WASHINGTON — The District of Columbia’s long-delayed convention center hotel project will finally move forward Tuesday with a $248.4 million bond deal that will allow construction to begin next month.
The Washington Convention and Sports Authority, as part of a public-private partnership, is issuing the bonds for the $516.2 million, 1,174-room Marriott Marquis to be built across the street from the district’s convention center.
The hotel will raise the city’s competitiveness for convention business as originally envisioned when the Walter E. Washington Convention Center opened in 2003, district officials said.
The financing package runs the gamut of available debt tools: Build America Bonds, tax-exempt recovery zone facility bonds, taxable recovery zone economic development bonds, and traditional taxable bonds to refund some outstanding debt from 2007.
The district in 2008 approved the financing package, authorizing revenues from sales taxes, tax-increment financing, and lease payments to secure the bonds.
The bonds will be priced in three series: $66.5 million of 2010A tax-exempt recovery zone facility bonds; $90 million of 2010B-1 taxable recovery zone economic development bonds and $20.1 million of 2010B-2 BABs; and $71.8 million of 2010C taxable bonds refunding outstanding 2007 bonds.
The bonds are rated A1 by Moody’s Investors Service, A by Standard & Poor’s, and A-plus by Fitch Ratings.
The bonds are partly secured by a portion of district sales taxes from hotel rooms, restaurant meals, and rental vehicles. These revenue sources have been “notably resilient,” Moody’s said in its rating report on the hotel.
Since 1997, average annual growth in these revenues has been 6.2%, with the only decline during fiscal 2002 after the closure of National Airport following the Sept. 11, 2001, terrorist attacks.
TIF revenues from sales and property taxes will provide additional support for the bonds, as well as lease payments from the project developers. All of the bonds are being issued as senior-lien bonds and have a parity claim on the dedicated taxes, Moody’s said. The WCSA’s new and outstanding bonds will cover debt service 1.7 times, down from 2.7 times before this issuance, according to Moody’s.
Quadrangle Development Corp. and Capstone Development LLC are the developers, and Marriott International Inc. will operate the hotel.
The underwriting syndicate, which was announced in April, is led by Goldman, Sachs & Co., Siebert Brandford Shank & Co., Bank of America Merrill Lynch, Loop Capital Markets LLC, and Morgan Stanley.
Orrick, Herrington & Sutcliffe LLP is bond counsel and Raymond James & Associates is the financial adviser.
The hotel “has probably taken 10 years to bring to fruition,” said Henry Mosley, chief financial officer at the authority.
Its long history of delays finally concluded this spring when a District of Columbia Superior Court judge ruled in favor of the district, the WCSA, and Marriott over a challenge to the contract by a competing developer. The parties settled the dispute out of court this summer to avoid an appeal challenge, Mosley said.
Earlier, the credit crisis had halted financing, and one of the initial underwriters, UBS Securities LLC, withdrew from the municipal market in 2008.
Even earlier, political wrangling over zoning threw a monkey wrench into the construction process. Previous attempts to finance construction with as much as $750 million of bonds were nixed by the district’s chief financial officer, Natwar M. Gandhi, as he advocated for a debt cap to boost the district’s credit rating.
The convention and tourism industry is the second-largest part of the district’s economy after federal government spending.
In 2009, about 16.4 million people visited the district, according to the WCSA. The convention center expects to host more than 600,000 people in 2012, up from 368,900 in 2009.