Proposed Business Plan

A series of public documents have been executed which are guiding the construction of the Lancaster County Convention Center and the Marriott Lancaster at Penn Square.  The plan is the result of a complex and cooperative effort among government and community leaders and public and private partners.  It enables the economic benefits of this project – including new jobs, new financial strength, and new opportunity for the local community – to be realized fully.

Project Financing (Total Cost: $170 million, including financing costs)

The business model shares the expense of this $170 million project among many partners.  Funding will be contributed by the Lancaster County Convention Center Authority (40 percent), Penn Square Partners (21 percent), and the Commonwealth of Pennsylvania (31 percent).  The City of Lancaster is contributing $750 thousand in in-kind services, such as waving permit fees and improving street lighting and vehicle access.  As a result of these individual contributions, significant economic benefits will be realized for all residents of Lancaster County.

The Lancaster County Convention Center Authority brings more than $82 million to the table:
 

       Hotel Room Tax Funding.  The Convention Center Authority receives a portion of the revenue generated from the hotel room tax paid by visitors to Lancaster County.  This tax is projected to raise nearly $5.8 million for the project during the construction period.
 

       Hotel Tax Revenue Bonds.  In 2007, the Convention Center Authority remarketed the series 2003 bonds and issued a new 2007 bond in the aggregate amount of $63.9 million.
 

       Other Sources.  The Convention Center Authority will contribute approximately $11 million in cash and $1.8 million in interest earnings.

Penn Square Partners brings $35 million into the project.  Penn Square Partners includes general partner Penn Square General Corporation, an affiliate of The High Companies, and limited partner Penn Square Ltd. LLC, an affiliate of Lancaster Newspapers, Inc.

       Equity.  Penn Square Partners will provide $11 million in private-sector equity.
 

       Lease Payments.  Through a 20-year lease with the Redevelopment Authority of the City of Lancaster (RACL), Penn Square Partners will cover the debt service of $24 million of Hotel Lease Revenue Bonds that will be issued by RACL. 

Local and state governments also are contributing to this project, as they believe it will help the regional economy to prosper.  The Commonwealth of Pennsylvania made a $15 million grant to the Lancaster County Convention Center Authority and a series of grants to RACL totaling $1 million annually for 20 years under the recently inacted IFIP program.  RACL will monitor that commitment by issuing $14.5 million in bonds to Fulton Bank. The state also committed another $13.5 million in grants to the project.  As mentioned previously, the City of Lancaster committed to contribute $750 thousand in in-kind services.

Redevelopment Authority of the City of Lancaster to be Conduit for Act 23 Funding

According to Act 23, only a public entity can receive the sales tax grants.  Penn Square Partners and the Lancaster County Convention Center Authority have secured a commitment to use RACL to be the conduit for the funding. 

RACL has purchased the former Watt & Shand Building from Penn Square Partners and will own the building for the 20-year duration of the Act 23 bonds. 

RACL will issue $24 million in Hotel Lease Revenue Bonds, backed by a 20-year lease with Penn Square Partners.  The lease will require Penn Square Partners to invest $11 million in equity, operate the hotel, and make lease payments to RACL equal to the debt service and any other fees related to the Hotel Lease Revenue Bonds. 

The Hotel Lease Revenue Bonds will be secured by a mortgage on the hotel tower and a lease hold mortgage on the Penn Square Partners' hotel lease.

Importantly, RACL will hold title to the bricks and mortar hotel tower for the 20-year duration of the Act 23 Bonds.  Penn Square Partners will own the hotel business, remaining responsible for any owner-approved cost overruns, operating losses or gains, and debt service on the Hotel Lease Revenue Bonds.

RACL, Penn Square Partners, and the Convention Center Authority will create a condominium association.  In a condominium association, units of property – such as apartments or offices in a business property – are owned by an individual or an organization.  The common parts of the property – such as the grounds and building structure – are owned jointly by the unit owners.   For the Lancaster facility:
 

       The Convention Center Authority will own a fee interest in the portion of the facility that contains the exhibit hall, meeting rooms, the ballrooms, and kitchen.  A fee interest is equivalent to full ownership.
 

       Penn Square Partners will have a leasehold interest in the portion of the facility that contains the hotel unit.  A leasehold interest provides the right of possession, but not ownership, of a property for an agreed period of time.
 

       Penn Square Partners and the Convention Center Authority will have the right to use common areas, including the lobby, employee facilities, and other mechanical and electrical support facilities.
 

After purchasing the building, RACL would be able to issue the $14.5 million in Act 23 bonds.  The City of Lancaster would be required to guarantee the $1 million annual debt service payment associated with the Act 23 bonds.  With this guarantee, the city would be responsible for any shortfall between the annual Act 23 grants and the $1 million annual bond payment.

Project Funding Summary

Ensuring Benefits, Mitigating Risks for the Community

The Lancaster County Convention Center and the Marriott Lancaster at Penn Square project is expected to revitalize and strengthen existing Lancaster County businesses and bring new businesses to this region that are eager to capture a portion of the financial benefits that will be generated.  As these businesses grow and prosper, so will Lancaster City and County as a result of increased tax revenue from these profitable new businesses.

In addition, the project’s business plan includes several provisions that will offer significant financial benefits to the community, while protecting taxpayers from financial risks associated with the project.

With the ownership of the building transferring to RACL, the building would no longer be subject to local property tax.

Penn Square Partners also would make a $200,000 annual Payment in Lieu of Taxes (PILOT) to RACL.  The annual payment would provide the city with a cushion in the event that state grants do not cover the debt service on the Act 23 bonds.  Historically, during Penn Square Partners' ownership of the building the city receives approximately $12,000 of annual property tax from the dormant Watt & Shand Building.

Additionally, when the Marriott Lancaster at Penn Square provides a return-on-equity in excess of 12 percent, Penn Square Partners would share 30 percent of the excess return with RACL.  By 2010, the hotel is expected to generate a cash flow that would produce more than $210,000 annual excess payment to RACL.  These excess payments are projected to increase in future years.