Nevermind about that bailout.
The Washington State Convention Center expansion project, which saw its finances hammered by the pandemic and the ensuing devastation of the travel and tourism industries, has secured financing to complete the project, developers announced this week.
For months, the project’s developers had been warning they were running out of money to complete the $1.9 billion project and if a government-backed loan was not secured, construction would halt this year, leaving a useless steel and concrete skeleton in the heart of downtown Seattle.
King County had pledged to find a way to loan the project $100 million. Seattle and Washington state both indicated they were looking for ways to loan, or somehow find, an additional $200 million to fill the project’s funding shortfall.
But now, with more than 100 million Americans at least partially vaccinated against COVID-19, millions more getting vaccinated every day and an economy that looks ready to bounce back, the convention center has secured the private financing to complete the project that was always the plan, pre-pandemic.
“The fact that private financial institutions were willing to invest in the Convention Center’s debt this week signals that investors believe our regional economy is fast improving, and that tourism and conventions will quickly return to pre-pandemic levels,” King County Executive Dow Constantine said in a prepared statement. “When things looked dicey for the Convention Center, we were willing to step in and help save 1,000 construction jobs and maintain momentum for this economic development project.”
On Wednesday, the Convention Center sold $342 million worth of bonds, which developers say should be sufficient to complete the project, with a ribbon-cutting planned for summer 2022.
This and past funding for the expansion project is backed by future King County lodging tax revenues. Essentially, it’s a bet that a bigger convention center will bring more hotel guests who, in turn, will pay more hotel tax, which will then be used to pay back the costs of building the bigger convention center.
But when the pandemic hit, people stopped traveling. Downtown Seattle hotel revenues fell more than 90% from the year before, according to the Downtown Seattle Association. Suddenly, betting on future hotel tax revenues didn’t seem like such a sure thing to investors and a bailout loomed.
Nearly a year ago, project leaders started warning that they were running out of money.
“Here’s what changed,” said Matt Griffin, the managing partner of the project’s developer, Pine Street Group. “Six months ago we didn’t have a vaccine and we also didn’t have these big stimulus packages, and so what’s really happened in the bond market is people realized the recovery is coming.”
“People are going to have to start to travel again; we can take some risk,” he said.
Griffin said they were approached about six weeks ago by their bankers with J.P. Morgan who said private financing was looking, once again, like it could be an option.
“They said, the world’s changing, we can go back, maybe be able to go back, to the old plan,” Griffin said.
Griffin said the convention center still plans on asking the state of Washington for about $55 million in federal stimulus money to cover increased construction costs related to the pandemic.
There were more than $3 billion in orders for the $342 million in bonds, which sold at an interest yield of 2.8%, the convention center said, “a testament to the belief by the bond market in the long-term strength of Seattle and the region.”
A convention-center-related project in Atlanta got a worse deal last month, selling $440 million in bonds with an interest yield of 4.2%.
State Treasurer Mike Pellicciotti had to approve the bond offering.
The sale, Pellicciotti said, shows “the private market has confidence in the future
tourism growth of our state, while also freeing up public money so state and local governments can spend now on Washington’s other critical recovery and investment needs.”
It’s still unknown how the convention business will bounce back after a year in which business travel essentially stopped and conferences went remote. Houston says it has more conventions booked for the second half of this year than it did for the same months in 2019.
In Seattle, forecasts vary. The president of the Downtown Seattle Association sees convention and business travel coming back in early 2022, while the CEO of Visit Seattle said earlier this year he doesn’t see downtown tourism fully recovering until 2024.
The bond offering package, put together by the convention center, forecasts 22 convention center events in the second half of 2021. There were 212 events in 2019.
In total, 71 groups canceled convention center events because of the pandemic. Of those, 14 have been rescheduled for future years, 26 are considering rescheduling and the rest will not be rescheduled, according to the convention center.
The convention center has booked 30 events, so far, for 2022 and 27 for 2023.
When the expansion opens, it will double the center’s capacity and allow for multiple events simultaneously.
“Although future bookings are down from normal pace because of 18 months of disruption caused by the COVID-19 pandemic,” the convention center wrote in its bond offering, they are “being contacted by associations, corporate planners and consumer show managers requesting future dates, expressing readiness to have meetings in 2022 and looking for information for planning purposes.”