Environment and Economic Development and Real Estate & Retail and Sports Business

Mega-hotel on city agenda: Pan Am Plaza possible site for 800-room development

March 20, 2006

The city is looking for developers interested in adding 800 hotel rooms downtown, a project that could be accomplished by building a massive, new hotel or augmenting several existing facilities.

Insiders say a new hotel is most likely. They picture it on Pan Am Plaza. If that happens, the hotel would become the city's largest-eclipsing the Indianapolis Marriott by almost 200 rooms.

Ideally, the rooms would be available by 2010, when the wraps come off the expanded Indiana Convention Center.

It's an aggressive schedule. That might be why the city put out a request for information two weeks ago through the Indianapolis Bond Bank asking developers to come forward by April 3 if they'd like to be involved.

"We're facilitating the process," said Barbara Lawrence, executive director of the Bond Bank. "We're in an information-gathering mode."

The city's involvement means the project-which has been rumored for years-is likely to pick up steam in a hurry.

"You're going to start seeing things happen fairly quickly," said Mark Eble, a hotel consultant with the local office of Philadelphia-based PKF Consulting who has been involved with the effort.

On thin ice

Pan Am Plaza, which sits across the street from the site of the Convention Center expansion, is considered the ideal location for a new hotel.

Interestingly, the timing of the city's request coincides with the timing of a letter sent to the Plaza's biggest tenant saying it needs to vacate the site by May 2007. The letter to the Indiana World Skating Academy has prompted insiders to say discussions might already be under way for a hotel on the site.

"It makes a lot of sense to have a hotel right there," said Rob Hunden, a hospitality consultant with Chicago-based Hunden Strategic Partners, who has helped develop several Indianapolis projects, including the downtown Marriott.

The skating academy's landlord-the Indiana Sports Corp.-said its letter to the skating academy and the city's request are not necessarily related. The organization's board made a decision to sell off its real estate in 2002 and it plans to sell the Plaza even if a hotel isn't the ultimate use for the land.

It has already sold the Pan Am Plaza office building, its other major real estate holding, to Roseville, Calif.-based Coastal Partners LLC.

"We're not just doing all of this in preparation for the hotel project," said Sports Corp. President Susan Williams. "It was a goal of the board to divest itself of its real estate."

Still, she agreed the site makes a lot of sense for a hotel.

"This has been suggested as an ideal location," she said. "It's definitely in the mix."

Although Williams said other developers have contacted her, Michael Browning, president of Indianapolis-based Browning Investments Inc., the eighthlargest commercial real estate developer in town, will get the first shot at the site. Browning also sits on the board of the Sports Corp.

He holds an option on the Plaza and its two ice rinks that he received as a condition of a loan he made to Sports Corp. after it lost $2.69 million on the World Basketball Championship in 2002.

In a phone conversation, he didn't deny he'd like to build a hotel on the Plaza, but he said a number of hurdles stand in the way of any development.

"We have looked at doing every kind of property that you can think of for the last, at least, three years," he said. "We looked at [building the new Simon headquarters] on the site ... we looked at a [Ritz-Carlton] on the site ... we looked at a Convention Center hotel."

What held up the plans? Browning doesn't own the three-level parking garage under the Plaza. It's impossible to put up a large structure without tearing into the garage to put in a new foundation.

"You have to take the garage down to build anything of any substance," he said.

And the garage's owner isn't ready to give up his 1,200 parking spaces.

"If a guy makes me an offer I can't refuse, I'd consider it," said Armand Lasky, president of Rockville Centre, N.Y.-based Northeastern Security Development Corp., which owns that garage and other parking facilities throughout the country.

Apparently, it'd have to be a pretty sweet offer. Browning said he tried more than a year ago to buy the property but was rebuked. Most recently, Browning said Lasky told him the property wasn't for sale individually and he wanted to sell it as a package with 20 other parking garages he owns.

Adding a further wrinkle, Nashville, Tenn.-based Central Parking holds a lease from Lasky on the garage that's good until 2010. That means Central also would have to be bought out in order to get bulldozers in motion. Central Parking did not return a call for comment.

But additional hotel rooms downtown won't be torpedoed if the Plaza doesn't become available. Convention officials prefer that the 800 rooms be added at a single site, but several existing properties could be expanded.

The Westin Indianapolis, the city's second-largest hotel, went public with plans to add 253 rooms before shelving them in 1998.

Similarly, the Courtyard by Marriott has shown interest in the past in adding as many as 535 rooms and upgrading its facilities, which don't currently include convention hotel amenities.

The Hyatt Regency also could move into space that will be made available in National City Center when Simon Property Group moves into its new home across Capitol Avenue this fall.

General managers at the Westin and the Courtyard did not return calls. Hyatt General Manager David Jacobs said the hotel has discussed expansion in the past, and could probably add 400 rooms when Simon moves out, but "there are no plans to add additional rooms in the vacated space" at this time.

Jacobs added that he'd rather see a competitor expand than see another hotel enter the market.

"We'd be oversupplied in meeting space" if we add a new convention hotel, he said.

Now's the time

Whatever happens, convention authorities say it has to happen fast.

A 2003 study by New York-based PricewaterhouseCoopers LLP showed the newly expanded convention center could bring in 28 more big events, 138,000 visitors, and $165 million in sales-but only if the city adds 800 to 1,000 hotel rooms.

That's why the Indianapolis Convention & Visitors Association would like to see the hotel open at the same time the Convention Center's expansion is completed in 2010.

"It is critical to the marketability of the expanded convention center that they open simultaneously," said Bob Schultz, an ICVA spokesman.

Schultz said ICVA regularly turns away conventions because it lacks a headquarters hotel. Since 2002, the organization has turned away more than 100 conventions, he said, because the city "didn't have the [hotel rooms] or dates available."

And there's already enough demand to justify a new hotel, he said.

"It's not a matter of, 'If you build it, will they come?'" Schultz said. "It's, 'If you build it, we're already standing in line.'"

Independent research performed for IBJ by Hendersonville, Tenn.-based Smith Travel Research supports Schultz's statement. Demand for rooms at the seven downtown convention hotels has increased from 600,000 room nights in 2000 to almost 800,000 in 2005.

Hotel space is so tight that prices at convention hotels are expected to rise about 10 percent this year. Last January, the average daily rate was $110. This January, it cost $118, according to Smith Travel Research.

That doesn't stop local hoteliers from worrying about whether demand will continue to go up.

"That's the $64 million question," said Chris Ratay, area director of sales and marketing at the Omni Severin Hotel.

He might not have much to worry about. When the downtown Marriott added 615 rooms in 2001, the supply of rooms at convention hotels jumped 28 percent. At the same time, demand jumped 23 percent as a result of added conventions and business.

"The whole notion of this new hotel has to do with making the pie bigger," said Eble, the hotel consultant. "Historically, it's been an excellent bet."

City officials say it's too early to say whether public funding would be used for a new hotel, but insiders say it'd be essential.

Eble couldn't recall a "single, large hotel built in an urban environment in the last five years that didn't have some public money."

"There hasn't been a major hotel in Indianapolis developed in the last 20 years that didn't have some public help," Browning concurred.

Most recently, the 243-room luxury Conrad Hotel, which will open this week, received $24 million in public funding before breaking ground in 2004. Before that, the city spent $23 million on property improvements for the downtown Marriott in preparation for the hotel's 2001 opening.

"Hotel projects are a challenge," said Thomas Froehle, a partner at the Indianapolis law firm Baker & Daniels who's worked on recent publicly funded projects including the new stadium and Convention Center expansion. "Typically ... public assistance is a part of those kinds of transactions."

Both the Bond Bank's Lawrence and Marya Jones Overby, special counsel for economic development for the city, said talk of public funding is premature.

The complexity of the development makes Browning think 2010 is an overly optimistic time line.

"A project of this magnitude and this size takes more time than everybody thinks," he said.
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