Crappy Bond Market Could Make Convention Center Hotel Referendum Relevant
While the city council continues to face delays regarding the selection of an operator for the convention center hotel, the holdup is unlikely to have any effect on Mayor Tom Leppert and the council's plans to begin construction on the project in April. However, the current status of the financial bond market poses a real threat to that strategy, which Leppert orchestrated to render the May 9 referendum on the project irrelevant.
"The bond market, where it is with regards to municipalities and states in this financial situation we find ourselves in, is probably as much as an issue as anything else that's going to dictate time constraints," Assistant City Manager A.C. Gonzalez tells Unfair Park. "It's gonna take some time before the market corrects and provides the kind of financial marketplace that we're gonna be able to be successful in."
Gonzalez describes the current bond market for public debt as "a rare, if not unprecedented situation" and says interest rates are higher than the 5.5 percent rate that the $525 million bond issuance is based on for the hotel project. He refused to go into specifics because the current rate depends on the structure of the debt, which is something the city is not prepared to discuss at this time.
So with a referendum on the horizon and a market unwilling to provide anything close to a reasonable interest rate, which priority will win out?
"We are really having to take both of those into consideration, but we have a financial limitation that we have set for ourselves that will take precedence."
While Gonzalez is unwilling to talk specifics regarding the financial information, a source close to the negotiations tells us that for every half percent above the target interest rate, tack on $30 million to the project.
So, while the city waits for the market to make a major turnaround, the clock is ticking. A vote by the council on the bond issuance would have to take place approximately one month before construction, which means the council would need to approve a bond issuance at the March 4 council briefing in order to begin construction as planned on April 1.
Of course, construction could be delayed and begin shortly before the vote, making the April 1 council briefing a likely candidate as the last possible chance for the council to approve a bond issuance in time to get the dirt flying before the vote.
As for the never-ending delays facing the selection of Omni as the hotel's operator, Gonzalez says it's simply a matter of dealing with legal issues. "It's a complex agreement, and we just can't move forward until we have all the details put to bed. We're continuing to make progress on making an agreement. It's just not all done."
Even if the city was operating the hotel itself, Gonzalez says there would be discussions about clauses and arrangements within the agreement among the tax attorneys, bond counsel, underwriters, financial advisers and other interested parties. He says he's reticent about giving a date regarding an expected approval by the council, but stresses that the time taken to hammer out the specifics is normal.
"This can not at any stretch be characterized as a long, drawn out process," Gonzalez says. "We are moving with judicial but deliberate speed."
As for Marriott continuing its effort to convince the council to change its mind, Gonzalez says it's evidence that the hotel project is one that is viewed favorably, but it has nothing to do with the delay. He says both Omni and Marriott offered subsidies to the project as part of the proposals but declined to say how much.
Finally, speaking of Marriott, I want to make a correction regarding the post I made about Bill Marriott's last-ditch effort to land the operator contract. I wrote: "Taxpayers still don't know precisely why the city chose to go with Irving-based Omni, which was chosen by the council's Economic Development Committee in a closed-door meeting."
Although many decisions regarding the hotel have been made in executive session, this was not one of them. The public briefing and decision by the Economic Development Committee was November 20, and Omni was chosen, as Gonzalez sums up best, because it offered the best "financial and qualitative contractual components."
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