Jump-starting Baltimore's convention hopes
BET founder and financier Robert Johnson discusses his plans for a downtown convention center hotel and the possibility of a second baseball team in the Baltimore-Washington region
Nearly two weeks ago, he and Quadrangle Development Corp., a Washington firm headed by Robert M. Gladstone, submitted a proposal to develop a 24-story, 750-room Hilton hotel on a city-owned parking lot near the Baltimore Convention Center.
The site -- bordered by Pratt, Paca and Camden streets, with Eutaw Street dividing the property -- also would contain a 200,000-square-foot headquarters for Catholic Relief Services, the international outreach agency of the U.S. Catholic Church that relocated from New York in 1989.
Two years ago, Peter G. Angelos -- the lawyer, developer and principal owner of the Baltimore Orioles -- forfeited exclusive rights to build a $150 million Grand Hyatt hotel on the site.
Johnson, who built BET from a $15,000 loan he obtained in 1979, sold it two years ago to Viacom Inc. for $2.9 billion. He established his hotel-development firm, RLJ Development LLC, in 2001.
A board member of Hilton Hotels Corp. and US Airways Inc., Johnson also is working to bring a major-league baseball team to the Washington area, despite opposition from Angelos. He also sought to establish an airline, DC Air, should US Airways be allowed to merge with United Airlines Inc.
Johnson discussed the proposed hotel project, Baltimore, BET and baseball.
Why develop a major hotel in Baltimore?
The city is growing, and it has a mayor who is very progressive in his support of economic development and minority entrepreneurship. There were a number of potential development deals that the city was looking to put into place, and we thought there might be an opportunity for us.
Why this kind of a development, since youre already there with the Courtyard Marriott?
The Courtyard Marriott is a fine hotel -- doing extremely well -- but a convention center hotel adds a major dimension to our company.
This would give us, for the first time, ownership of a major convention hotel, and it would bring us into the development of a 250,000-square-foot office building that would be for Catholic Relief Services.
This project would make the point that our company, RLJ Development, could become a major developer in other urban cities around the country that are looking for a strong minority development company to partner up with.
This was a good opportunity to significantly expand the range of our company, and to do so in a way that would become a model for future business opportunites around the country.
The site has been the focus of so many proposals over the years. What makes you think that this one is going to work?
Timing is everything. That site is one of the best downtown development sites that I've seen in any city in the country. This is the right time.
But you've got a confluence of events that, when you put them all together, is giving this opportunity the right kind of prominence: You have a mayor thats committed to development, and to minority ownership. You have a business development council that is headed by Jay Brodie, whos very energetic about promoting the city. You have our company and Quadrangle, who are already involved in Baltimore.
Im confident that this is the best time, with the right site and the right group of partners -- both public and private -- to make this happen.
If the proposal is accepted, the city must decide whether to give Catholic Relief Services its site at no cost. Could it get such prime space for free?
I dont think its going to be free for anybody. The city owns the site, and they obviously see it as an economic-development project.
Theres a way the city will generate revenue from the site. When youve got a parking lot on the ground, and you simply push it underground, you havent lost the value of the asset as a parking space, but by leasing the air rights to build on top of it, youve simply maximized the value of the property and created its highest and best use.
The highest and best use for that site is certainly not to park cars. It is to create jobs, to create economic development, to bring new businesses into the city, to add to the ability of the convention center to attract more and larger conventions.
A number of cities -- Philadelphia, Houston, St. Louis -- first opened convention centers without large hotels nearby. That's changed. What opportunities do you see for RLJ Development as a result?
It shows us that convention centers are great at attracting customers, but a convention center without a headquarters hotel suffers. That's what theyre trying to rectify in Baltimore; thats what theyre trying to rectify in Washington, D.C.
Its a smart thing to do. That's why this is exciting. We get to make this happen, and the extent to which it happens in Baltimore, there will be other cities that will be looking to us to get involved in development projects.
Peter Angelos had an option to build a hotel on this site, but chose not to exercise it. Do you find it a bit of a paradox that you've proposed a Hilton for this property?
No. Not at all. Peter had his own decision-making process and, for whatever reason, he decided that since he could not put the deal together, he decided to walk away from it.
We look at it now as an opportunity for us, and well pursue it, and we expect to be successful.
How are you going to pay for this hotel?
Obviously, both Quadrangle and I are financially capable of putting up the dollars from the private sector, and we expect the state and the city to put up the money from the public sector to make this deal happen.
So youre envisioning this definitvely as a public-private partnership?
Thats probably the only way these hotels can be developed. This is not unusual. It's being done in Washington; its being done in other cities. Thats the model.
All parities in this process feel that this is a very worthwhile investment, and one that we feel will give a return on investment that all of us are looking for.
What financing options does the city have for this project?
The city wouldnt be looking for venture-capital money. The city would either go in with some form of bond financing and/or some form of additional taxation to generate revenue.
And, of course, there will be some revenues flowing off the property that the city would have access to -- for example, if the city owned the parking lot, they would get the parking revenue.
When you look at the mix of revenue options the city has, it shouldnt be that difficult to do. This project will have a significant return on investment that will make putting together a financial package worthwhile. It wont be easy, but I dont think it is insurmountable.
Will Baltimore residents benefit the most from the jobs to be created by this project?
Were going to create a lot of jobs. In the construction phase, 800 jobs, and in the ongoing hotel operation, up to 450 jobs. And these are jobs that, in many cases, will be held by people who are having some difficulty in finding employment in Baltimore -- people who may not be able to get jobs in some of the more high-tech, information-based projects that are developing in Baltimore.
We value the employees who do the house-cleaning, the housekeeping, the serving and all the things that make a hotel work. These are the jobs that, in many cases, arent being developed in the city.
How would the ownership in the hotel break down?
We dont go into a project unless were the majority owner. It would be 50.1 percent RLJ, 49.9 percent Quadrangle. We would always have the majority of the shares.
This project is being hailed as a symbol of minority ownership. Do you like being singled out like that?
I have no problem with it. Thats what we are. We are an African-American-owned company, and we do not only have an obligation, its who we are. We expect to more than exceed the requirements for minority participation in subcontracting and ownership.
We also expect to explore ways in which minorites could invest in the project and be co-owners at some level. That's the easiest challenge for us.
Where would co-owners come in?
They would come in on the ground floor. We could sell shares to buy into it -- and we could set the increments as small as $50,000 or $100,000. There may be people in Baltimore who may be able to write bigger checks, so you could see increments of $500,000.
Were totally open to the concept. Its just a question of seeing how we could do it. We have to make the opportunity fit the markets economic realities.
A cynic might say, "While it's good to have an African-American developer on the project, that doesn't necessarily guarantee minority participation across the board." How would you respond to that?
You'd have to wait and see. My whole history is creating opportunities for minorities to own and build wealth. I did it here at BET. Ive done it with every deal Ive put money in. I would say to those people who are skeptical to wait and see and then make a judgment.
Is it incumbent upon the minority business people here in Baltimore to make themselves known to you if they'd like to be considered for the project?
At the end of the day, were going to offer a fair opportunity. Were not going to give away anything. Were not going to have someone in the deal just because of the color of their skin. Theyve got to bring something to the table. If its for a contract, theyve got to bring skill, capability and history of performance; if its an investment, they have to bring cash. But the opportunities are certainly going to be there.
Its been two years since you sold BET to Viacom. Do you miss owning it?
No. I signed a five-year contract to continue working at BET. Ive got three years left.
It was the right time to sell the company. We got a huge value for our shareholders, in Viacom stock. A lot of the employees at BET are millionaires on paper because of their involvement with Viacom, so it was a tremendous deal for everybody involved.
We have a great opportunity to continue growing BET and, that way, growing Viacom stock, which benefits all of the employees at BET who had stock in BET -- and now have stock in Viacom.
The U.S. Justice Department blocked the proposed merger of US Airways Inc. and United Airlines Inc. Now, the company is in bankruptcy. Whats going to become of US Airways?
We hope to emerge from bankruptcy a stronger company -- stronger in the way we execute our flying strategy, stronger in the way we provide the right mix of smaller jets on our routes, stronger in the changes in the relationships with our unions. They had to recognize that we had to lower our costs to be competitive in the industry today. Im hopeful that US Airways will emerge a stronger company.
Your plan to create DC Air did not materialize. Was the time just not right?
The Justice Department mistakenly decided that the acquisition of US Airways by United was anticompetitive and, therefore, the spinoff of DC Air was not acceptable.
It was a Justice Department decision, and, in light of whats happening to US Airways and potentially United, it was a bad decision.
Now, the public, in the form of loans to both companies, have taken up the slack. Where we had a market solution, the acquisition, it is being replaced by a public solution. The Justice Department made a bad call.
Do you expect to see Major League Baseball in Northern Virginia or Washington?
Im interested in baseball in the region. If the best opportunity for a stadium is in Northern Virginia, Ill operate a team in Northern Virginia. If the best place is D.C., Ill operate it in D.C.
I consider it one region. Theres no significant advantage for baseball to be in one locale or the other. Its a question of economics: Where you can best build a stadium and create the best opportunity for revenues to come from that stadium?
Mr. Angelos says that another major baseball team in the area would sap revenues from the Orioles, making them unable to compete with other teams in their division. Do you agree?
I dont think thats a compelling argument. You have baseball in San Francisco and Oakland; theyre separated by a bridge. You have basketball in New Jersey and New York. You have the Mets and the Yankees. You have the Ravens in Baltimore and the Redskins in D.C.
That argument doesnt carry the day. He doesnt have the authority to block it. Ive talked to people in baseball; they dont think [Angelos' opposition] is going to control whether Washington gets a team.