Related Cos. wins OK to build next Palm Beach County convention center hotel as competitors kicked from bid
A Palm Beach County panel of county and tourism leaders has selected Related Cos. of New York for a second convention center hotel even though the company's hotel plan doesn't deliver what the county said it wanted.
The hotel plan will not have 600 rooms, will not be built adjacent to the convention center and isn't a brand other than Hilton — all elements requested by the county.
Instead, the hotel will have only 400 rooms, will be across the street from the center and will be another Hilton-related brand.
Meanwhile, two other competing bidders who offered all those elements were kicked out of the running.
Related officials say that while their proposal doesn't perfectly mirror the county's original wish-list, it is offering what is needed and will appeal to visitors and event organizers eyeing the West Palm Beach area.
Related proposed building a 404-room Hilton Signia, a premium meeting and convention center brand offering high-end food and drink options, and the latest in technology. Signia operates convention center hotels in Orlando, Atlanta and San Jose, California.
The $300 million, 20-story Signia hotel would be built at 900 S. Rosemary Avenue, now the site of a parking lot owned by Related Cos. The site is behind the CityPlace South Tower condominium and across a side street from the convention center at 650 Okeechobee Blvd.
The hotel would not be built on one of three county-owned sites that could connect directly to the convention center, a design element that the county had wanted. The current 12-story Hilton convention center hotel, also built and owned by Related, has 400 rooms and is connected to the convention center via a covered, air-conditioned entrance.
In an April 12 meeting, members of the hotel selection committee lauded Related, the only proposer before them, before voting to move forward with the company's plan.
Milton Serraga, president of Discover The Palm Beaches, the county's tourism marketing arm, praised Related's plan even though he he wished it were 600 rooms.
In its proposal, Related said 600 rooms would be too many because the convention center has booked less than 23% of the occupied room nights at the Hilton West Palm Beach each year since the hotel opened in 2016.
The new 404-room hotel would allow Discover to book meetings "we are not able to do because we don't have the rooms," Serraga said. "This operational plan provides that option."
More: Related Cos. plans new hotel in West Palm. What will it mean for separate county hotel bid?
Palm Beach County needs more hotel rooms to attract bigger conventions
The county issued the request for proposal (RFP) for the new hotel last year after county and tourism leaders determined that the convention center needs at least 800 rooms in close proximity to the meeting space to attract larger and more lucrative corporate gatherings.
But before a February deadline for the proposal's submissions, officials with Related Cos. said they planned to build another 400-room Hilton hotel next to the convention center regardless of whether Related won the county RFP.
Related is led by Palm Beach billionaire and Miami Dolphins owner Stephen Ross, a dominant developer in West Palm Beach and the builder of The Square and the 360 Rosemary office tower.
Related's hotel plan was announced by West Palm Beach Mayor Keith James during his annual State of the City breakfast Jan. 18.
In an interview that same day, Kenneth Himmel, chief executive of Related Urban, shrugged off concerns 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 block of hotel rooms the convention center needs to book large group events. Himmel cited the company's access to both debt and equity financing, and the ease of blending both hotels into Hilton's global reservation system.
Palm Beach County Administrator Verdenia Baker said the county would not grant the hotel bid without competition, despite Himmel's assertion that Related's strength made it impossible to beat.
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."
Three firms submitted West Palm Beach hotel proposals. What happened?
The RFP asked proposers for a hotel brand that is "distinct," or different, from Hilton.
The goal, the county said, is to offer diverse choices, expand sales and reservation channels, and appeal to a wider range of clientele.
After the RFP was issued last year, Related asked the county if the Hilton restriction encompassed all of Hilton’s brands or just the Hilton brand itself. The county responded that it meant just the Hilton brand itself, according to county records.
Two other companies responded to the county RFP, and both were for 600-room hotels that were not Hilton or in the Hilton brand collection. Their proposals also were on county-owned land that could be connected to the convention center.
Portman, a major Atlanta-based real estate company, proposed building a 600-room hotel that would be either a Marriott Bonvoy property or a Hyatt hotel.
Sonneblick Investments LLC of California, in partnership with AB Capital Busch Investments, had proposed two Hyatt hotel brands: A 450-room Hyatt Regency hotel and a 150-room Hyatt House extended-stay brand.
Marriott and Hyatt, like Hilton, have an extensive global reservation system and popular hotel loyalty programs.
But county documents show the Portman and Sonneblick proposals were disqualified on March 20 because they did not include a required surety bond for the hotel proposal, although Sonneblick did provide a bond for the project's general contractor, Balfour Beatty.
The RFP said any proposal that did not contain a bond for the hotel proposer would be deemed "non-responsive."
In an interview, Sonneblick blasted the requirement.
"If there are three bidders on an RFP and they're all qualified, good people, why would you kick out the competition so there's only one sole bidder?" Sonneblick asked. "It's not in the best interests of county taxpayers to limit the competition in a huge deal."
A Portman official did not return requests for comment.
But in its proposal, Portman said it did not obtain a letter from a surety company because it considered the request "non-applicable" to a development entity.
A bond is instead obtained for a general contractor, which it would choose at a later date, Portman said in its submission.
Related's proposal included a letter from Markel Insurance Company stating that the hotel project was bonded up to $300 million.
Hotel details need to be nailed down, Palm Beach County panel says
Members of the county hotel selection committee said Related's desire to earn an 8% rate of return on the hotel is "not unreasonable."
But they warned that several details required fine-tuning. This includes determining the number of rooms that the 400-room Signia hotel would set aside for conventions.
Rooms blocked for conventions typically cost less than what leisure travelers are willing to pay.
But the existing Hilton convention center hotel earns the bulk of its business, about 60%, from leisure travelers, not convention attendees. In February, the height of the winter tourist season, the hotel's room nights ranged from $374 per night to more than $1,000, according to Hilton's website.
Another sticking point is the parking arrangement, committee officials said.
Related wants to permanently lease 630 spaces in the 2,700-space convention center parking garage, which was built to accommodate another hotel and an expanded convention center.
Of the 630 spaces, 255 would replace the existing Hilton West Palm Beach spaces on the surface parking lot where the new hotel would be built. Another 375 spaces are needed for the new hotel, Related said.
Related would pay the county $600,000 per year growing at 10% every five years. If Related leases spaces in the county parking garage, it would not have to build its own garage in the hotel.
Laura Beebe, Palm Beach International Airport director and a member of the hotel selection committee, said garage parking spaces are expensive to build, about $50,000 per space.
Therefore a lease of the county garage would amount to a $31.5 million county donation to Related, said Beebe, who called the contribution "significant."
The lease also would mean added maintenance of the garage and lost revenue to the county, which would not be able to lease the spaces to another entity, Beebe added.
Because Related owns the land for the proposed new hotel, it does not need to negotiate lease terms for the county-owned sites proposed in the RFP.
Therefore Related said the new hotel could be completed in about three years.
Alexandra Clough is a business writer and columnist at The Palm Beach Post. You can reach her at aclough@pbpost.com. Twitter: @acloughpbp. Help support our journalism. Subscribe today.
This article originally appeared on Palm Beach Post: Related Cos. to build Palm Beach County Convention Center's next hotel