Convention Center Project FAQs
Frequently Asked Questions
- Why is the City building the convention center?
- Why does Denton need a convention center?
- Can you describe the proposed project?
- Has the City conducted a market study to determine whether a convention center will be successful in Denton?
- Who is HVS Consulting and Valuation Services?
- What were the conclusions from the HVS market study?
- How can I read the HVS Market Study?
- What are the economic benefits of a convention center in Denton?
- What is the expected impact of the project on existing hotels?
- I hear that the City has too many hotels already. Why do we need another one?
- I’ve heard that the City is building a convention center and hotel. Is that true?
- How large is the convention Center and what is its capacity?
- Who will operate the convention center?
- Where will the convention center be built?
- How was the UNT site selected for the construction of the hotel and convention center?
- What opportunities exist for new development to occur at the location of the convention center?
- How did the City develop this proposal?
- Why is this proposal believed to be the best for Denton?
- Are there risks for the City associated with this project?
- Didn’t the City have a different proposal from John Q. Hammons Hotels & Resorts (JQH) for a similar project?
- Who is O’Reilly Hospitality Management (OHM) vs. O’Reilly Hotel Partners Denton (OHPD)?
- I’ve heard that the City Council has only met in closed meetings to discuss the convention center. Is this true?
- Has the City already approved this project?
- How can I read the Master Development Agreement and other related development documents?
- What are the financial goals of the convention center?
- How much will the convention center cost?
- How is the City funding the construction of the convention center?
- How will the City pay for the debt service to construct the convention center?
- What happens if OHPD stops paying rent to the City?
- Since the hotel and convention center will be connected but owned by two different entities, what happens if the hotel owner changes?
- Why are Certificate of Obligation bonds being issued rather than holding a specific bond election?
- What is a Tax Increment Reinvestment Zone (TIRZ) or Tax Increment Financing (TIF)?
- Why is the City Creating a Tax Increment Reinvestment Zone (TIRZ)?
- I have heard that a portion of the Hotel will be tax exempt. Is that true?
- How will this project affect my taxes?
- What role will the Convention and Visitors Bureau (CVB) have as it relates to marketing conventions and book events?
- What are Hotel Occupancy Taxes (HOT)?
- How are Hotel Occupancy Texas (HOT) used?
- How will the use of HOT funds for the Convention Center affect the current allocation of HOT funds to existing recipients?
- How will spending HOT funds on the convention center help promote other Denton hotels?
- If the project is being built on UNT property, will UNT get free use of the facility?
- How much rent will UNT receive from the project?
- What impact will the I-35 widening project have on the planned facility?
- I have heard that the developer is projecting hotel occupancy rates of 78% once the hotel business stabilizes. How does that compare to hotel occupancy rates from existing Denton hotels?
- What happens if the hotel occupancy rates vary or fall below the 78% projection?
- Does the City have a reasonable benchmark for the number of convention center bookings on an annual basis?
- I understand that UNT is expanding the size of their student union. Will UNT have meeting space in the new facility that will compete for business at the convention center?
- As the landlord, will UNT promote the use of the convention center hotel over other Denton properties?
- Who is responsible for maintaining the convention center?
- What are the City’s responsibilities for capital repairs of the convention center?
- Why is the City building the convention center?
A long-standing objective of the City and the Denton Chamber of Commerce has been to provide adequate convention center facilities to meet community needs and to encourage and promote economic development through convention and tourism related activity. In 1994-95, the Vision for Denton 2001 initiative identified the need for a convention center as fundamental in the community vision for Denton’s future. Since that time, recommendations regarding the construction of a convention center have appeared in several master plans and commissioned reports.
Current and past Strategic Plans have established the goal of encouraging economic development and increasing the growth of the visitor industry in Denton, and objective 3.2.3 of the City’s Strategic Plan for FY 2014-15 specifically calls for the use of a convention center to market Denton as a destination city.
- Why does Denton need a convention center?
Many groups, conventions and conferences that specifically want to host their events in Denton must take their business to surrounding cities since Denton does not have a facility large enough to accommodate them. Even Denton’s local organizations must plan and host their own events elsewhere where large space available. Denton’s largest meeting facility can only accommodate 350 guests seated for dinner and conferences of only 150-250 people.
According to convention and visitors bureau metric reports, more than $11 million of lost opportunity has been directed to other cities since January 2008, specifically because of Denton’s lack of adequately-sized meeting space. This is reportedly a conservative estimate because it is based solely only groups who initiated contact, were not solicited, and had to be referred to adequate facilities in neighboring cities.
- Can you describe the proposed project?
The convention center is currently estimated to be 69,570 sq/ft and includes a ballroom of approximately 26,400 sq/ft. A facility of this size will accommodate conventions of up to 650 delegates, and can accommodate banquets and other one-day seminars and events for 1,800 attendees. The City would fund and own the convention center which is estimated to cost $28 million to build. The ultimate size of the convention center will be determined once final construction pricing is obtained, and it is important to note that the City would be funding the convention center only and not the hotel.
The hotel is planned to be an Embassy Suites of approximately 318 rooms (twelve stories tall), but at a minimum will have 275 rooms (nine stories tall) and includes a Houlihan’s restaurant. Both would be funded by O’Reilly Hotel Partners Denton (OHPD) and represent an approximate $60 million investment.
Both the hotel and convention center will be located on property owned by UNT near Apogee Stadium and leased to the City and OHPD. The proposal includes plans for the City to sub-lease the convention center to OHPD which would be operated and managed by O’Reilly Hospitality Management (OHM) (same operator as the hotel).
- Has the City conducted a market study to determine whether a convention center will be successful in Denton?
Yes. In 2008, the City hired HVS Consulting and Valuation Services to conduct an independent market study to evaluate the market demand, projected occupancy levels and average room rates, as well as providing income and expense projections for a 300 room Embassy Suites hotel and 80,000 square foot convention center. Due to the economic conditions at the time, the City rehired HVS in 2009 to create a full update of the original market study.
Back to top - Who is HVS Consulting and Valuation Services?
HVS specializes exclusively in hospitality-related consulting. Since 1980, HVS has satisfied the growing demand for reliable and well documented hotel and motel valuations, market studies and feasibility reports. HVS has consulted for more than 20,000 hotels and resorts in all 50 states and more than 55 countries worldwide. The company routinely evaluates more than 2,000 hotels each year. Their staff continuously monitors every major hotel market and is up-to-date with the latest economic trends. Their experience and database of information enable them to provide highly documented studies containing well-supported conclusions and detailed recommendations.
- What were the conclusions from the HVS market study?
The 2009 HVS Market Study Executive Summary concludes that there is a demand for a hotel and convention center project as currently proposed. The following are excerpts from the study:
“The recent and ongoing expansion efforts of the medical and manufacturing industries, as well as the continued strength of UNT and TWU as economic anchors, are factors that should positively impact demand levels in Denton over the long term…this Denton market is well positioned to persevere through the troubling macroeconomic situation over the long term due to the city’s diverse commercial industries, redevelopment efforts, and world class institutions.
“the hotel would bring a new element of business to the city, a majority of which is now unable to be captured by the existing base of hotels in Denton…the facility presented in this study would best complement the existing lodging stock and, due to the difference in facility, brand and price point, would minimize the impact on privately-owned hotels.”
- How can I read the HVS Market Study?
A copy of the 2009 HVS Market Study on a Proposed Embassy Suites & Convention Center can be found under Convention Center Development Documents.
- What are the economic benefits of a convention center in Denton?
The purpose of a convention center is to attract out-of-town business and generate economic activity throughout a city. The economic benefit is received from money spent by convention delegates before, after, and in between meetings. Convention centers can generate tourist dollars in a way that other projects cannot. The average convention delegate spends 2 to 2.5 times the amount spent by the ‘recreational tourist’ on a daily basis. There is an industry standard (Texas Association of Convention & Visitors Bureaus) for the average daily expenditure based on city population and location relative to a major metropolitan area. For Denton, that expenditure for a convention delegate is a conservative $140 per day per delegate, including hotel.
O’Reilly Hospitality Management has created a forecast for occupancy rates of the hotel and utilization of the Convention Center, based on comparable properties in the metroplex and comparable community characteristics (such as our Universities and proximity to DFW International Airport). The forecast builds in a five-year “ramp up” time period for the facility to become fully marketed and utilized. Once the “ramp up” period is complete, O’Reilly estimates at least 40% occupancy of the hotel due to convention related travelers. This represents approximately 46,500 annual room nights booked. If each of these delegates spends the conservative $140 per day, the annual estimated spending of overnight delegates equals $6.5 million.
However, each dollar of convention-related spending initiates a broad set of economic interactions that produces additional spending in other sectors of a local economy. Local businesses re-spend the money received from event attendees through payroll, supplies, and services. The impact tourist expenditures have as they ripple through the local economy is measured by “multipliers.” A multiplier accounts for how many times a dollar spent by a convention attendee is re-spent in the local economy. A multiplier is a ratio of the direct, indirect, and induced spending that measures the total economic impact of each dollar spent. Research has shown that the average multiplier across the nation is two. In other words, for every dollar spent by a convention delegate in Denton, two dollars are generated for the local economy. In that case, we can measure the economic impact of overnight delegates to $13 million annually.
Additionally, O’Reilly forecasts another 10,000 to 15,000 visitors that attend for regional conventions that do not require overnight stays, and a total of 100,000 to 125,000 banquet attendees annually. Assuming that these visitors will also spend money locally, the financial impact is even greater. A typical per diem expenditure for daily visitors is $45 per day, and the average banquet meals cost an average of $35 per attendee.
- What is the expected impact of the project on existing hotels?
HVS reports that the existing Denton hotels will see an increase in business due to the large meetings and events as well as smaller, simultaneous events being held at the convention center.
The purpose of the convention center is to attract visitors to Denton. While the convention center hotel will be an option for many, it is likely that some visitors will stay in non-convention center hotels for a variety of reasons. For one, the convention center hotel has a finite number of rooms. The large number of participants from some conventions will make it necessary for visitors to seek accommodations at other hotels. The same situation occurs when smaller groups use the facility simultaneously. Secondly, some meeting delegates will opt for different rate options at nearby lodging properties.
- I hear that the City has too many hotels already. Why do we need another one?
We do have an abundant number of limited service hotels in Denton. However, our research indicates that in order to be successful, a convention center must have a full-service hotel attached to or immediately adjacent to it. A full-service hotel is often described as an upscale or luxury hotel with a restaurant, lounge facilities, and meeting space that also provides bell service and room service. Organizers of conferences and conventions have certain facility standards for their events. In order to attract large events, a full-service hotel is a must. Smaller meeting rooms adjacent to the ballroom are also required to attract multi-day events.
- I’ve heard that the City is building a convention center and hotel. Is that true?
The City is not building nor investing in a hotel. The City is building a convention center working with O’Reilly Hotel Partners Denton (OHPD) who will build a privately funded hotel that is connected to the convention center.
- How large is the convention Center and what is its capacity?
The size of the convention center is an approximate 69,570 sq/ft and includes an approximate 26,400 sq/ft ballroom. The convention center will accommodate conventions of up to 650 delegates, and can accommodate banquets and other one-day seminars and events for 1,800 attendees. The ultimate size of the convention center will be determined once final construction pricing is obtained.
- Who will operate the convention center?
The City will sublease the convention center to O’Reilly Hotel Partners Denton (OHPD) to operate, and OHPD has selected O’Reilly Hospitality Management (OHM) to manage both the hotel and convention center.
- Where will the convention center be built?
The convention center will be located on 13 acres adjacent to Apogee Stadium on the University of North Texas property where the former Radisson Hotel was located. The former Radisson had only 150 guest rooms with limited meeting space (8,500 sq/ft) and was not capable of handling conventions. The new hotel and convention center will replace the demolished facility with a larger, modern hotel and convention center that will have meeting space capable of handling a large number of out-of-town visitors.
- How was the UNT site selected for the construction of the hotel and convention center?
The site was selected by the developer due to its high visibility and location at the convergence of I-35E and I-35 W.
- What opportunities exist for new development to occur at the location of the convention center?
The convention center, hotel, and related amenities will fully occupy the 13 acre site being leased by UNT. As such the potential for additional development on the 13 acre site will not be possible. However, there is the potential for this project to serve as a catalyst for commercial redevelopment in immediate vicinity of the convention center. This project, along with the current widening of I-35, has the potential to spur continued economic development in the area.
- How did the City develop this proposal?
In 2011, the City and UNT received an unsolicited proposal from O’Reilly Hospitality Management (OHM) that we believe had all the necessary elements for a successful project. The major development concepts of the OHM proposal were originally identified in January 2012, in a non-binding Memorandum of Preliminary Agreement (MOPA) between the City, OHM and UNT. Since then, the parties have successfully negotiated a Master Development Agreement that was approved by each entity in December 2013.
- Why is this proposal believed to be the best for Denton?
The financial structure in the current Master Development Agreement for the convention center is designed to provide the City a high level of protection. The developer will pay an annual rent to the City in an amount equal to the net difference of all project related revenue and the City’s annual debt payment. It is important to note here that the City is contributing no money to construct the hotel nor will it have any ownership in the hotel.
It is common for cities to finance convention centers with a balance of support from hotel/convention center revenue and developer participation. Usually, the developer stands to gain the most benefit from this relationship. For example, research shows that business models between municipalities and developers often include no guarantee to ensure that the City will be able to make its annual bond payments. They also contemplated that the City would maintain ownership in the hotel itself, an idea that has never been considered desirable by the City Council. The Denton Master Development Agreement, however, is crafted to address the City’s debt obligation through the annual rent payment from the developer, as described above, resulting in a long-term safeguard for the City of Denton.
- Are there risks for the City associated with this project?
As with any significant economic development project there are inherent risks. However, the Master Development Agreement (MDA) includes protections for the City and identifies contingency plans and remedies for a number of unanticipated circumstances. The City believes that the MDA includes the highest level of protection to help keep the project successful if ever faced with unexpected situations. Unlike similar projects in other cities where a city must bear the full cost of the convention center resulting in a much higher level of risk, elements of the MDA for the Denton project provides much more balance between the City and developer.
- Didn’t the City have a different proposal from John Q. Hammons Hotels & Resorts (JQH) for a similar project?
Yes. In 2008, the City and UNT received a proposal from JQH to build a very similar project that included a 300 room Embassy Suites and 80,000 square foot convention center. Though similar in physical form to the current proposal, the financial structure of that deal was much different. Ultimately, the project did not advance as negotiations between the City, UNT, and JQH were suspended due to the deteriorating health of Mr. Hammons.
- Who is O’Reilly Hospitality Management (OHM) vs. O’Reilly Hotel Partners Denton (OHPD)?
OHM is a hospitality management company formed by CEO Tim O’Reilly in 2007, and created by an intense desire to provide a unique, enjoyable and consistent guest experience through competent, attentive, and team-oriented hospitality management. OHM currently manages 9 hotels and restaurants in multiple states.
The OHM team is comprised of a number of industry professionals that have been responsible for designing, constructing, and managing over 80 hotels, convention centers and restaurants, including 32 Embassy Suites. The team has been responsible for developing over $2.6 Billion in projects over the past 25 years, including 2.5 million square feet of convention center & exposition space. They have developed projects in 23 states and 28 public/private partnerships including Frisco Embassy Suites & Convention Center, Embassy Suites Outdoor World in Grapevine, Embassy Suites San Marcos Hotel, Spa & Conference Center, and Embassy Suites Norman Hotel & Conference Center.
OHPD is the O’Reilly family consisting of 18 family members working together to invest in the hotel and sublease the convention center from the City.
- I’ve heard that the City Council has only met in closed meetings to discuss the convention center. Is this true?
No. Since the inception of the current proposal in January 2012, the City Council and staff have conducted at least 31 meetings where this project has been discussed and that have been open to the public including: City Council Work Sessions and Regular Meetings, Planning and Zoning Commission meetings, neighborhood meetings, stakeholder meetings, public meetings with other governmental agencies, and other public discussions of the project (through September 23, 2014). Of the 31 public meetings, there were 3 that also had a closed session posted for the purpose of receiving a legal briefing regarding contract terms as allowed per state law. In addition to the 31 meetings mentioned above, there has been 3 separate dates that a closed session legal briefing has been posted and conducted.
All of the development related documents have been available to the public since November, 2013. A copy of the Master Development Agreement and other related documents can be found on the Convention Center Development Documents page.
- Has the City already approved this project?
In December 2013, the City Council approved the Master Development Agreement. The development agreement includes several feasibility periods to guide the project to the point of funding and construction. The following is a summary of the project related decisions and steps that must occur during the feasibility periods prior to the completion of final design and initiation of construction.
- Approval of design development drawings
- Approval of guaranteed max price construction contract
- Finalize convention center development budget and determine overall project affordability
- OHPD to provide hotel funding commitment
- OHPD to provide hotel franchise commitment
- Initiate creation of TIRZ and determine possible participation by other governmental entities
- City evaluates favorability of market conditions
- City initiates the sale of bonds to fund construction of the convention center
- City issues debt
As part of the agreement and prior to the City’s issuing debt to construct the convention center, either the developer or the City may decide not to move forward with project pending the findings during the feasibility period.
- How can I read the Master Development Agreement and other related development documents?
A copy of the Master Development Agreement and other related development documents can be found on the Convention Center Development Documents webpage.
- What are the financial goals of the convention center?
From the onset of negotiations, the City Council has sought to negotiate a development agreement that makes the project self-supporting such that the revenue from the project fully supports the construction and that no other tax dollars are diverted for this purpose.
Convention Centers themselves are not significant sources of revenue for a City. The City of Denton will not benefit directly from the corporations or trade shows that spend money to rent Convention Center space. However, the purpose of a City investing in the construction of a Convention Center is to attract out–of-town business and generate economic activities throughout the community. The purpose is to boost economic growth by increasing tourism and creating jobs. The City fully expects to receive economic benefit from the money that convention delegates spend before, after, and in between meetings. Local businesses such as hotels, restaurants, retail, and entertainment benefit most from convention delegate spending.
- How much will the convention center cost?
Construction and equipping of the convention center is currently estimated to cost $28 million.
- How is the City funding the construction of the convention center?
Financing of the convention center is anticipated through the issuance of Certificates of Obligation Bonds that will be self-supporting from project related revenue, and backed by the full faith and credit of the City.
- How will the City pay for the debt service to construct the convention center?
It is anticipated that the Certificates of Obligation Bonds will be self-supporting from project related revenue. This includes the following:
- Hotel Occupancy Taxes (HOT) - this Includes HOT Revenue from the convention center hotel and up to $100K in Other HOT Revenue
- Property Taxes from the Hotel and Convention Center– this includes potential revenue from the increased ad valorem value in a tax increment reinvestment zone (TIRZ) created for the project
- City sales taxes derived from the project
- OHPD Lease Payments to City that are equal to the net balance of the total project revenue listed above and the amount needed to satisfy the City’s annual debt payment
- The City will not receive lease payments during the first two years of operations
- What happens if OHPD stops paying rent to the City?
The Master Development Agreement and Sublease with OHPD provides certain defined terms for default along with specific remedies. Failure by OHPD to pay rent to the City, whether through bankruptcy or by choice, would constitute a default of the agreement.
In order for the hotel to be successful, it is critical for OHPD to maintain their lease of the Convention Center. Loss of the ability to tie the operations of the convention center and hotel would have a dramatic affect on OHPDs ability to recover their investment. OHPD’s funding of the hotel (approximately $60 million) will include a significant amount of cash (approximately $20 million), with the remainder being privately financed. Early indications point to the fact that OPHD (which is comprised of approximately 18 members of the O’Reilly family) will be required to personally guarantee the amount of hotel financing provided by their lending institution. The requirement for the personal guarantee on their financing as well as the significant level of cash investment, make the likelihood very remote that OHPD would risk default of their lease and their ability to recover their significant cash investment and financial commitment.
However, in the unlikely event that OHPD stops paying their rent, the City has the right to terminate the sublease or terminate their right to possess the subleased premises. In such an event, the City would ensure the continued operations of the facility by working to find another lessor. In some circumstances, the hotel lender may step in, on behalf of OHPD, to cure the default and ensure that the sublease terms are met. Finally, the City has required OHPD to provide a $1 million security instrument for the City to draw upon, should base rent or any other funding owed to the City by OHPD go unpaid.
- Since the hotel and convention center will be connected but owned by two different entities, what happens if the hotel owner changes?
A transfer or assignment of OPHD’s obligation as owner of the hotel under the Master Development Agreement requires the consent of both UNT and the City. Any permitted assignment requires the assigning party to maintain and meet all the obligations of OHPD. Further, should any change occur that is not expected, the remedies as outlined in the question above would apply in relation to the convention center.
- Why are Certificate of Obligation bonds being issued rather than holding a specific bond election?
There are two principle reasons.
First, unlike voter approved, General Obligation bonds which are typically used for projects that don’t have a specific revenue stream to support the repayment, the hotel and convention center project is expected to be self-supporting from specific project related revenue. For self-supported capital projects, the City’s practice has been to issue Certificates of Obligation. Examples include utility related infrastructure that is funded from dedicated utility rate revenue as opposed to the general resources of the City.
Second, the City must issue debt to begin construction of the project which will initiate debt payment requirements. Since the project will not be operational during the two years of construction, revenue will not be generated during this period to support the debt service. To address this, the City plans to capitalize the debt payments during the construction period to align project revenues with the debt service. While this financing plan is common in many construction projects, the only mechanism by which the City can accomplish this is through the issuance of Certificate of Obligation bonds, which require a separate notice and approval process that does not include a bond election vote. - What is a Tax Increment Reinvestment Zone (TIRZ) or Tax Increment Financing (TIF)?
Tax Increment Financing is a tool that local governments can use to publicly finance needed structural improvements and enhance infrastructure within a defined area in order to stimulate private development and redevelopment. The statutes that regulate Tax Increment Financing are located in Chapter 311 of the Texas Tax Code, also known as the Tax Increment Financing Act. An ad valorem valuation base is established in the first year, and the revenue from the increased valuation from subsequent years is allocated to Tax Increment Reinvestment Zone (TIRZ) development.
- Why is the City Creating a Tax Increment Reinvestment Zone (TIRZ)?
The creation of a TIRZ is necessary to help ensure the project is developed. The project will be located on UNT Property that is currently tax exempt. However, the leasehold Interest of the hotel will be Taxable. The TIRZ provides an opportunity to capture the taxable value of the leasehold interest for the purpose of paying the debt service on the convention center. Creation of the TIRZ also allows for the participation in the project by the Denton Independent School District (DISD) and Denton County, though no commitments have been made by either DISD or Denton County. Without the implementation of the TIRZ the potential development may not occur and these governmental entities would receive no revenue from the tax exempt property.
- I have heard that a portion of the Hotel will be tax exempt. Is that true?
As part of the Master Development Agreement with OHPD, UNT’s College of Merchandising, Hospitality and Tourism has developed a Hotel Laboratory Curricula where students can be integrated into the operations of the hotel. This would be a required laboratory for all hospitality students and would provide “hands on” experience. The students would primarily operate on the first two levels of the hotel which consist of about 15-22% of the total hotel space. This space would be the basis for the eligibility of a tax exemption. The level of tax exemption has been estimated at 15% and OHPD has agreed not to seek from the Denton County Appraisal District an exemption on more than 15% of the square footage of the hotel.
- How will this project affect my taxes?
The project is not expected to generate the need for a tax increase, and will be supported by revenue generated by the project. This includes the following:
- Hotel Occupancy Taxes (HOT) - this Includes HOT Revenue from the convention center hotel and up to $100K in Other HOT Revenue
- Property Taxes from the Hotel and Convention Center– this includes potential revenue from the increased ad valorem value in a tax increment reinvestment zone (TIRZ) created for the project
- City sales taxes derived from the project
- OHPD Lease Payments to City that are equal to the net balance of total project revenue and the amount needed to satisfy the City’s annual debt payment
- The City will not receive lease payments during the first two years of operations
While the debt will be backed by the full faith and credit of the City, it is not expected that property tax revenues or any other resources from the City’s general fund will be used to support the debt for this project.
- What role will the Convention and Visitors Bureau (CVB) have as it relates to marketing conventions and book events?
The CVB will continue to represent the City and all Denton hotels, and will market all area hotels without showing a preference to one over another. The CVB will have offices in the convention center and will work closely with the convention center operator (OHM) to market the City and book convention center events. Often, associations seek convention center space located with a convention center hotel as a requirement to even consider a booking. In such cases, the CVB will respond with information necessary to meet the needs of the potential client.
- What are Hotel Occupancy Taxes (HOT)?
These are taxes levied upon the cost of occupancy of hotels rooms. The City of Denton levies a 7% tax on hotel rooms, which is paid by the occupant of the room.
- How are Hotel Occupancy Texas (HOT) used?
The uses of HOT funds are strictly defined by state law. The City of Denton’s Hotel Occupancy Tax (HOT) Program uses hotel receipts to actively promote Denton as a tourist destination. Annually, local organizations apply to the city for a portion of the hotel receipts to use in promoting their event or location to tourists outside the city of Denton. The use of HOT funds to support the convention center falls within this purpose.
- How will the use of HOT funds for the Convention Center affect the current allocation of HOT funds to existing recipients?
The long-range forecast for HOT funds does not contemplate any reduction of funding to current recipients. In fact, the FY 2014-15 Budget includes a 5% increase in funding to most of current recipients. The long-range forecast assumes further increases for recipients and includes future allocations for convention center related expenses, including marketing and capital replacement needs. Actual allocations for all recipients will be determined annually by the City Council.
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- How will spending HOT funds on the convention center help promote other Denton hotels?
Hotel Occupancy Tax (HOT) collections are allocated for the benefit of all local hoteliers. This project assumes HOT funds from the convention center hotel and up to $100K in HOT funds from other hotels related to convention center business will be dedicated to retiring the convention center debt. The convention center is a City facility that will be marketed to increase the occupancy of all hotels in the community. HOT funds are not being contributed to, or paying for any portion of, the proposed convention center hotel resulting in one hotel benefiting over another. The Convention and Visitors Bureau (CVB) will continue to provide support and marketing for the local hospitality industry and the existence of the convention center will only serve to improve the outcome of such efforts.
- If the project is being built on UNT property, will UNT get free use of the facility?
No. UNT will not be treated differently than any other user, and will pay for its use of the facility. Under the terms of the Master Development Agreement, UNT will be entitled to the lowest rates available to any class of group or governmental entity booking prices.
- How much rent will UNT receive from the project?
During the City’s debt repayment period (25 years), the City will pay annual rent to UNT for the land lease on the convention center at a rate of $1 per year. After the repayment period, the annual rent payment for the land lease increases to $175,000 per year. That rent amount will escalate to keep up with inflation every ten years thereafter.
For the land lease on the hotel, OHPD will pay an annual rent to UNT based on 1.5% of gross revenues.
- What impact will the I-35 widening project have on the planned facility?
The project is being designed to account for the ultimate widening of I-35. It is difficult to say if the construction of I-35 will conflict with the construction of hotel and convention center, but it is likely that the two projects will be under construction at the same time. Ideally, the I-35 project would be complete prior to the opening, but it is too early to predict that at this time.
- I have heard that the developer is projecting hotel occupancy rates of 78% once the hotel business stabilizes. How does that compare to hotel occupancy rates from existing Denton hotels?
Recently, the City analyzed average room rates and occupancy for a four fiscal year period from seven properties in Denton. The seven properties that were analyzed have been constructed since 2003 and data was available for the full four year period.
The following table displays the average room rates and average occupancy rates along with the highest room rate and occupancy rate for each fiscal year.Fiscal Year Avg. Room Rate Avg. Occupancy Highest Room Rate Highest Occupancy 2010-11 $80.39 59.1% $89.54 77.5% 2011-12 $80.74 65.1% $91.80 79.7% 2012-13 $86.00 69.2% $108.23 93.8% 2013-14* $90.99 73.5% $112.58 92.0% *Year-to-date through June 2014
The proposed Embassy Suite and convention center represents an upper scale class of hotels that does not currently exist in the Denton hotel market. Upper scale hotels with convention centers in the Dallas Fort Worth market received a combined occupancy rate of 73.5% and average daily room rate of $152.40 through May 2014**.**According to Smith Travel Reports
Back to top - What happens if the hotel occupancy rates vary or fall below the 78% projection?
The level of hotel occupancy taxes is directly attributed to occupancy rates and the price of rooms. An increase or decrease in either one of these variables will impact the City’s receipt of hotel occupancy taxes. As previously stated, all hotel occupancy taxes from this project will be dedicated to repay the City’s debt obligation on the convention center debt. The City’s agreement with OHPD requires them to make lease payments to the City that are equal to the net balance of total project revenue and the amount needed to satisfy the City’s annual debt payment. Therefore, if the City receives less hotel tax revenue, OHPD’s lease payment would increase. Inversely, if the City receives higher than anticipated hotel tax revenue, OHPD’s lease payment would decrease.
- Does the City have a reasonable benchmark for the number of convention center bookings on an annual basis?
As a benchmark for illustration, a convention center such as the Frisco Convention Center (100,000 sq/ft), experiences 600 to 700 convention center bookings per year, though not all of these bookings result in overnight stays in the hotel. OHM indicates that based on previous experience, which is also confirmed in the market study information mentioned below, they anticipate approximately 40% occupancy from Denton convention center business alone. This is roughly equal to 45,000 room nights booked in the hotel. If you assume an average 150 participants for each conference center event, the total number of bookings required to meet minimal expectations is 300 convention center and event bookings per year.
The City hired HVS Consulting and Evaluation Services to provide an independent analysis of the market conditions and demand regarding an upper scale, full service hotel and convention center in Denton. HVS conducted their first study in 2008 and following the downturn in the economy, the City requested a second study in 2009. The studies focused on competition from similar hotels and convention centers in the metroplex that would be seen as competitors to the Denton project and confirmed the need for such a hotel and convention center in Denton.
- I understand that UNT is expanding the size of their student union. Will UNT have meeting space in the new facility that will compete for business at the convention center?
The function of the student union is to serve student activities, and is not intended to compete with the convention center space. The 2005 UNT Campus Master Plan provided for an expanded student union located on Highland Street in the current location of Stovall Hall and Scoular Hall. Expansion of the existing facility will create additional space to meet the University’s needs now and in the future. The project is currently under construction, and includes a total renovation of the existing union building and provides a new addition for a total of 309,000 gross square feet of space. The facility will include an atrium, student centered lounges for study and socializing, retail space, new food service venues, a bookstore, an entertainment venue, meeting and conference rooms, a large multifunction space, an auditorium, and administrative offices. Also included is about 10,000 square feet of multifunction space that can be divided into three smaller spaces.
- As the landlord, will UNT promote the use of the convention center hotel over other Denton properties?
It is believed that the specific circumstances and needs of the organization planning an event will have more of a bearing on the choice of hotels. As the convention center will provide the capacity for large scale meetings that cannot be accommodated in other local facilities, it is plausible that universities, businesses, and other organizations, will seek the use of the convention center hotel when it will best meet the need for their events.
The convention center hotel can only accommodate so many room nights for any specific event. As such, many convention delegates will book rooms in other hotels. Anecdotally, it is common for individuals to book rooms in non-convention center hotels for conferences. Reasons include fully booked convention center hotels, or looking for less expensive alternatives.
The success of the hotel will coincide with the success of the convention center. Therefore it is hoped that not only UNT, but TWU and other local industries will promote the use of the convention center and convention center hotel. More convention bookings equates to more hotel occupancies, at all hotels in Denton, and opportunities for economic activity across the City.
- Who is responsible for maintaining the convention center?
Except for capital repairs, which are the City’s responsibility, OHPD is responsible to perform all necessary maintenance so that the facility is operated in a manner comparable to or better than other comparable properties. Maintenance includes all work (including labor, supplies, materials, and equipment) which is of a routine nature that is necessary for the upkeep of the property.
- What are the City’s responsibilities for capital repairs of the convention center?
The capital replacement needs of the convention center will vary with major expenditures occurring on approximate seven year cycles, with most of the more expensive replacements occurring around year 14. The Draft Master Development Agreement requires the City to maintain the convention center in an upscale condition. Examples of significant capital replacement items would be HVAC systems, roofs, parking lot, carpets, etc. The City will make an annual contribution to an Asset Repair and Replacement fund through the Hotel Occupancy Tax allocation process. The following describes the average annual estimated cost of the City’s capital replacement obligation for the first twenty-one years of operations.
- Years 1 – 7 Average Annual Cost = $66,500
- Years 8 – 14 Average Annual Cost = $284,000
- Years 15 - 21 Average Annual Cost = $370,000