The BCEC and Hotels: An Overview Presentation to The Convention Partnership Presented by Milt Herbert, BCMC Tom Hazinski, HVS Chicago Rachel Roginsky, Pinnacle Advisory Group Peter Phillippi, Piper Jaffray & Co. Howard Davis, MCCA Kairos Shen, BRA April 26, 2010

Agenda Relationship Between BCEC and Hotels Measuring the Benefits of an Additional BCEC Headquarters Hotel Responding to the Hotel Challenge BRA Presentation 2

Relationship Between BCEC and Hotels Milt Herbert, Executive Director Boston Convention Marketing Center Rachel Roginsky, Pinnacle Advisory Group 3 3

Boston Convention Marketing Center Sales Process Step 1: Identify Availability of Convention and Hotel Space Hynes or BCEC and Are Dates Available? Is Hotel Inventory Available? Step 2: Business Review and Pricing Strategy Is Potential Business Good for Facility, Hotels and the City? Step 3: Prepare Citywide Proposal Analyze Responses from Hotels; Assemble Hotel Package Convention Space Pricing Review Step 4: Site Visit Client Visits, Reviews Convention Facilities and Key Hotels Step 5: Close Business 4

Hotel Room Supply What does the planner want? Committable room block near the convention center No or limited transportation exposure Minimal attendee commuting inconvenience HQ access for Board lodging and major F&B functions Hynes Package Great package relative to Hynes capacity Walkable for most events No transportation expenses BCEC Package Arguably the worst for a convention center of this magnitude Limited walkable inventory (1100 committable group rooms on peak) Generally requires transportation at 1500-2000 or more peak rooms Many who have used, will not return until hotel inventory improves The MCCA has treated workforce development as important however, as a destination there is much work to be done: Other destinations (i.e. Vegas) embrace and promote hospitality as a career. In Boston, is it viewed as a ‘job’ (part-time, second job) or a career? The destination needs to expand its support for Hospitality as a career This will raise the quality of our workforce and also begin to prepare the worker necessary for the additional facilities including hotels, restaurants, and expanded convention facilities. 5

Example: RIMS Risk & Insurance Management Society, Inc. (RIMS) April 21 – May 2, 2010 8,000 hotel rooms on peak 41,600 total hotel room nights BCEC 6

RIMS 2010 Hotel Package In order to build a hotel package with 8,000 rooms on peak, RIMS had to contract with all 33 hotels in our package. Of the 33 properties, only 3 hotels are within walking distance of the BCEC. The remaining hotel inventory is within 5 miles of the convention center and requires extensive transportation services. Estimated Cost of Transportation for RIMS - $300,000 7

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The final hotel package is a summary of each hotel’s proposed room block, guestroom rate, and concessions along with relevant information about each property. Hotels are sorted based upon their location & potential shuttle routes. 9

Building a Competitive Hotel Package American Academy of Dermatology March 2016 7,000 rooms on peak/31,570 total room nights 28 HOTELS, 4 MILE RADIUS Biotechnology Industry Organization June 2012 10,000 rooms on peak/41,200 total room nights 43 HOTELS, 6 MILE RADIUS Lions Club International July 2015 6,000 rooms on peak/38,220 total room nights 29 HOTELS, 5 MILE RADIUS American College of Surgeons October 2018 7,500 rooms on peak/34,500 total room nights 35 HOTELS, 6 MILE RADIUS 10

Simultaneous Events at BCEC and Hynes Events Impact on Hotel Availability Not enough hotel rooms to accommodate simultaneous events at the BCEC & Hynes. Example: Citywide BCEC convention with 6,000 rooms on peak consumes all hotel inventory in the South Boston Waterfront, Downtown/Financial District, Back Bay and the Airport (American Public Health Association, November 2013) American Trucking Association (Hynes) needs 1,575 rooms on peak (November 2013) – Not Available in the Back Bay 11

Not enough hotel rooms within walking distance of the BCEC Lack of Hotel Inventory near BCEC results in lost business Starbucks: February – 6,000 rooms on peak/22,000 total rooms Public Library Association: March – 3,500 rooms on peak/13,000 total rooms Subway: July – 2,200 rooms on peak/10,000 total rooms Am. Society for Cell Biology: December – 3,000 rooms on peak/13,000 total rooms 12

Cost Impacts Lack of hotels near BCEC results in significant transportation cost to our customers Am Society for Therapeutic Radiology & Oncology September 16-26, 2008 12,000 persons 34,200 total room nights Shuttle cost: $750K Am College of Rheumatology November 5-11, 2007 14,000 persons 30,500 total room nights Shuttle cost: $550K International Association of Chiefs of Police October 14-18, 2006 17,000 persons 28,900 total room nights Shuttle cost: $506K Heart Rhythm Society May 17-20, 2006 22,900 total room nights Shuttle cost:  $214K American Association of Orthodontists May 1-5, 2009 20,000 persons 23,000 total room nights Shuttle cost:  $245K 13

Limited Service Hotel Inventory 14

BCEC Lost Business Due to Lack of Limited Service Hotels Students in Free Enterprise May 2011 1,400 rooms on peak/3,851 total room nights American Society of Safety Engineers June 2013 4,000 rooms on peak/19,585 total room nights National Safety Council September/October 2011 & 2013 6,500 rooms on peak/32,360 total room nights Educause November 2011 & 2014 3,900 rooms on peak/15,054 total room nights National Association for the Education of Young Children November 2015 & 2020 6,500 rooms on peak/27,040 total room nights 15

Development of Complementary Hotels Pinnacle Development of Complementary Hotels No limited-service hotels currently in the South Boston Waterfront District BCEC expansion will serve as a catalyst to further development in the area Demand currently exists for the development of complementary hotels in the South Boston Waterfront District 16

Comparable Cities Indianapolis, IN Austin, TX Denver, CO Pinnacle $450 MM “Marriott Complex” U/C including 4 hotels attached to convention center developed and managed by White Lodging. Hotels include 1,000 room JW (U/C), 297 room Courtyard (opened 2/10), 168 room Fairfield Inn and Suites (opened 2/10), and 156 room SpringHill Suites (opened 2/10). Austin, TX 350,000 square foot convention center re-opened in 2002. 800-room HQ Hilton opened in 2003 with nearby 209-room Hampton Inn and Suites in 2002, 254-room Hilton Garden Inn in 2006, 270-room Courtyard and 179-room Residence Inn in 2006. Denver, CO 725,000 square foot convention center expansion opened in 2004. 1,100-room HQ Hilton opened in 2005 with nearby 221-room Hilton Garden Inn in 2007, 403-room Embassy Suites (under construction), and Aloft and Best Western projects under consideration. 17 17

Hotel Room Supply There are benefits to all when there are additional hotel rooms in the city with or without a BCEC expansion More consistent group business for Waterfront & Back Bay Hotels More frequent BCEC & Hynes events thus fewer peaks/valleys More events result in additional compression dates, ADR, occupancy and RevPAR growth Allows for additional Hynes events to occur simultaneously with BCEC events Growth in F&B revenues for Waterfront & Back Bay Hotels with more event activity Lessens risk of high room block attrition for Back Bay Hotels from BCEC events More citywide and in-house opportunities for Airport, Downtown, Cambridge and Suburban Hotels with increased activity at hotels surrounding the BCEC & Hynes 18

Measuring the Benefits of an Additional BCEC Headquarters Hotel Tom Hazinski HVS Chicago 19 19

Hotel Room Nights Generated by Convention Center Events (Fiscal Years 2007 through 2009)

Basis for Estimate of Growth in Convention Events Analysis of historical demand at BCEC & Hynes Event planner surveys Demand at comparable venues Detailed analysis of lost business Reasons Amounts Potential recovery 21 21

Working Assumptions About Hotel 1,000 rooms 83,000 SF of meeting and banquet space Full-service and nationally branded Adjacent to Convention Center Restaurant, lounge, and recreational amenities Open in Fiscal Year 2015/16 22 22

Impact on BCEC Room Nights (estimated for a stabilized year) BCEC currently losing business due to lack of proximate rooms High transportation costs to Back Bay hotels Inconvenience to attendees Competitors with better proximate supply BCEC has capacity to absorb new events even without expansion Potential for over 140,000 new booked room nights 23 23

Impact on BCEC Room Nights (estimated for a stabilized year) Potential for over 140,000 new booked room nights New room nights could be generated by recovering lost business HVS analyzed lost business records for events lost due to lack of hotel capacity Not all lost business would be recovered Estimated recovery of lost business constrained by availability of BCEC and schedule 24 24

Impact on Hynes Room Nights (estimated for a stabilized year) BCEC city-wide events currently fill up Back Bay hotels During BCEC event days, room blocks not available for Hynes events Expanded hotel supply at BCEC will take pressure off of Back Bay and create availability of room blocks for Hynes Hynes has potential to book new events Potential for over 22,000 new booked room nights 25 25

How would a new headquarters hotel affect the Boston economy? New Visitor Spending Overnight stays of BCEC and Hynes attendees Room night generated by the new hotel Day-trip visitors Exhibitor spending Event organizer spending Related fiscal impact (revenue from hotel, sales and other taxes Stimulate complementary development in the South Boston Waterfront District 26 26

Responding to the Hotel Challenge Rachel Roginsky, Pinnacle Advisory Group Peter Phillippi, Piper Jaffray & Co. Howard Davis, MCCA 27 27

Lack of Private Sector Development Pinnacle Lack of Private Sector Development High Development Costs in Boston Land Costs Construction Costs Significant Gap in Required ROI Lack of Capital for Hotel Development Illustrative Pro Forma (see next slides) 28 28

Hypothetical Headquarters Hotel Pro Forma Pinnacle Hypothetical Headquarters Hotel Pro Forma Assumptions: 1,000 room Boston Hotel Stabilized occupancy – 75% with Typical Operating Costs 40% equity and 60% debt (1.5x debt service coverage requirement) $500,000/key Development Costs Owner requires 15%-20% Leveraged IRR Return 29 29

1,000 Room Boston Hotel - Hypothetical Pro Forma Pinnacle 1,000 Room Boston Hotel - Hypothetical Pro Forma Total Revenue Operating Costs Net Operating Income First Mortgage Debt Service* Income After Debt Service Return on Equity * 0.9x Debt Service Coverage in Year 3 Year 3 (stabilized) $ 94,900,000 $ 71,175,000 $ 23,725,000 $ 26,603,682 ( $ 2,878,682) (2.7 %) 30

Lack of Available Capital Pinnacle Lack of Available Capital Based on a recent national survey (2010), only 25% of hotel lenders would consider new construction loans April ULI lodging meeting, 4 top hotel lenders said “No” to new construction loans If available – terms are difficult: 40%– 50% equity Only recourse loans available Requires construction guarantees Sponsorship is critical Lenders would prefer to deploy available capital for acquisitions 31

Percent Change in US Hotel Supply Sources: Smith Travel Research (1988 - 2009) and HVS (forecast 2011 -2012) 32 32

Total United States Active Development Pipeline - Rooms Pinnacle Total United States Active Development Pipeline - Rooms Dec 2009 Dec 2008 Change % Change In Construction 97,302 185,119 (87,817) (47.4%) “Planned” Pipeline 303,788 427,773 (123,985) (29.0%) Planned Pipeline includes projects in final planning and planning phases. March 2010 Pipeline has approximately 35.7% less rooms on the active list versus March 2009 15 of the Top 25 markets have more than a 50% decline in year over year rooms in construction 33

Boston Pipeline No new hotels in the active pipeline for Boston Pinnacle No new hotels in the active pipeline for Boston Aware of 5,000 rooms planned but none have financing No new supply in South Boston Waterfront District since the Renaissance in February of 2008 34

CONVENTION CENTER HOTEL DEVELOPMENT Historically, CCHQ Hotels have required public participation Early 1990’s recession and RTC workouts lowered hotel values further below replacement cost exacerbating the need for public participation Construction costs have continued to outpace full-service hotel economic values As previously discussed, no private financing for large-scale hotel projects Nationwide, only two full service, business-oriented hotels greater than 700 rooms have been developed without public support since 2000   35

700+ ROOM DOWNTOWN HOTEL OPENINGS1997 TO 2008 (1) (5) (4) (3) (2) (1) (9) (10) (16)(17) (11) (12) (13) (6) (7) (8) (14) (15) (15) (14) Public Financing: (1) 1,100-Room Denver Hyatt (2005) (2) 800-Room Austin Hilton (2004) (3) 1,200-Room Houston Hilton (2003) (4) 1,100-Room St. Louis Renaissance(2) (2003) (5) 800-Room Chicago Hyatt (1998) (6) 1,000-Room Phoenix Sheraton (2008) (7) 757-Room Baltimore Hilton (2008) (8) 1,003-Room San Antonio Hyatt(2) (2008) Public Support: (9) 966-Room Jacksonville Hyatt (2001) (10) 700-Room Charlotte Westin (2003) (11) 750-Room Baltimore Marriott (2001) (12) 717-Room Tampa Marriott(2002) (13) 793-Room Boston Westin (2006) (14) 1,200-Room San Diego Hilton (2008) (15) 1,001-Room Los Angeles JW Marriott/Ritz-Carlton Private Financing: (16) 863-Room Westin Times Sq. (2002) (17) 802-Room NYC Hudson Hotel (2000) 36 36 (1)700+ Room Hotels Opened from 1997 to 2008 excluding Gaming or Resort Hotels. Source: Smith Travel Research (2) Privately owned but financed primarily with tax-exempt bonds.

RECENT CONVENTION CENTER HOTEL DEVELOPMENT Ten convention center headquarter hotels with 750 rooms or more have entered the U.S. market since 2003 (1) Privately owned but financed primarily with tax-exempt bonds. 37 37

Recent Convention Center Hotel Developments Operators 4 Hiltons – Houston, Austin, Baltimore, San Diego 2 Hyatts – Denver, San Antonio 2 Starwood Properties – Boston, Phoenix 2 Marriott Properties – St. Louis, Los Angeles Financing Structures 7 publicly financed 3 privately financed San Diego Boston Los Angeles 38 38

CONVENTION CENTER HOTEL FINANCING Competing Goals Private Owner Maximize Profit Maximize ADR and Occupancy Facility optimization (keys, meeting space, amenities) – minimize development cost Investor return requirements (20-25%) Public Entity Support Convention Center Offer competitive rates (group business) Room block commitment (reduced occupancy) Larger meeting space requirement (more costly) Amenities (food and beverage, etc.) 39

CONVENTION CENTER HOTEL FINANCING Privately owned convention center hotels generally require public financial subsidies Economics do not support conventional financing terms Public subsidy / GAP financing increasing Financial benefits inure to owner / equity investor Public ownership offers an alternative Control integration with convention center Access to lower cost capital / hurdle rate Financial benefits inure to government sponsor / owner 40

CONVENTION CENTER HOTEL FINANCING BASIC OPTIONS PUBLIC/PRIVATE PRIVATE OWNERSHIP FIRST MORTGAGE PRIVATE EQUITY / MEZZANINE DEBT PUBLIC INVESTMENT CONVENTIONAL 2-TIERED STRUCTURE SENIOR LIEN BONDS Senior Lien Project Revenues + Credit Support on all or portion of debt service Investment Grade JUNIOR LIEN BONDS Market takes risk Non-rated PUBLICLY OWNED - TAX-EXEMPT Project Revenues only Low Investment Grade Backed by high grade Revenue source or credit backstop Project Revenues + tax increment + Credit Enhancement on all or a portion of debt service SINGLE TIER STRUCTURE CASH FLOW NOTES 41

Private/Public Transaction Simplified Organization Chart: Hotel Operator Management Agreement Public Entity Financial Support/Subsidy Private Owner Receives Cash Flows Receives Refinancing/Sale Proceeds Convention Center Authority Room Block Agreement Lenders Equity Investors 42

WASHINGTON DC CONVENTION CENTER HOTEL – PRIVATE Project Description 1,167-room full service hotel managed by Marriott (Marriott Marquis) Projected opening date: Estimated 2013 100,000 square feet of meeting space 400 car parking structure Capital Structure (Private Portion) – Privately Owned $256 million in senior debt $75 million of investor equity Public Contribution (Preliminary) Purchase of land (execute 99 year ground lease with development team) - $100 million (Est.) $208 million in contributions from various agencies and the District $308 million total estimated public contribution RFP Process Proposals solicited – June 2001 Hotelier /Developer selected – October 2002 43

Single-Purpose Non-Profit Receives Refinancing/ Sales Public Transaction Simplified Organization Chart: Hotel Operator Qualified Management Agreement Public Sponsor Single-Purpose Non-Profit Corporation Receives Cash Flow Receives Refinancing/ Sales Proceeds Convention Center Authority Room Block Agreement Bond Holders 44

DENVER CONVENTION CENTER HOTEL - PUBLIC Project Description 1,100-room full service, first class hotel managed by the Hyatt Hotel Corporation Opening date: December 2005 Adjacent to the convention center 300-seat full-service restaurant and lobby lounge 60,000 net square feet of meeting space 600 space parking garage below the hotel Capital Structure $354.8 million in “AAA” insured senior lien current interest bonds issued at a TIC of 4.61% $10.0 million Letter of Credit from the hotel operator City Contribution The City’s contingent appropriation pledge was equal to 45% of debt service on the bonds 45

DALLAS CONVENTION CENTER HOTEL - PUBLIC Project Description 1,016-room full service hotel managed by Omni Projected opening date: January 1, 2012 Full-service restaurant and lounge Immediately adjacent to the convention center 80,000 square feet of meeting space 720 car parking structure Capital Structure – Publicly Owned $74.4 million in tax-exempt hotel revenue bonds $388.1 million of taxable hotel revenue “Build America Bonds” $17.2 million in taxable bonds Public Contribution 10 years of State tax abatements City backstop (subject to appropriation) for 100% of the total debt service 46

. Existing Westin Hotel * Three Potential Headquarters Hotel Sites North East . Existing Westin Hotel * Proposed Expansion of Westin Hotel 47

1. West Hotel Alternative Existing Owner US Postal Service Connection to BCEC Yes - direct pedestrian bridge Design/Construction Challenges Air rights construction over turnpike Bridge connection to BCEC crosses Haul Road and railroad tracks Urban Design Strengthens/complements main entrance to BCEC Fills “void” left by Big Dig Site connects BCEC to “100 Acre” district to west 48

2. North Hotel Alternative Existing Owner Massport Connection to BCEC Yes – indirect pedestrian bridge over Summer Street and through Westin lobby Design/Construction Challenges Air rights construction over turnpike, railroad tracks, Haul Road and MBTA Silver Line Urban Design Strengthens/complements main entrance of BCEC Creates pedestrian linkage from BCEC to Silver Line and Boston Harbor Fills in “void” left by Big Dig 49

3. East Hotel Alternative Existing Owner Intercontinental Real Estate Corp Connection to BCEC Yes – but long pedestrian bridge over D Street located south of main BCEC Summer Street entrance Design/Construction Challenges No subsurface construction premiums Narrow width of site constrains hotel design Urban Design Site is distant from the Summer Street address of the BCEC Site does not reinforce linkages between BCEC and transit, Boston Harbor or Downtown Boston 50

Boston Redevelopment Authority Kairos Shen, Director of Planning 51 51