Frederick Hotel and Conference Center will Unlock Downtown’s Potential
Taking Frederick to the Next Level
- Expanding Frederick’s Marketplace and Supporting Existing Small Businesses
In many Maryland communities, there is an identifiable investment that can position the community to dramatically increase the realization of economic development potential. The unleashing of this potential translates into augmented commerce, job creation, income formation, tax base growth, and more broadly shared prosperity.
For instance, in Maryland’s maritime community, double-stacking rail capacity has the potential to more fully unlock the potential of the Port of Baltimore. In Cumberland, the redevelopment of areas adjacent to Baltimore Street would help the city become a magnet for visitors, shoppers, and residents. Downtown Columbia is being significantly expanded to make room for the next generation of knowledge workers, the companies to which they supply effort, and key quality of life amenities available to the public. Other communities encounter opportunity in the form of new arenas, technology incubators, waterfront redevelopment, and/or neighborhood revitalization.
In the City of Frederick, the transformative investment of today is embodied in a proposed hotel and conference center that would be designed in accordance with the City’s request for proposals. In 2014, the City issued a competitive RFP 14-J for the development of a roughly 200-room full-service hotel and more than 20,000 square foot conference center. The process has yielded a memorandum of understanding by and between the City of Frederick and Plamondon Hospitality Partners.
The current preliminary project facilities program embedded within the MOU indicates that the hotel facility will supply 207 guestrooms and offer 2 lounges, 2 restaurants, an indoor pool and fitness center. The conference center will provide approximately 14,000 square feet of rentable meeting space (as recommended by industry consultants), registration and public reception areas, and 100 on-site public parking spaces. The developer will also restore the historic trolley building and the entire project will meet LEED Certified Design Standards. This will be a full-service Marriott hotel developed through a public-private partnership that will ultimately translate into approximately $64 million in investment in downtown Frederick. Construction of a 650-space parking garage to support development on the east side of downtown is also planned.
The City and the County will support public infrastructure related to the project through the use of tax increment financing. Unlike many public-private partnerships, there will be no ongoing subsidies to the project and no additional financial responsibilities for the City, County, or State, such as operating, maintenance or future capital needs, once the hotel/conference center becomes operational. The City will own all public parking facilities. Those facilities will represent another source of support for existing businesses, including restaurants, service providers, and specialty retailers.
My Perspective
- This is a Market with which We are Familiar
My company, Sage Policy Group, Inc. (Sage), has studied the City of Frederick’s economy for many years. Among other things, we have studied the likely economic impacts of various annexation applications as well as the performance of Frederick’s economy over time. Most recently, Sage completed an exhaustive review of real estate performance in and adjacent to the city in a report entitled “Economic, Demographic, and Real Estate Dynamics in Frederick, MD”. Sage delivered this 131-page report to the City in October 2014. The report includes in-depth discussion of economic, demographic and real estate trends along the Golden Mile, in East Frederick Rising, and downtown.
During the study’s research and analysis phase, I and other members of the study team had the opportunity to tour downtown Frederick. While downtown Frederick is viewed by many as a Maryland economic development success story, there remain large segments of downtown that are vastly under-utilized. As we strove to finalize the study, I intimated to Frederick City staff the notion that a hotel and conference center represented precisely what the community needed to jumpstart development of underperforming areas of downtown. My views have not changed.
If anything, there have been developments that have reinforced my view that the proposed hotel is precisely what downtown Frederick requires. The Maryland Stadium Authority (MSA) updated a market and economic study of the proposed hotel and conference center authored by Pinnacle Advisory Group and OPX in 2010. The MSA-sponsored study determined that the hotel’s operations would yield $1.5 million annually in State tax revenues. Based on this, the MSA has determined that the project can support up to a $17.8 million investment by the State.1,2,3
1 Assuming a true interest cost of 3.88%, a 20-year term, and that all of the estimated marginal tax revenue is used for debt service.
2 July 28, 2015 Letter from Michael J. Frenz, Executive Director of the Maryland Stadium Authority to Richard Griffin: “RE: Estimated Bond Leverage Downtown Frederick Hotel and Conference Center”.
3 Downtown Hotel & Conference Center Project Overview One-Pager. Revised 11/2015. http://www.cityoffrederick.com/DocumentCenter/View/5346.
- Economic Implications of the Proposed Hotel and Conference Center
Supporting more broadly shared prosperity represents another reason to support this project. For roughly a year, I have chaired the Maryland Economic Development Commission, which effectively serves as the newly-constituted Department of Commerce’s board. As a member of that commission, I have the opportunity to visit many Maryland communities and consider ongoing economic development initiatives. In my judgment, there are very few projects being considered in Maryland presently that would be as beneficially impactful as the proposed downtown Marriott.
The MSA study estimates that the project will deliver 280 total jobs, more than $9 million in annual payroll, trigger $26 million in annual spending, and about three quarters of a million dollars each year in City/County property taxes4. If, as I suspect, the project fuels the redevelopment of adjacent under-utilized areas of downtown Frederick, the impacts will be considerably larger.
4 Portion pledged as TIF.
- The Hotel Tax
A portion of the hotel tax will be used to support the conference center. I view that as good policy. The conference center will bring new visitors to Frederick, translate into new deal-making opportunities for local businesses, bolster restaurant and retail sales, and help support activities at existing hotels and meeting facilities.
On a daily basis, many Frederick County businesspeople are required to travel to Montgomery County or other places in which to engage peers and prospects. I myself frequently visit Frederick to deliver speeches, and am often required to speak at large restaurants due to a dearth of facilities actually designed to host significant events. This new facility will encourage meeting planners to locate more meetings in Frederick, and because of its unique ambiance, will also generate social and catering-oriented events, all of which will help expand the marketplace.
- Market Differentiation
Major hotel corporations have identified that many event planners are seeking urban vs. suburban locations. Proximity and walkability to amenities drives this segment. This project directly caters to what today’s millennial travelers highly value - an up-tempo, integrated, destination-driven travel “experience”. This will be a new, modern and fashionable facility with a high level of service/amenities not currently found in Frederick, therefore the meeting space will not be available at steep discount relative to market prices. This meeting space will largely target those who would otherwise utilize upscale space in other portions of the Washington/Baltimore metropolitan area. There are existing and proposed local facilities, including in the suburbs, that will be continue to be able to offer lower price points for meeting planners and limited services and amenities for transient and leisure travelers, thereby allowing for considerable market differentiation.
Some might argue that the proposed new facility will compete with existing ones. Even if one were to accept that as true, such logic would dictate that developers generally should not be allowed to offer new housing opportunities, modern office space, better shopping venues, or entertainment destinations for fear of expanding competitive effects. Furthermore, downtown projects of this nature have a quantifiable impact in growing market-wide lodging demand – in other words, a rising tide lifts all the lodging boats.
Rather than focus on competitive impacts, it may be more advantageous to focus on synergistic ones. One could argue that the new hotel and conference center will serve as a reward to those entrepreneurs who have brought Frederick to its current level of development. Of critical importance is the fact that the new hotel will be situated adjacent to an area that is rich in restaurants, taverns and retail. These downtown businesses stand to benefit tremendously from the hotel’s success, and to deny support for the hotel is to deny these entrepreneurs with important opportunities for business growth and sustainability.
Conclusion
Based on these considerations, I wholeheartedly support this public-private partnership. Note that the partnership includes private enterprise, the State and the City. There is broad consensus that this will help create a better Frederick, and position the city to be even more of a model for city redevelopment than it already is.
Anirban Basu, Economist
CEO, Sage Policy Group, Inc.
Chairman, Maryland Economic Development Commission (since 2015)
Lead Author, “Economic, Demographic, and Real Estate Dynamics in Frederick, MD” (2014)