The city will propose a plan to help the convention centre repay its $33-million loan

So, why all the focus on the need for a four-star hotel downtown – and specifically a hotel on the property north of the convention centre at 220 Carlton St.?

In 2012, the convention centre and city officials were counting on a new, four-star hotel to open its doors in 2016 just as the ribbon was to be cut on the convention centre expansion.

To finance its expansion project, the convention centre had secured $148.5 million in grants from city hall and the province ($51 million each) and the federal government ($46.5 million) but it needed $33 million more.

City council agreed to “loan” the $33 million to the convention centre and the brain trust at city hall in 2012 thought it had come up with a no-lose arrangement to ensure that money would be repaid.

The convention centre’s business plan for the expansion project relies on the construction of a hotel. The hotel provides the additional rooms the convention centre needs to bring in the business it needs to justify the expansion.

City officials in 2012 saw that hotel as a way to “guarantee” the $33-million loan would be repaid.

Conditions of the 2012 deal require that some of that additional convention centre business revenue (generated by the new hotel) would be used to pay off a portion of the $33-million loan.

A four-star hotel would also generate more property and business tax revenue, which was also how the remainder of that loan would be paid off: $17 million is to be paid off over 30 years from additional convention centre business generated from the expansion; and, $16 million is to be generated over 25 years from new property and business taxes from the hotel.

But there was no provision in 2012 if a hotel was not built – which should have been a concern to both the convention centre and city hall then.

The actual wording of the 2012 deal didn’t specify a hotel but rather a “complementary adjacent development,” but really, only a hotel accomplishes the city’s and the convention centre’s objectives.

That 2012 deal also included a provision that if the property and business taxes from the “complementary adjacent development” weren’t enough, council could approve dipping into the destination marketing reserve fund to make up the difference each year.

The destination marketing reserve fund was created in 2008, financed by a five per cent tax on hotel rooms. That fund is expected to have $9.3 million in it by the end of 2015.

The provision to build the hotel was, oddly enough, part of the deal awarded to contractor Stuart Olson to construct the convention centre expansion – Stuart Olson got the construction contract on condition they also bring in another player to build a four-star hotel.

The city required the convention centre to word its contract with Stuart Olson so that Stuart Olson would make the equivalent property tax payments from the hotel until it opened; and city hall also required the convention centre to hold back $16 million from the final payment to Stuart Olson until the hotel was built.

Those two conditions imposed by city hall were probably the reason why the convention centre and Stuart Olson never had a written contract, even as the expansion was under construction.

Convention Centre Corp. board chairman Bob Silver (who is also co-owner of the Winnipeg Free Press) said the construction project is on schedule and on budget: most of the work will completed to coincide with the November Grey Cup festivities; and it will be completed in March of next year.

But the expansion will be unveiled without that four-star hotel.

For many reasons – depending on who is asked – Stuart Olson negotiated a deal with the convention centre to buy itself out of those two city-imposed hotel conditions for a payment of $3.75 million.

City council approved that settlement in January, and the convention centre flowed that $3.75 million back to city hall.

But that left a big hole in the convention centre’s business plan and left in doubt how it was to repay the $33 million to city hall.

Silver said earlier this week that without a hotel, the convention centre can’t start to pay back the $33-million loan to city hall.

While the negotiations with Stuart Olson were going on, True North Sports & Entertainment offered to buy 220 Carlton St. from the city’s downtown development agency, CentreVenture, which had bought the property in hopes of having a four-star hotel built on it.

True North has plans for a $400-million legacy project in the heart of downtown, True North Square, which includes three highrise towers for a hotel, an officer tower and residential, along with commercial space and an outdoor space adjacent to the MTS Centre, which it also owns.

True North agreed last week to buy 220 Carlton.

Right now, it’s not certain True North will proceed with its $400-million project and, if it does, it is under no obligation to build a hotel; but if it does, that could help the convention centre realize its business plan goals.

That 2012 agreement between city council and the convention centre laid out a repayment plan that’s to start in 2016: two annual payments, $1.235 million from convention centre operations; and another $1.256 million in additional property tax revenue from the hotel or another project.

Silver said the convention centre needs a four-star hotel, something similar to the downtown Delta Hotel.

The Delta is a four-star hotel, with 393 rooms, next door to the convention centre. It has an assessed value of $33 million and pays about $1.1 million in property and business taxes.

So, to put it in perspective, any hotel that will help the convention centre and city hall needs to be at least the same quality, size and value as the downtown Delta, if not something better.

If True North builds a hotel, it won’t be ready for 2016. Silver said he believes the earliest a hotel could be built is late 2018 or sometime in 2019 – that’s only if True North moved ahead on its legacy project.

A True North spokesman said it’s premature at this point to speculate on the size and value of the hotel it might build if the True North Plaza project goes ahead.

And what to do in the meantime when there is no hotel?

An administrative report to executive policy committee recommends the committee authorize a senior civic official to work with the convention centre and report back with options in 90 days.

Options talked about include: postponing some of the expansion work until the hotel is built (Silver said that’s not realistic); postpone other upgrades to the convention centre; renegotiate the terms of a bank loan to defer payments until after a hotel or another project is built at 220 Carlton (who knew banks could be so co-operative about their loans); target other downtown projects where property tax revenue can be diverted to pay back the loan.

Another option is one of the provisions of the original 2012 deal between council and the convention centre: dip into the destination marketing reserve fund.

City hall needs about $2.5 million annually beginning in 2016 to pay down the $33 million loan to the convention centre. With an estimated $9.3 million in that fund by the end of the year, it could cover the convention centre’s obligation on the loan for at least three years – maybe providing enough time for someone to build a four-star hotel downtown; or it provides city hall with enough time to come up with another plan.