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Port Confident Hilton Is Nearing Reality

Final paperwork on the long-awaited Hilton San Diego Convention Center Hotel has yet to be signed, sealed and delivered, but at least one San Diego Unified Port District official is confident it will be and the 1,200-room hotel proposed for a waterfront site at the southeast side of the San Diego Convention Center will soon become reality.

“It’s going to happen,” said Port District Commissioner Steve Cushman. “It’s a certainty. I recently had an opportunity to talk to the Hilton folks in Los Angeles and they assured me that the financing package had come together.”

Cushman anticipates that the proposed Hilton , viewed as the missing piece of the puzzle for bringing more large-scale conventions to the city , will break ground in the first quarter of 2006.

The Port District’s seven-member board is set to meet Nov. 1 to consider some revisions in the deal. If they are approved, “it will pave the way for the project to move forward,” said Karen Weymann, the agency’s assistant director of real estate.

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The biggest one is the proposed hotel’s ownership. Instead of partnering with the developers in the deal, Atlanta-based Portman Holdings and Aurora, Colo.-based Phelps Program Management, the Beverly Hills-based Hilton Hotel Corp. has formed a new partnership with ING Clarion Partners LLC.

ING Clarion, which has its U.S. headquarters in New York and has an office in Irvine, is the investment arm of ING Real Estate. ING Clarion has a 60 percent share of One Park Boulevard LLC, the new ownership entity for the proposed hotel, while Hilton has 40 percent, Weymann said.

ING Clarion and its parent company manage $82.5 billion in real estate assets worldwide and $28.2 billion in the United States. It owns several properties in San Diego County including: the 668-unit Villa Dorado at Mission Valley apartment complex; the Courtyard at Carmel Mountain Ranch; and a 130,000-square-foot shopping center in Carmel Mountain Ranch. Additionally, the firm recently acquired the Gables Residential Trust, which has 13 apartment complexes throughout the county, said Mike McCann, ING Clarion’s senior vice president of acquisitions.

For the proposed Hilton deal to go through, Port District officials must approve what is called an assignment of the option agreement to the new ownership entity, Weymann said.

Portman Holdings and Phelps Program Management will still be the developers of the hotel, she said.

“But they won’t have a financial interest in the deal as it goes ahead,” Weymann added.

Also on the agenda is setting aside 890 spaces of a 1,950-space parking garage that the Port District built on the south side of the Convention Center that opened in April.


Adding Up The Costs

The projected cost to build, furnish and equip the hotel, Weymann said, is $272 million , $70 million more than it would have cost if the hotel had gone under construction in 2002 as originally planned. The price tag has gone up because of the escalation in the costs of steel and concrete, as well as energy, Weymann said.

San Diego National Bank has given ING Clarion and Hilton a letter of intent for a $245 million construction loan. The projected cost for the entire project, including the cost of financing, permitting and fees, is $348 million, she added.

An important component of the plan that doubled the size of the 2.6 million-square-foot, waterfront Convention Center in 2001 , it first opened in 1989 , was having a new convention hotel to add to the supply of rooms at two other convention hotels , the 1,625-room Manchester Grand Hyatt San Diego and the 1,345-room San Diego Marriott Hotel & Marina. Having the Hilton on line would mean that the Convention Center could hold large conventions simultaneously and provide ample lodging. Plans for the new hotel also call for 100,000 square feet of meeting space, including a 34,000-square-foot ballroom and another having 24,000 square feet.


January Groundbreaking?

Ralph Pickett, the vice president of managed development for Hilton’s Western region, said if port officials give the nod to the new ownership entity and some other details of the deal at the Nov. 1 meeting, a formal groundbreaking could take place in late January, with construction getting into full swing in February or March. Following that timetable, the targeted date of completion would be August or September 2008, he said.

Apart from three hotels in New York City, the proposed Hilton would be the largest convention center hotel built in the country without municipal funding, Pickett said.

The primary delay in getting the project off the ground, he said, was that potential financiers would not consider it before the site’s environmental cleanup was finished.

“With that complete, we hit the market (seeking financing) at the beginning of this year,” Pickett said.

In addition to spending $26 million to build the parking garage, the Port District spent $35 million for a bay-side environmental cleanup. The entire site for the project, including the parking garage, is 12 acres, of which the 32-story hotel would occupy 2.5 acres.

The agency has also agreed to give Hilton and its partner a rent credit amounting to $46.5 million, which can be applied during the first 11 years of the hotel’s operation. Thereafter, the port agency expects to receive about $6 million in rent annually. The hotel’s lease would extend for 66 years, Weymann said.

Fred Sainz, the vice president of public affairs for the Convention Center, said he welcomes the news of the pending deal.

“Of course it won’t be a done deal until the shovel hits the ground, but we are wildly optimistic that everything seems to be proceeding as it should,” Sainz said.


More Business

He declined to speculate on the amount of additional business that the Convention Center could bring in once the hotel is up and operating.

“We merely know that we turn away approximately 10 large association conventions a year because that hotel is not there,” he said.

Also on the plus side, hospitality sources say, is the fact that the planned Hilton has signed a labor union neutrality agreement, which essentially means that trade unions would be free to solicit membership among its staff. They contend that will put San Diego on a more competitive footing with San Francisco, which has several large unionized hotels and tends to snag a lot of labor union conventions.

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