Challenge:

Develop a 1,001-room dual-flag convention hotel and build and sell 224 luxury condos.

• 878-room JW Marriott, 123-room Ritz-Carlton, and 224 Ritz-branded condominiums.
• Total development cost: $1 billion.
• Located within a mixed-use entertainment district, built on top of a 2,000-space underground garage.

Solution:

Create multiple income streams and negotiate subsidies to make the project viable.

• Embed electronic building signage.
• Create revenue from adjacent, but not owned, parking spaces.
• Negotiate a 30-year Transient Occupancy Tax (TOT) agreement for $278 million.
• Secure favorable financing from a union pension fund.
• Maximize condominium sales revenue.
• Design all cash flow streams to reduce the net cost of the hotel, making it a profitable operating asset.

Outcome:

• The condominiums faced market saturation and were not successful. Although priced correctly, the first 50% sold well, but the remaining units struggled to sell and were eventually cleared through a sizable bulk sale.
• The JW Marriott’s operating revenue far exceeded projections, making it highly profitable. The Ritz-Carlton’s high operating costs negated any financial benefit of the second flag.
• The project was recapitalized upon stabilization, resulting in a loss of approximately $100 million for the financial partner. Over time, the project became successful and stabilized.