A new hotel in downtown Frederick should support itself, but if city officials also want a conference center and parking, a consultant says the city will need to float some of the cost.
Developers say that when the proposed hotel comes to fruition, room rates will not be high enough to support the added features, said John Gibb, managing director of Jones Lang LaSalle, a real estate consultant firm.
Gibb presented an update Wednesday to Mayor Randy McClement and the city's Board of Aldermen on the downtown hotel and conference center project.
The city hired Jones Lang LaSalle to study the best place and funding model for the hotel.
Gibb's report affirmed what the city already estimated — there will be a funding gap of about $10 million to $12 million with the conference center and parking lot, said Richard Griffin, the city's economic development director.
As the hotel generates tax revenue, the taxes could be used to help make debt payments on the parking lot and conference center, Griffin said.
Given past concern that the city would be funding the private hotel, aldermen tried to make one thing clear — this won't be like Baltimore.
The Baltimore city-owned Hilton Hotel has had to reach into reserve funds to make debt payments and might need to reach into the pockets of taxpayers — out of the city's general fund — to make the payments in the future, according to numerous reports.
Frederick will not own or pay for any part of the downtown hotel, or its debt payments, Griffin said.
“We don't want to get in a situation like Baltimore,” Alderwoman Carol Krimm said.
Krimm asked Gibb to explain why a downtown Frederick hotel would not be able to charge high enough room rates to support a conference center.
“These are not Washington, D.C., hotel rates,” Gibb said. “It is not as robust as the (D.C.) market.”
Alderwoman Karen Young asked if the city could request a more competitive per diem rate, the top rate set by the government that a work traveler can be reimbursed for his hotel stay, depending on location.
Frederick's per diem rate is $95, while Washington and its surrounding cities and counties have a per diem rate between $169 and $226, depending on the month.
Gibb assured Young that the committee is looking at all financing options.
“We will leave no stone unturned,” he said.
The city is investing some public funds into the project, to cover costs for the land and initial planning. With $500,000 already in hand, the aldermen voted last week to request a $250,000 grant from the state. Of the $500,000, $157,140 will go to Jones Lang LaSalle, Griffin said.
The city's hotel committee plans to present to elected officials in a few week preferred sites for the hotel, although the public may not be included in that discussion.
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