Original Published May 22, 2016
Anirban Basu, Baltimore
Chairman and CEO of Sage Policy Group Inc.
During ongoing discussions concerning the proposed downtown hotel and conference center in Frederick, a considerable volume of inaccurate information has been set forth. This information has been in existence for so long, it is now accepted by many stakeholders as sooth.
Falsehood No. 1 — Private investors aren’t investing enough in the project.
According to the Maryland Stadium Authority, the entity that successfully delivered Orioles Park, M&T Bank Stadium and the University of Maryland’s Comcast Center, the Frederick facility will cost $81 million to develop. Of that total, $50 million will be contributed by private investors that will be principally responsible for costs associated with constructing the approximately 200-room private hotel and retail space, including the historic renovation of the Frederick trolley building.
Public-sector project costs encompass $8.3 million for 24,000 square feet of public meeting space, $9.6 million for much-needed public parking, $1.7 million for design and inspections, $3.4 million for land, and other costs. Many of these expenditures largely benefit community stakeholders as opposed to the private developer, which both justifies public participation and renders it necessary for the entire project to move forward.
Some are opposed to the facility simply because the public sector is involved. But a meaningful fraction of Frederick’s resurgence can be attributed to successful public-private partnerships. One of the most visible examples of what public-private partnerships can achieve is the Carroll Creek Linear Park, with its landscaped fountains, promenades and pedestrian bridges.
Falsehood No. 2 — Frederick is doing well enough and doesn’t need the project.
Our firm, Sage Policy Group Inc., recently conducted an in-depth analysis of real estate dynamics in Frederick. In some areas of the city, significant commercial vacancy has become apparent and not enough private-sector jobs are being created. Though downtown Frederick is regarded as a runaway success story, a large piece of downtown remains underutilized and associated with sagging property values.
This is where the proposed hotel and conference comes becomes relevant. Any significant downtown business community requires a high-quality place for visitors to stay and for conferences to be held. This is particularly true in a community that is home to Fort Detrick, where security concerns may make holding on-base conferences challenging.
Other similar communities have multiple downtown hotels. A recent piece authored by a project skeptic indicates that Annapolis, about half Frederick’s size, is home to four downtown hotels. Lancaster and Gettysburg, Pennsylvania, have five, while Charlottesville, Virginia, has three.
Falsehood No. 3 — The region is littered with similar facilities that failed.
Some have used examples of other facilities to argue against the proposed Frederick hotel and conference center. For instance, some have pointed to Rocky Gap as an example of why the project should be opposed. That is not a comparable facility. Rocky Gap is many miles from downtown Cumberland and has never been positioned to generate the types of synergies that the proposed facility will for downtown Frederick. Others have pointed to the Hyatt in Cambridge as another example of what can go wrong, but that facility includes 400 rooms, a golf course, a spa, incorporates 37,000 square feet of function space and encompasses 400 acres. It is a much bigger facility and, like Rocky Gap, it is also located apart from the nearest downtown, which likely limits its local impact.
Falsehood No.4 — Frederick’s taxpayers are imperiled
Here’s the most important consideration of all. Some project critics have asserted that Frederick taxpayers will be jeopardized. The memorandum of understanding negotiated by the city recognizes the fact that even the best laid plans can produce disappointment. Accordingly, the city has worked diligently to protect local taxpayers by requiring the hotel owner/operator to be fully responsible for all operational costs including any shortfalls — the city, county and state have no ongoing operational responsibilities and will provide no subsidies. Additionally, the city has added the state of Maryland as a capital financing partner. An independent MSA market study projects $1.5 million in incremental state tax revenue annually. Based on this estimate, the state can safely recover an investment approaching $20 million in taxable debt financing.
The city and county will participate in the form of a tax increment financing arrangement, with developer property tax payments used to pay off bond proceeds helping to finance the project. There are no ongoing public subsidies for operations. The facility will be privately owned, operated and maintained. Land will continue to be owned by the city of Frederick, with the developer responsible for paying annual ground rent. A portion of the net cash flow from the conference center will flow to the city.
In the final analysis, the city of Frederick has positioned itself to keep much of the project’s upside for Frederick’s citizens and has successfully deflected risk elsewhere. For whatever reason, some vocal stakeholders have chosen to remain opposed to the project, perhaps on ideological grounds, or simply because they have come to accept falsehoods as true.