Related Cos. plans new hotel in West Palm. What will it mean for separate county hotel bid?
Could Related Cos. of New York be trying to corner the market on hotel rooms at the Palm Beach County Convention Center?
The real estate company, led by Palm Beach billionaire and Miami Dolphins owner Stephen Ross, wants to build a second, 400-room Hilton hotel at the convention center at 650 Okeechobee Blvd. in West Palm Beach. The hotel would be built on a parking lot Related owns next to the hotel.
The hotel plan recently was announced by West Palm Beach Mayor Keith James, who called it "very, very exciting."
A second convention center hotel would boost the number of hotel rooms at the exhibition and meeting space to 800, a figure finally large enough to attract big corporate events and meetings. Large professional meetings are more lucrative to the convention center, and the county as a whole, than the mostly small to mid-sized events the center now books, according to top tourism executives.
But Related's just-announced hotel plan could chill Palm Beach County's ongoing competitive bid request seeking proposals for a new, 600-plus room hotel on county land next to the convention center. In an effort to create competition and offer customers a range of choices, the county's guidelines said the hotel can't be a Hilton brand.
Any developer wishing to turn in a bid for the hotel project must do so by Feb. 12.
James announced Related's plan during his annual State of the City breakfast on Jan. 18.
Kenneth Himmel, chief executive of Related Urban, shrugged off concern that Related's surprise hotel announcement could scare off the competition for the county bid.
Instead, Himmel stressed that Related was in the best position to deliver the large block of hotel rooms the convention center needs to finally tap large group events. With Related's access to both debt and equity financing, and its ownership of prime land next to the convention center, backing Related's new hotel is a "win-win" for everyone, including the county, Himmel said.
This is especially the case since the Hilton brand is powerful and boasts a worldwide reservation system. Linking the same branded hotels together is a big advantage for larger groups, Himmel said.
"What we're really doing is having an 800-room hotel complex, where 400 rooms are already enormously successful," Himmel said.
Related has long planned to add rooms at convention center hotel site
Ever since it built the initial Hilton hotel in 2016, Related always expected to build more hotel rooms at 900 S. Rosemary Avenue, a parking lot it owns behind the CityPlace South Tower condo next to the convention center, Himmel said.
Given the glowing financial success of the Hilton convention center hotel, "we think today's the day to do that," Himmel said.
Related plans to move as quickly as possible on the new Hilton hotel and start construction early in 2025, with completion set for 2027, said Gopal Rajegowda, a partner with Related Southeast.
But just to cover all bases, Himmel said Related also is submitting a bid responding to the county request for proposals.
Related's offering is the same plan the mayor disclosed this month: another Hilton-branded hotel, even though the county wants a competing brand; and 400 rooms, or 200 rooms fewer than the county bid requires at a minimum.
The county also wants the property to be physically connected to the convention center, which the Related hotel site cannot do because it is across a street from the center.
No taxpayer money is part of the county's bid proposal.
Special treatment for a special stakeholder?
Even though Related's plan varies from the county parameters, Himmel said Related is deserving of consideration by the county anyway.
The company demonstrated its commitment to the city and county by building the first convention center hotel in 2016, and also spending millions of dollars in projects around West Palm Beach, including CityPlace (now The Square), new office towers and two recently announced waterfront luxury residential condominium complexes, Himmel said.
"We've spent years taking all kinds of risks in anticipation of being successful," Himmel said. This includes taking a risk on the underperforming convention center, Himmel added.
Palm Beach County Administrator Verdenia Baker said she is "grateful" for investors who come to Palm Beach County and invest in the community. But she made it clear that no company is entitled to special treatment when it comes to winning approval from the county on a hotel bid.
"No, ma'am," Baker said. "They're not entitled."
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Baker said the law requires the county to issue an RFP "which is competitive in nature, so we're ensuring we're investing taxpayers' dollars appropriately. I can't just select one company to do everything."
The county seeks hotel bids for one of three sites around the convention center: land along Okeechobee Boulevard at the entrance to the convention center, the loading docks on the west side of the convention center and land just south of the existing convention center.
Himmel made clear that Related will build its 400-room hotel even if it doesn't win the county RFP.
Regardless of what happens, Himmel said Related would like to strike a deal with the county when it comes to parking.
The hotel is slated to rise 20 stories, but Himmel said it could be lower if the hotel can lease 600 spaces in the 2,700-space convention center parking garage, which Himmel said is never more than about 15% full.
Baker didn't sound supportive of sharing the county garage with Related.
Baker said the garage was built for a future convention center expansion. The garage also needs to be able to accommodate whatever hotel the county selects through the RFP, she said.
In addition, the tax-exempt bond that paid for the garage limits the amount of revenue that can be earned on the parking spaces, she said.
Why does Related want to own another convention center hotel?
Business is booming at the Hilton convention property, Himmel said, with annual occupancy expected to hit more than 80% in 2024.
It's a surprise showing for a hotel that at first had a fuzzy future.
The convention center opened in 2003 but struggled without a connected facility to house conference attendees.
Event planners, especially those organizing large national conferences, look for meeting space that also offers convenient lodging for their guests. That's because it can be difficult and costly to transport hundreds of meeting-goers from off-site hotels.
Having hotel rooms connected to the convention center helps tourism officials compete for large convention business. County studies have shown that at least 1,000 hotel rooms near a convention center are needed to book big groups.
During a Jan. 18 interview, Himmel said Related shouldered the financial risk in building the long-sought convention center hotel.
That's not entirely the case.
Palm Beach County commissioners chose Related Cos. as the developer in 2010, then two years later agreed to cover $27 million of the estimated $110 million hotel construction cost.
Construction began on the hotel in 2014 and wrapped up in 2016. The 12-story Hilton, built to the east of the convention center, is connected via a covered, air-conditioned entrance.
The hotel was built as a relatively plain business-style property in 2016.
But soon after the Hilton opened, Related was surprised by the hotel's popularity with leisure visitors. That trend increased during the pandemic, and today about 60% of the hotel's business comes from leisure travelers, Himmel said.
Higher room-night prices in recent years haven't deterred guests, either, especially since many guests now include expense-account corporate visitors to one of Related's downtown office towers across Okeechobee Boulevard at The Square. Two more high-rise office towers are planned there, too.
To better appeal to both convention and leisure guests, Related recently completed a $25 million hotel renovation that transformed the lobby into more of a tropical getaway. Related also upgraded the hotel rooms and expanded the pool deck, said John L. Parkinson, area vice president of operations for Hilton.
Himmel said the average daily room rate exceeds $300 per night. This annual rate takes into account the slower summer months, Himmel added, which means that in-season rates are much higher.
In February, room nights range from $374 per night to more than $1,000, according to Hilton's website.
Tourism leaders welcome more hotel rooms at center
Tourism officials expressed a "more the merrier" response to the news that Related wants to build another hotel at the convention center.
"The 400 rooms will be great, and the 600 (the county) is trying to get through the RFP will be even better," said Milton Segarra, president of The Palm Beaches, Palm Beach County's tourism marketing arm.
Added Segarra: "If Related on their own wants to develop another hotel, that is a true testament to the development of the groups and convention business for us and the Palm Beaches."
More: Why Palm Beach County needs more hotel rooms
It's not certain whether plans by the city's powerful and dominant developer will deter other companies from submitting a bid on the county 600-room hotel bid.
But it is clear that under current city planning and zoning rules, not all these hotel rooms can be built.
The area in and around the convention center is known as the CityPlace Development of Regional Impact, or CityPlace DRI.
Original zoning allowed for 800 rooms stretching from CityPlace to the convention center property. But the DRI was updated in 2022 to allow for extra conversion of one type of space to another.
According to city spokeswoman Diane G. Papadakos, the maximum number of hotel rooms allowed in the CityPlace DRI is 1,400. The existing Hilton takes up 400 rooms, and some 250 rooms are allotted to land along Lakeview Avenue called the Opera Place site.
That leaves only 750 rooms available for new hotel space, which means there isn't enough room for both the new 400-room hotel planned by Related and the 600-room hotel sought by the county.
Although pitting the county against the city could be dicey for another real estate developer, Related appears to be counting on support from the city of West Palm Beach to push through its plan.
"The city has already endorsed our project," Himmel said. "The mayor said so."
A city spokeswoman was more circumspect.
"The city has not seen or received plans for the 400-room hotel but generally supports the construction of a hotel at this location," Papadakos said.
Alexandra Clough is a business writer at The Palm Beach Post. You can reach her at aclough@pbpost.com. X: @acloughpbp. Help support our journalism. Subscribe today.
This article originally appeared on Palm Beach Post: Will Related hotel plan box out Palm Beach County convention center bids?