team is in the initial stages of the project and has requested an indication of support from the city for future financial support for the project so that they can proceed with predevelopment work and financial commitments necessary to further the project.
The proposed convention center hotel would replace a surface parking lot and offer over 18,000 square feet of meeting space. It is envisioned to include a 6,000 square foot ballroom and will feature a sky bridge that will provide guests direct access to the convention center. The hotel would include underground parking, as well as above ground parking, ground level retail, an event deck, fitness facility, a restaurant, and a rooftop bar. The hotel is currently anticipated to be a Hilton brand hotel.
The SAFE Credit Union Convention and Performing Arts District (District), which includes the Convention Center, the SAFE Credit Union Performing Arts Center and the Memorial Auditorium, completed all renovations in September 2021.
The Convention Center, increased its space to 508,000 total square feet, including the addition of a 40,000 square-foot ballroom. The District has hosted over 500 events, 300 performances and has served over two million attendees since opening, while the Convention Center has hosted over 160 conventions and conferences, which are categorized as "Group A," events and attract out-of-town attendees, requiring hotel rooms.
Prior to the renovation and expansion of the Convention Center, an analysis was prepared by Halo Hospitality with assistance from Visit Sacramento to look at the potential effect of the expansion project on additional event growth and
File ID: 2024-01951 11/19/2024 Discussion Item 25.
hotel room night demand. Based on that analysis, it was determined that within five years of the completion of the expansion, the Convention Center would have an estimated increase in occupancy from 48% to 62%, assuming an additional 350-room hotel was constructed in the downtown.
The report included projections on the number of Group A conventions, which were provided by Visit Sacramento. The actuals for Group A business between 2022-2024 are consistently higher than anticipated.
Year
Citywide Events Projected (2017)
Citywide Events
Actuals
Source: Visit Sacramento and SAFE Credit Union Convention Center Although the Convention Center has had success with booking Group A events, Visit Sacramento has indicated that challenges with hotel inventory is cited 34% of the time as the reason that Sacramento loses convention business.. That 34% (equaling 450,000 room nights) represents the largest percentage of why Sacramento loses convention business.
The addition of a new convention hotel in Sacramento will be vital to the city's tourism future. Currently, Sacramento does not have enough hotel inventory to successfully secure, or properly host, many major conventions, sports competitions and other attractive events. The addition of a hotel that is 350+ rooms will bolster Visit Sacramento's ability to target and secure valuable tourism business, thereby increasing critical visitor spending, economic impacts to local businesses, and TOT collections by the City of Sacramento.
The project is currently estimated to cost approximately $241 million of which $191 million is estimated for construction (estimate provided by Penta Construction). Hilton Worldwide Holdings Inc. has committed $4.5 million to the project. The ground lease for the site has been negotiated and includes the option to lease the site for 99 years.
Staff recommends Council approve a motion of intent to support the Sacramento Convention Center Hotel project with potential assistance of Transient Occupancy Tax ("TOT") from the project.
Policy Considerations: The addition of a 350-room full-service hotel will support the recently renovated and expanded Convention Center, allowing the Convention Center to increase its competitive position, while providing a nationally recognized convention venue for residents, visitors and convention attendees. The additional hotel rooms will increase the TOT revenues and increase the number of conventions the Convention Center will be able to support. The development of a hotel was contemplated in the Convention Center expansion discussions and was included in the Environmental Impact Report for the Convention Center.
File ID: 2024-01951 11/19/2024 Discussion Item 25.
Economic Impacts: The proposed Sacramento Convention Center Hotel Project is anticipated to create 200-225 construction-related Union jobs and once completed, will generate 200-210 jobs for the operation of the hotel. City staff analyzed the impact of the project using IMPLAN. The analysis estimates that the project would produce approximately 573 direct jobs and 420 through indirect and induced activities, while approximately $157 million would be spent through direct and indirect and induced activities.
The hotel will generate approximately $680,000 in sales tax through their projected $8 million in annual food and beverage sales and approximately $1.9 million in annual property tax revenue.
The indicated economic impacts are estimates calculated using a calculation tool developed by the Center for Strategic Economic Research (CSER). Actual impacts could differ significantly from the estimates and neither the City of Sacramento nor CSER shall be held responsible for consequences resulting from such differences.
Environmental Considerations: In accordance with the California Environmental Quality Act (CEQA), on June 19, 2018, the City Council certified the Environmental Impact Report (EIR) and adopted the Mitigation Monitoring Plan, Findings of Fact and a Statement of Overriding Considerations for the Sacramento Convention Center Renovation and Expansion project. This EIR included the construction of a 350-room hotel at the corner of 15th and K. The hotel which is described in this report comports with the description in the certified EIR.
Sustainability: Not applicable.
Commission/Committee Action: Not applicable.
Rationale for Recommendation: Support of the convention hotel project will enable the convention center to remain competitive with similar sized convention centers in California and in the nation. With the additional hotel rooms, Sacramento is expected to improve its position within the industry, increasing its ability to attract Group A conferences and conventions to the Sacramento region. Additionally, hotels are a critical part of the revitalization of many major city downtowns. Hotel guests contribute to the local economy by dining at local restaurants, visiting downtown retailers, attending cultural attractions and special events and visiting other nearby businesses and destinations.
The economic benefits of an additional hotel include the creation of an estimated 200 permanent jobs, the generation of approximately $2.6 million in property and sales tax as well as increased tourism and visitor spending.
Financial Considerations: The Sacramento Convention Center Hotel project will be financed privately and will have no impact on the General Fund. Subject to further underwriting financial commitments and review of project costs, the proposed city assistance would be in the form of a rebate of the TOT generated by the project. Any reimbursement of TOT paid by the hotel operator would occur after fulfillment of the City's obligation for debt service on any existing or future TOT bonds to ensure compliance with the bond covenants, as well as the City's obligation associated with the Powerhouse Science Center.
The commitment of future generated TOT revenues will require further City Council review and approval and occur after the financing structure is solidified and underwriting is complete.
Local Business Enterprise (LBE): Not applicable.
View at 15th and K Street Looking Southwest
Hornberger+ Worstell Sacramento Convention Center Hotel I Sacramento, California Updated Concept Design Drawings 05.22.23 15 Attachment 2