In December 2002, when officials gathered in
Overland Park, Kan., to cut the ribbon on the 412-room Sheraton
Overland Park at the Convention Center (right), there was good
reason for optimism. After all, the $88 million property was
everything a convention headquarters hotel should be.
First and most importantly the structure sat directly next to
the city’s new 237,000-square-foot convention center and connected
to that venue via an enclosed walkway. Second, the hotel featured
every amenity imaginable on a meeting planner’s wish list, like the
10,800-square-foot Cottonwood Ballroom, 13 meeting rooms, a
well-equipped business center, a full-service restaurant and an
indoor swimming pool.
Furthermore, studies by consultants promised not only high
occupancy and room rates for the new headquarters complex, they
also predicted the opening would bring many new conventions to
The striking 20-story building is now the tallest man-made
structure in this growing Kansas City suburb. And with Sheraton’s
“S” logo boldly emblazoned on top, passersby could easily get the
impression that this is a private hotel development.
In fact, public funds made up 100 percent of the capital for
Overland Park’s new headquarters hotel money that was generated
from a new method for publicly financing these projects: the
issuance of tax-free bonds.
The nonprofit model
In hopes of luring more conventions, communities across
the United States are spending millions of dollars of public money
to build and operate resplendent new headquarters hotels. In recent
years, publicly financed headquarters properties have arisen next
to convention centers in destinations as varied as Myrtle Beach,
S.C.; Sacramento, Calif., and St. Louis.
In the 1990s, headquarters hotels typically were built as
private developments, often with public subsidies to cover about a
quarter of construction costs plus cash grants to provide public
spaces like parking and ballrooms. The deals were called
public-private partnerships, or PPPs.
But by the late 1990s, private investments for PPP
headquarters-hotel developments were drying up. Plans languished in
cities everywhere, even with millions of dollars in public funding
available as a lure for private investors to step forward. The
terrorist attacks of September 2001 and subsequent travel industry
woes made private capital scarcer still.
In response, cities began using nonprofit corporations (NPCs)
tax-exempt municipal bonds for self-financing a majority of their
hotels, with little or no private money involved. A branded hotel
operator like Hyatt, Marriott or Sheraton would then be hired to
run the property. But taxpayers, in the end, were the real
“If you look at the history of these projects, there were a
host of efforts over the last decade to find private capital to
invest, and a public alternative was chosen because private capital
didn’t appear,” says Heywood Sanders, professor with the Department
of Public Administration at the University of Texas at San Antonio.
“Potential private investors have generally found these
developments to be too risky or with too low a potential return
based on possible mix of average daily rate and likely
Nevertheless, with the enthusiastic encouragement of meeting
planners, industry consultants and convention and visitor bureaus,
local governments throughout the country have rushed in where
private investors fear to tread, in hopes that new headquarters
properties will bring in enough additional convention business to
cover local taxpayers’ development costs.
“That’s the general idea,” says Jeff Sachs, managing partner
with the Strategic Advisory Group, a Duluth, Ga.-based hospitality
consulting firm specializing in PPP and NPC deals. “You get a
hotel, it pays for itself, it generates hotel taxes all along.
Ultimately, the hotel can be sold by the city for a profit, and
that money can be used for expanding or building a new convention
center. That’s what everyone is shooting for.”