Convention center projected to run deficit

Hotel expected to boost revenue

HARLINGEN — As they planned one of the city’s biggest projects in decades, officials were counting on the Harlingen Convention Center to be attached to a 149-room Hilton Garden Inn.

At the time, a consultant’s study showed the $25 million five-story hotel would help draw business for the $17.6 million convention center.

On the day the convention center was supposed to be completed, BC Lynd Hospitality’s hotel has yet to break ground.

Later today, city commissioners are expected to discuss approving the facility’s operating budget which projects it will run a $323,289 deficit during its first year.

“This is what we anticipated,” Mayor Chris Boswell said yesterday.

That’s why the city set aside $500,000 to offset any shortfall, Boswell said.

“We built into the budget $500,000,” he said. “In the first year of operations (it) would not break even. The goal would be to operate it in such a way to have revenues exceed expenses.”

Boswell noted city event centers are not money-making machines.

“Not all our public buildings do that,” Boswell said.

Instead, he said they’re built as quality-of-life projects.

Consultant’s studies

As they planned the convention center, officials entered into partnership with BC Lynd Hospitality.

As part of an agreement, the city would fund the convention center’s construction while BC Lynd built the attached hotel.

Under that agreement, BC Lynd would operate the convention center while splitting any profits or sharing any deficits.

Now, the facility is expected to open later this month — about a year before BC Lynd opens its hotel.

At today’s meeting, commissioners are also expected to review findings by HVS Convention, Sports and Entertainment Facilities Consulting, which had previously projected higher revenues based on the hotel’s completion.

The consulting firm has presented the city with findings showing BC Lynd’s hotel will help boost revenue after what it described as the convention center’s “transition year.”

“The mix of business that can be generated by an independent facility is limited when compared to a facility that can offer the benefits of an attached hotel,” HVS Managing Director Thomas Hazinski wrote in a Feb. 19 letter to Assistant City Manager Gabriel Gonzalez.

“The operator will initially focus on generating events that do not require an adjacent hotel,” Hazinski wrote. “Once the (hotel) opens in the first quarter of 2020, the hotel will be able to generate events that require an adjacent hotel.”

According to Hazinski’s letter, HVS conducted a previous study showing the attached hotel would help boost revenues.

“In a previous study, HVS projected the demand for and financial operations of the (convention center) under the assumption that the (hotel) and (convention center) would open at the same time,” Hazinski wrote.

Yesterday, City Manager Dan Serna said original projections showed the convention center would not turn a profit during its two-year “ramp-up period.”

“It was projected not to break even or make a profit during the first two years,” Serna said.

The hotel

Serna said the hotel is expected to break ground this month.

The hotel, which was expected to break ground about the same time as the convention center, has fallen about 18 months behind schedule.

Last month, BC Lynd was expected to close the sale of $32 million in bonds to help fund the hotel’s construction, Assistant City Manager Carlos Sanchez has said.

In November, Brandon Raney, BC Lynd’s chief executive officer, said the company searched for the “right” financing plan for 18 months.

Under an agreement, the Arizona Industrial Development Authority, an economic arm of the state of Arizona, is issuing $32 million in tax-exempt revenue bonds to Provident Group-Harlingen Properties to finance the hotel’s construction.

“When the hotel comes online we anticipate much of that will change,” Serna said, referring to the convention center’s projected deficit. “We know it will be positive impact of the revenues of the convention center.”

Bookings

Last month, BC Lynd released information showing booked events for five corporations and a school, according to information the city released earlier this month. Meanwhile, religious events have been booked for 38 Sundays while one quinceañera and four weddings have also been booked.

Yesterday, Serna said at least two more conferences have been booked.

For 2020, so far BC Lynd has booked six corporate events.

Projected operating budget:

Projected total revenue after cost of sales — $477,444

Total operating expenses — $800,733

Net operating income — Negative $323,289

Operations include:

Room rentals — $242,750

Beverage sales — $85,690

Food sales — $60,450

Salaries:

Director — $78,400

Supervisor — $34,000

Three sales managers — total $140,000