County commissioners on Tuesday, Sept. 29 approved an agreement with Related Ross to develop an 18-story, 400-room hotel next to the Palm Beach County Convention Center in West Palm Beach. The vote was 6-1, with Commissioner Gregg Weiss casting the one negative vote.
Convention Center General Manager Dave Anderson told commissioners that the second-hotel project will immediately result in more conventions that can accommodate up 2,500 attendees, about double what it can currently serve.
And Commissioner Maria Marino said the second hotel is needed to justify expansion of the existing convention center. "This is good for the county but it is also good for Related Ross or else they would not be doing this," she added.
The convention center, built
in 2004, was expanded in 2012, and was desinged to again be expanded from its current size, 350,000 square feet to 750,000 square feet. County Administrator Joe Abruzzo said that renderings of a convention center expansion will be presented to the commission by next summer.
Under the agreement approved Tuesday, the Ross group will construct the hotel, while the county will own the land and, ultimately, the completed hotel. After acquiring the hotel, the county will lease it back to the developer under a long-term agreement that will span 97 years.
Ross will pay the county an initial annual base rent of $1.1 million that will increase 3% each year, providing the county with more than $600 million in rent payments over the 97-year term. If hotel revenues exceed certain thresholds, the figure will be even higher.
Ross executives insisted the hotel be exempt from property taxes, a provision expected to save the developer hundreds of millions of dollars over the life of the lease as annual property tax payments would far exceed the lease payments to the county.
The Ben, a 208-room boutique hotel affiliated with Marriott, sits on the West Palm Beach waterfront. It is among the city's highest-assessed hotels, and Ross executives have acknowledged that its second convention center hotel would be assessed similarly. The Ben is assessed at $82.3 million, and its 2026 property tax bill will be $2.1 million.
A consultant hired by the county reported that the Ross property tax bill, if it were not tax exempt, would initially be $2.5 million, more than double the $1.1 million Ross will pay in lease payments.
Officials say second convention hotel will boost tourism and tax revenue
An independent appraisal obtained by the county estimates the hotel's value at around $350 million. If assessed at that level, the initial yearly property tax bill would be nearly $8 million, about eight times its initial lease payment to the county.
Nonetheless, Ross executives and Abruzzo argue that the deal makes sense for taxpayers, noting that other convention center hotels that have been built in recent years do not pay property taxes.
County staff argues the project serves the public purpose outlined in Florida's economic development statute by supporting tourism, convention activity, and job creation. The second hotel is expected to generate additional tourist development taxes, commonly known as bed taxes, along with sales tax revenue tied to visitor spending that will benefit local restaurants, retailers, and entertainment venues.
The Grandview Heights Historic District said the ongoing project will impact the quality of life of its community. It objected to having the deal considered as an add on to the agenda, arguing that there was not enough time for the district to offer input.
The county will spend $26 million to acquire approximately 1.8 acres at 940 S. Rosemary Ave., where Related Ross plans to develop the new hotel. The purchase will be funded from county reserves, with an initial $5 million deposit from Ross, leaving the county's initial net payment at $21 million.
In exchange for purchasing the land from Ross, the county has been made a partner. Should revenue exceed $77 million, the county will realize additional revenue. But that $77 million threshold will increase each year by 3%.
In addition, Related Ross will lease 335 parking spaces in the county's convention center garage for $402,000 annually, while operators of the existing Hilton West Palm Beach, the first convention center hotel built by Ross, will lease 255 spaces for $306,000 annually. Both parking leases include an annual 3% escalator.
Between the lease payments for the hotel and parking garage, Abruzzo has said the county should realize more than $1 billion dollars.
Two independent appraisals estimated the property's current value at roughly $43 million. The county property appraiser, though, puts the market value at $8.8 million.
Commissioner Maria Marino said the worst case scenario for the county would be that it obtains a parcel of land in West Palm Beach worth $43 million that county obtained for about half that amount.
County staff recommended approval, saying the project will strengthen the convention center's competitiveness.
BAE Urban Economics, a real estate advisory consulting firm, evaluated the arrangement for the county. It confirmed the additional lodging capacity will generate more business and dollars.
And BAE's report noted that up-front subsidies for convention center hotels in Fort Worth, $54 million; Raleigh, $75 million; Miami Beach, $93 million, and New Orleans; $104 million far exceeded the county’s $26 million purchase price of the Ross property.
Should hotel revenues increase at a rate of 5% or more, the county’s return could exceed $7 billion, according to BAE.
Commissioner Gregg Weiss questioned whether the 5% figure was too optimistic, noting that there is not a hotel in the country that has increased revenues by that amount for 97 years. The consultant, BAE, also questioned whether it was realistic to expect that 5% return over the lenghty lease term.
Commissioner Joel Flores Flores said there is no question that the county will receive funds from Related Ross based on the way the deal is structured. It may be unclear exactly how much but the county is a partner with Ross, he noted.
Just as importnat, Flores said, is how the second hotel will create jobs and help area businesses to thrive.
Mike Diamond is a journalist atThe Palm Beach Post, part of the USA TODAY Florida Network. He covers Palm Beach County government. You can reach him at mdiamond@pbpost.com. Help support local journalism. Subscribe today.
This article originally appeared on Palm Beach Post: Related Ross wins approval for 400-room convention center hotel
